The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report. In addition to historical information, the following discussion contains forward-looking statements, such as statements regarding the Company's expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from the Company's expectations. The Company's actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in "Cautionary Statement Concerning Forward-Looking Statements and Risk Factors Summary" and in Item 1A "Risk Factors" of this Annual Report on Form 10-K. The Company assumes no obligation to update any of these forward-looking statements Business Overview The Company is a
Delawarecorporation headquartered in Denver, Colorado. The audited consolidated financial statements included herein include the accounts of Concrete Pumping Holdings, Inc.and its wholly owned subsidiaries including Brundage-Bone Concrete Pumping, Inc.("Brundage-Bone"), Capital Pumping, LP("Capital"), and Camfaud Group Limited("Camfaud"), and Eco-Pan, Inc.("Eco-Pan"). As part of the Company's business growth strategy and capital allocation policy, strategic acquisitions are considered opportunities to enhance our value proposition through differentiation and competitiveness. Depending on the deal size and characteristics of the M&A opportunities available, we expect to allocate capital for opportunistic M&A utilizing cash on the balance sheet and the revolving line of credit. In recent years and as further described below, we have successfully executed on this strategy, including (1) our September 2021acquisition of Hi-Tech Concrete Pumping Services ("Hi-Tech") for the purchase consideration of $12.3 million, which added complementary assets in our Texasmarket, (2) our November 2021acquisition of Pioneer Concrete Pumping Service, Inc.("Pioneer") for the purchase consideration of $20.2 million, which provided us with complementary assets and operations in both Georgiaand Texasand (3) our acquisition of Coastal Carolina Concrete Pumping, Inc.("Coastal") in August 2022for the purchase consideration of $30.8 million, which expanded our operations in the Carolinas and Florida. U.S. Concrete PumpingAll branches operating within our U.SConcrete Pumping segment are concrete pumping service providers in the United States("U.S."). Their core business is the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Equipment generally returns to a "home base" nightly and these branches do not contract to purchase, mix, or deliver concrete. This segment collectively has approximately 100 branch locations across 20 states with their corporate headquarters in Denver, Colorado. In recent years, U.S. Concrete Pumpinghas grown through the acquisitions of Coastal in August 2022, Pioneer in November 2021and Hi-Tech in September 2021, as described above, and the Company completed its greenfield expansion into Las Vegasduring fiscal 2021 and Metro Washington DC in fiscal 2022.
U.S.Concrete Waste Management Servicessegment consists of our U.S.based Eco-Pan business. 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. 23
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U.K.Operations Our U.K.Operations segment consists of our Camfaud, Premier and U.K.based Eco-Pan businesses. Camfaudis a concrete pumping service provider in the U.K.Their core business is primarily the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Equipment generally returns to a "home base" nightly and does not contract to purchase, mix, or deliver concrete. Camfaudhas approximately 30 branch locations throughout the U.K., with its corporate headquarters in Epping (near London), England. In addition, we have concrete waste management operations under our Eco-Pan brand name in the U.K.and currently operate from a shared Camfaudlocation. Corporate
Our Corporate segment is primarily related to the intercompany leasing of real
estate to certain of our
Impacts of Macroeconomic Factors and COVID-19 Recovery
Global economic challenges including the impact of the COVID-19 pandemic and the war in
Ukrainehave contributed to rising inflation, significant increases in fuel costs, supply-chain disruptions, and adverse labor market conditions. For example, the war in Ukrainehas had a global impact on the supply and price of fuel and has contributed to increased inflation around the world. While the Company has increased the rates per hour we charge for our services when possible to make up for our increased costs, rising fuel prices had a material impact on our results of operations for the twelve months ended October 31, 2022. The impact from fuel price increases has reduced our gross profit by approximately $10.1 millionand our gross margin by approximately 2.5% since October 31, 2021. In regard to the impacts from COVID-19, the Company's revenue volumes during fiscal 2022 have largely recovered in most of our markets; however, the lingering impact from COVID-19 remains an issue and has contributed to a tight labor market that has impacted our operations in certain markets. We will continue to monitor and adapt our strategic approach as these issues persist. Looking into our next fiscal year 2023, we believe that residential end market volumes may fluctuate depending on the geographical region as a result of the macroeconomic factors, while commercial and infrastructure end markets may continue to have strong demand. With respect to our financial condition, impairments may be recorded as a result of such adverse challenges. As previously reported during fiscal 2020, the Company reported goodwill and intangible impairment charges as a result of the COVID-19 pandemic, but no impairments were identified through October 31, 2022. The Company will continue to evaluate its goodwill and intangible assets in future quarters.
Restatement and Revision of Prior Period Financial Statements
The Company restated its unaudited consolidated financial statements for the three and nine months ended
July 31, 2022to correct the understatement of accrued payroll which resulted in a decrease in income (loss) before income taxes of $2.0 millionfor the three and nine months ended July 31, 2022, as described in the Explanatory Note to our Quarterly Report on Form 10-Q/A for the period ended July 31, 2022, filed with the SECon December 13, 2022. The consolidated financial statements for the year ended October 31, 2022included in this Annual Report on Form 10-K reflect the impacts of such revisions.
Notes Offering and Upsize of Asset-Based Lending Credit Agreement
January 2021, Brundage-Bone, closed its private offering of $375.0 millionin aggregate principal amount of senior secured second lien notes due 2026 (the "Senior Notes"). The Senior Notes were issued at par and bear interest at a fixed rate of 6.000% per annum. In addition, we amended and restated our existing ABL credit agreement (the "ABL Facility") to provide up to $125.0 million(previously $60.0 million) of commitments. The offering proceeds from our Senior Notes, along with approximately $15.0 millionof borrowings under the ABL Facility, were used to repay all outstanding indebtedness under our then-existing Term Loan Agreement (as defined below), dated December 6, 2018, and pay related fees and expenses. In July 2022, the ABL Facility was further amended to, among other changes, increase the maximum revolver borrowings available to be drawn thereunder from $125.0 millionto $160.0 millionand increase the letter of credit sublimit from $7.5 millionto $10.5 million. The $35.0 millionin incremental commitments was provided by JPMorgan Chase Bank, N.A. 24
Table of Contents Results of Operations Year Ended October 31, (dollars in thousands) 2022 2021 Revenue
$ 401,292 $ 315,808Cost of operations 237,682 178,081 Gross profit 163,610 137,727 Gross margin 40.8 % 43.6 % General and administrative expenses 113,181 99,369 Transaction costs 318 312 Income from operations 50,111 38,046 Other income (expense): Interest expense, net (25,891 ) (25,190 ) Loss on extinguishment of debt - (15,510 ) Change in fair value of warrant liabilities 9,894 (9,894 ) Other income, net 88 117 Total other expense (15,909 ) (50,477 ) Income (loss) before income taxes 34,202 (12,431 ) Income tax expense 5,526 2,642 Net income (loss) 28,676 (15,073 )
Less accretion of liquidation preference on preferred stock (1,750 ) (1,750 )
Income (loss) available to common shareholders
$ 26,926 $ (16,823 )25
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Twelve Months Ended
For the twelve-months ended
October 31, 2022, our net income was $28.7 million, compared to a net loss of $15.1 millionin the same period a year ago. The primary drivers impacting comparability between the two periods were (1) a $25.9 millionimprovement in gross profit, driven by an $85.5 millionincrease in revenue that was partially offset by a 280 basis point decline in gross margin, (2) $13.8 millionadditional expense in general and administrative ("G&A") expenses, (3) a $15.5 millionloss on extinguishment of debt recorded in fiscal 2021 (with no related charge in fiscal 2022), (4) a $9.9 millionloss from the revaluation of warrant liabilities during fiscal 2021 compared to a $9.9 millionrevaluation gain in fiscal 2022, driving a net $19.8 millionimprovement year-over-year, and (5) $2.9 millionin higher income tax expense in fiscal 2021 when compared to fiscal 2022. Total Assets October 31, October 31, (in thousands) 2022 2021 Total Assets U.S. Concrete Pumping $ 693,048 $ 591,820U.K. Operations 103,255 109,631 U.S. Concrete Waste Management Services 157,370 145,199 Corporate 27,834 26,648 Intersegment (94,018 ) (80,633 ) $ 887,489 $ 792,665
Total assets increased from
growth in our
through capital expenditures while also completing asset acquisitions / business
combinations during the first and fourth quarters of fiscal 2022.
Revenue Year Ended October 31, Change (in thousands) 2022 2021 $ % Revenue U.S. Concrete Pumping
$ 296,506 $ 229,475 $ 67,03129.2 % U.K. Operations 54,926 48,098 6,828 14.2 % U.S. Concrete Waste Management Services 50,191 38,591 11,600 30.1 % Corporate 2,500 2,500 - 0.0 % Intersegment (2,831 ) (2,856 ) 25 -0.9 % Total revenue $ 401,292 $ 315,808 $ 85,48427.1 % 26
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U.S. Concrete PumpingRevenue for our U.S. Concrete Pumpingsegment increased by 29.2%, or $67.0 million, from $229.5 millionin the twelve-months ended October 31, 2021to $296.5 millionfor fiscal 2022. Revenue attributable to our acquisitions of Hi-Tech (full year in fiscal 2022 vs partial year in fiscal 2021), Pioneer and Coastal, was $32.7 millionfor fiscal 2022. The remaining improvement in revenue was attributable to robust organic improvements in most of our other markets as a result of higher volumes and rate per hour increases. U.K.Operations Revenue for our U.K.Operations segment increased by 14.2%, or $6.8 million, from $48.1 millionin the twelve-months ended October 31, 2021to $54.9 millionfor fiscal 2022. Excluding the impact from foreign currency translation, revenue was up 24.7% year-over-year. The increase in revenue was primarily attributable to rate per job increases across the U.K.region, in addition to the continued recovery from COVID-19, which started in the fiscal 2021 first quarter.
Revenue for the
U.S.Concrete Waste Management Servicessegment improved by 30.1%, or $11.6 million, from $38.6 millionin the twelve-months ended October 31, 2021to $50.2 millionfor fiscal 2022. The increase in revenue was primarily due to organic growth, pricing improvements and continued recovery from the impacts of the pandemic. Corporate
There was no change in revenue for our Corporate segment for the periods
presented. Any year-over-year changes for our Corporate segment were primarily
related to the intercompany leasing of real estate to certain of our
Concrete Pumping branches. These revenues are eliminated in consolidation
through the Intersegment line item.
Gross Margin Our industry has experienced significant inflation in our input costs, particularly in labor and fuel in both the
U.S.and the U.K.To help maintain profitability in the face of these challenges, we have increased pricing in line with the rise in our actual costs. However, given the speed of recent input cost increases, there has been a lag between the time of our selling price increases and any resulting revenue. In addition, there is a mathematical dilution effect in margin percentage as we only seek to pass on the actual cost increases to our customers. As a result of these factors, our gross margin for the twelve-months ended October 31, 2022was 40.8% compared to 43.6% in the previous twelve-months ended October 31, 2021.
General and Administrative Expenses
G&A expenses for the twelve-months ended
October 31, 2022were $113.2 million, an increase of $13.8 millionfrom $99.4 millionin the twelve-months ended October 31, 2021. The increase in G&A expenses was primarily due to (1) higher health insurance and labor costs of approximately $11.1 millionprimarily due to additional personnel that joined the Company as a result of recent acquisitions, (2) higher other G&A-related expenses of $8.6 million, which primarily is from higher automotive, travel, office and rent expense due to recent acquisitions and (3) an additional $2.5 millionrelated to fluctuations in the GBP. This was offset slightly by lower amortization of intangible assets expense of $4.6 millionand lower stock-based compensation expense of $1.6 million. G&A expenses as a percent of revenue were 28.2% for fiscal 2022 compared to 31.5% for the same period a year ago. Excluding amortization of intangible assets of $22.5 million, depreciation expense of $2.3 millionand stock-based compensation expense of $5.0 million, G&A expenses were $83.4 millionfor the fiscal year 2022 (20.8% of revenue), up $19.8 millionfrom $63.6 millionfor fiscal 2021 (20.1% of revenue). The increase in G&A expenses was primarily due to (1) higher health insurance and labor costs of approximately $11.1 millionprimarily due to additional personnel that joined the Company as a result of recent acquisitions, (2) higher other G&A-related expenses of $8.6 million, which primarily is from higher automotive, travel, office and rent expense due to recent acquisitions and (3) an additional $2.5 millionrelated to fluctuations in the GBP. 27
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Change in Fair Value of Warrant Liabilities
During the years ended
October 31, 2022and 2021 we recognized a $9.9 milliongain and a $9.9 millionexpense, respectively, on the fair value remeasurement of our liability-classified warrants. The decrease seen in the fair value remeasurement of the public warrants from October 31, 2021to October 31, 2022is due to a decline in the Company's share price year-over-year.
Transaction Costs & Debt Extinguishment Costs
Transaction costs include expenses for legal, accounting, and other professionals that were engaged in connection with an acquisition. Transaction costs in each of the twelve months ended
October 31, 2022and 2021 were $0.3 million. On January 28, 2021, we (1) closed on our private offering of $375.0 millionin aggregate principal amount of senior secured second lien notes due 2026, (2) amended and restated our existing ABL Facility to provide up to $125.0 million(previously $60.0 million) of commitments and (3) repaid all outstanding indebtedness under our then-existing term loan agreement, dated December 6, 2018. The $15.5 millionin debt extinguishment costs incurred relate to the write-off of all unamortized deferred debt issuance costs that were related to the fully paid term loan. Interest Expense, Net
Interest expense, net for the year ended
Income Tax (Benefit) Provision
For the twelve-months ended
provision was mostly impacted by the following factors during fiscal 2022:
(1) of the
$9.9 millionof income that was recorded related to the revaluation of warrant liabilities, no amount was deductible for tax purposes; and
For the twelve-months ended
provision was mostly impacted by the following factors during fiscal 2021:
(1) of the
of warrant liabilities, no amount was deductible for tax purposes; and
(2) As a result of an increase in the corporation tax rate in the
19% to 25% that goes into effect on
the value of its net deferred tax liability, resulting in an increase to
income tax expense of
$2.1 million. 28
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Adjusted EBITDA1 and Net Income (Loss)
Net Income (Loss) Adjusted EBITDA Year Ended October 31, Year Ended October 31, Change (in thousands) 2022 2021 2022 2021 $ % U.S. Concrete Pumping
$ 6,541 $ (10,959 ) $ 77,523 $ 68,091 $ 9,43213.9 % U.K. Operations 2,080 (1,028 ) 15,717 15,339 378 2.5 % U.S.Concrete Waste Management Services 8,898 5,500 22,838 18,411 4,427 24.0 % Corporate 11,157 (8,586 ) 2,499 2,501 (2 ) -0.1 % Total $ 28,676 $ (15,073 ) $ 118,577 $ 104,342 $ 14,23513.6 %
1 Please see “Non-GAAP Measures (EBITDA and Adjusted EBITDA)” below for
reconciliation of Net Income (Loss) to EBITDA to Adjusted EBITDA.
U.S. Concrete PumpingNet income for our U.S. Concrete Pumpingsegment was $6.5 millionfor the twelve-months ended October 31, 2022, up from a net loss of $11.0 millionfor the twelve-months ended October 31, 2021. Adjusted EBITDA for our U.S. Concrete Pumpingsegment was $77.5 millionfor the twelve-months ended October 31, 2022, up 13.9% from $68.1 millionfor the twelve-months ended October 31, 2021. The year-over-year increase was primarily attributable to the year-over-year increase in revenue that was partially offset by higher costs due to inflation that drove a decline in our gross margins as discussed previously. U.K.Operations Net income for our U.K.Operations segment was $2.1 millionfor the twelve-months ended October 31, 2022, up from a net loss of $1.0 millionfor the twelve-months ended October 31, 2021. Adjusted EBITDA for our U.K.Operations segment was $15.7 millionfor the twelve-months ended October 31, 2022, up 2.5% from $15.3 millionfor the twelve-months ended October 31, 2021. The year-over-year increase was primarily attributable to the year-over-year improvement in revenue that was partially offset by inflationary pressures on gross margins.
Net income for our
U.S.Concrete Waste Management Servicessegment was $8.9 millionfor the twelve-months ended October 31, 2022, up from net income of $5.5 millionfor the twelve-months ended October 31, 2021. Adjusted EBITDA for our U.S.Concrete Waste Management Servicessegment was $22.8 millionfor the twelve-months ended October 31, 2022, up 24.0% from $18.4 millionfor the twelve-months ended October 31, 2021. The increase was primarily attributable to the year-over-year change in revenue that was partially offset by inflationary pressures on gross margins. Corporate
There was no change in Adjusted EBITDA for our Corporate segment for the periods
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Liquidity and Capital Resources
Overview Our capital structure is primarily a combination of (1) permanent financing, represented by stockholders' equity; (2) zero-dividend convertible perpetual preferred stock; (3) long-term financing represented by our Senior Notes and (4) short-term financing under our ABL Facility. Our primary sources of liquidity are cash generated from operations, available cash and cash equivalents and access to our revolving credit facility under our ABL Facility, which provides for aggregate borrowings of up to
$160.0 million, subject to a borrowing base limitation. We use our liquidity and capital resources to: (1) finance working capital requirements; (2) service our indebtedness; (3) purchase property, plant and equipment; and (4) finance strategic acquisitions, such as the acquisition of Capital, Pioneer, Coastal and others. As of October 31, 2022, we had $7.5 millionof cash and cash equivalents and $103.7 millionof available borrowing capacity under the ABL Facility, providing total available liquidity of $111.2 million. We may from time to time seek to retire or pay down borrowings on the outstanding balance of our ABL Facility or Senior Notes using cash on hand. Such repayments, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We believe our existing cash and cash equivalent balances, cash flow from operations, and borrowing capacity under our ABL Facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, potential acquisitions and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity could result in dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Material Cash Requirements Our principal sources of liquidity have been from cash provided by operating activities, proceeds from the issuance of debt, and borrowings available under the ABL Facility. Our principal uses of cash historically have been to fund operating activities and working capital, purchases of property and equipment, strategic acquisitions, fund payments due under facility operating and finance leases, share repurchases and to meet debt service requirements. The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. In response to changing economic conditions, we believe we have the flexibility to modify our capital expenditures by adjusting them (either up or down) to match our actual performance. Our capital expenditures for the years ended October 31, 2022and 2021 were approximately $101.9 millionand $62.8 million, respectively. To service our debt, we require a significant amount of cash. Our ability to pay interest and principal on our indebtedness will depend upon our future operating performance and the availability of borrowings under the ABL Facility and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control. Based on our current level of operations and given the current state of the capital markets, we believe our cash flow from operations, available cash and available borrowings under the ABL Facility will be adequate to service our debt and meet our future liquidity needs for the foreseeable future. See "Senior Notes and ABL Facility" discussion below for more information. 30
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Future Contractual Obligations
Our contractual obligations and commercial commitments principally include obligations associated with our outstanding indebtedness, interest payments, lease agreements and capital expenditures. We have no off-balance sheet arrangements. Our estimated future obligations as of
October 31, 2022include both current and long term obligations. We have a long-term obligation of $375.0 millionrelated to our Senior Notes due January 2026(excluding discount for deferred financing costs). Under our operating leases, we have short-term obligations for payments of $5.4 millionand long-term obligations for payments of $25.8 million. We have current obligations related to finance leases of $0.1 millionand a long-term obligation of $0.2 million. We have a current obligation for our ABL Facility of $52.1 million. Additionally, the Company was contractually committed for $17.0 millionof capital expenditures for purchases of property and equipment and these are expected to be paid in the next twelve months.
Senior Notes and ABL Facility
January 28, 2021, Brundage-Bone Concrete Pumping Holdings, Inc., a Delawarecorporation (the "Issuer") and a wholly-owned subsidiary of the Company (i) completed a private offering of $375.0 millionin 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 and the other Lenders party thereto, which provided up to $125.0 millionof 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 existing term loan agreement (see discussion below), dated December 6, 2018, and pay related fees and expenses. Summarized terms of these facilities are included below. 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 millionto $160.0 millionand increase the letter of credit sublimit from $7.5 millionto $10.5 million. The $35.0 millionin incremental commitments was provided by JPMorgan Chase Bank, N.A. 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. Senior Notes
Summarized terms of the Senior Notes are as follows:
? Provides for an original aggregate principal amount of
? The Senior Notes will mature and be due and payable in full on February
? The Senior Notes bear interest at a rate of 6.000% per annum, payable on
February 1stand August 1steach 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;
? 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.
The outstanding principal amount of Senior Notes as of
covenants under the Indenture.
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Summarized terms of the ABL Facility, as amended, are as follows:
? Borrowing availability in
principal amount of
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
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; ? Through September 30, 2021, borrowings in GBP bore interest at an
adjusted LIBOR rate plus an applicable margin of 1.25%. After September
30, 2021, 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
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
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;
security interest in substantially all assets of Camfaud Concrete Pumps
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
Table of Contents Cash Flows Cash generated from operating activities typically reflects net income, as adjusted for non-cash expense items such as depreciation, amortization and stock-based compensation, and changes in our operating assets and liabilities. Generally, we believe our business requires a relatively low level of working capital investment due to low inventory requirements and timely customer payments due to daily billings for most of our services. Net cash provided by operating activities generally reflects the cash effects of transactions and other events used in the determination of net income or loss. Net cash provided by operating activities during the twelve-months ended
October 31, 2022was $76.7 million. The Company had net income of $28.7 millionthat included deferred income tax expense of $5.2 million, a gain on sale of assets of $2.8 millionand significant non-cash charges, net totaling $60.4 millionas follows: (1) depreciation expense of $34.9 million, (2) amortization of intangible assets of $22.5 million, (3) stock-based compensation expense of $5.0 million, (4) operating lease expense of $3.9 million, (5) foreign currency adjustments of $2.1 million, (6) amortization of deferred financing costs of $1.9 millionand (7) a $9.9 milliondecrease in the fair value of warrant liabilities. In addition, we had cash inflows related to an increase of $8.9 millionin accrued payroll, accrued expenses and other current liabilities. This change is primarily due to an increase in accrued insurance, the timing of accrued capital expenditures and other smaller items. These amounts were partially offset by outflows related to the following activity: (1) an increase of $15.3 millionin trade receivables, primarily related to an increase in sales due to higher volumes and rate per hour increases, (2) a decrease of $3.7 millionrelated to the change in operating lease liability due to implementation of ASC 842 and bifurcating out the operating lease payments, less the accreted interest, (3) a decrease of $3.0 millionin accounts payable, primarily due to timing, (4) an increase of $0.9 millionin inventory, (5) an increase of prepaid expenses and other current assets of $0.6 million, and (6) a decrease of $0.3 millionin income taxes payable. We used $124.1 millionto fund investing activities during the twelve-months ended October 31, 2022. The Company used $101.9 millionfor the purchase of property, plant and equipment, $30.8 millionto fund the acquisition of Coastal and $1.5 millionfor the purchase of intangible assets. These amounts were partially offset by $10.0 millionin proceeds from the sale of property, plant and equipment. Net cash provided by financing activities was $46.0 millionfor the twelve-months ended October 31, 2022. Financing activities during this period included $50.4 millionin net proceeds under the Company's ABL Facility, and $4.1 millionin purchase of treasury stock, which included $2.7 millionpurchased under the June 2022share repurchase program and $1.4 millionthat were purchased directly from employee's when their stock awards vested in order to cover their tax liability. Net cash provided by operating activities during the twelve-months ended October 31, 2021was $75.8 million. The Company had a net loss of $15.1 millionthat included a decrease of $2.5 millionin our net deferred income taxes, a gain on sale of assets of $1.2 millionand significant non-cash charges, net totaling $90.2 millionas follows: (1) depreciation of $28.8 million, (2) amortization of intangible assets of $27.1 million, (3) amortization of deferred financing costs of $2.3 million(4) loss on extinguishment of debt expense of $15.5 million, (5) stock-based compensation expense of $6.6 million, and (6) a $9.9 millionincrease in the fair value of warrant liabilities. In addition, we had cash inflows related to the following activity: (1) an increase of $4.0 millionin accounts payable, primarily due to timing of payments, (2) an increase of $1.0 millionin accrued payroll, accrued expenses and other current liabilities and (3) an increase of $0.5 millionin income taxes payable. These amounts were partially offset by outflows related to the following activity: (1) an increase of $4.2 millionin trade receivables, primarily due to the timing of billings, and (2) an increase of prepaid expenses and other current assets of $1.8 million. We used $56.6 millionto fund investing activities during the twelve-months ended October 31, 2021. The Company used $62.8 millionfor the purchase of property, plant and equipment and $0.8 millionfor the purchase of intangible assets. These amounts were partially offset by $7.0 millionin proceeds from the sale of property, plant and equipment. Net cash used in financing activities was $16.0 millionfor the twelve-months ended October 31, 2021. Financing activities during this period included $0.9 millionin net payments under the Company's ABL Facility, $375.0 millionin proceeds from the issuance of Senior Notes, $381.2 millionin payments made to extinguish the Company's Term Loan Agreement and $8.5 millionin the payment of debt issuance costs. 33
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Non-GAAP Measures (EBITDA and Adjusted EBITDA)
We calculate EBITDA by taking GAAP net income and adding back interest expense, income taxes, depreciation and amortization. Adjusted EBITDA is calculated by taking EBITDA and adding back transaction expenses, loss on debt extinguishment, stock-based compensation, other income, net, goodwill and intangibles impairment and other adjustments. We believe these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends related to our financial condition and results of operations, and as a tool for investors to use in evaluating our ongoing operating results and trends and in comparing our financial measures with competitors who also present similar non-GAAP financial measures. In addition, these measures (1) are used in quarterly and annual financial reports prepared for management and our board of directors and (2) help management to determine incentive compensation. EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated under GAAP. These non-GAAP measures exclude certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently or may not calculate it at all, which limits the usefulness of EBITDA and Adjusted EBITDA as comparative measures. Transaction expenses represent expenses for legal, accounting, and other professionals that were engaged in the completion of various acquisitions. Transaction expenses can be volatile as they are primarily driven by the size of a specific acquisition. As such, we exclude these amounts from Adjusted EBITDA for comparability across periods. Other adjustments include reversal of intercompany allocations (in consolidation these net to zero), severance expenses, director fees, foreign currency gains or losses, expenses related to being a publicly-traded company and other non-recurring costs. Year Ended October 31, (in thousands) 2022 2021 Consolidated Net income (loss)
$ 28,676 $ (15,073 )Interest expense, net 25,891 25,190 Income tax expense 5,526 2,642 Depreciation and amortization 57,462 55,906 EBITDA 117,555 68,665 Transaction expenses 318 312 Loss on debt extinguishment - 15,510 Stock-based compensation 5,034 6,591 Change in fair value of warrant liabilities (9,894 ) 9,894 Other income, net (88 ) (117 ) Other adjustments1 5,652 3,487 Adjusted EBITDA $ 118,577 $ 104,342Year Ended October 31, (in thousands) 2022 2021 U.S. Concrete PumpingNet income (loss) $ 6,541 $ (10,959 )Interest expense, net 22,968 22,031 Income tax expense (benefit) 2,465 (956 ) Depreciation and amortization 40,304 37,381 EBITDA 72,278 47,497 Transaction expenses 318 312 Loss on debt extinguishment - 15,510 Stock-based compensation 5,034 6,591 Other income, net (49 ) (42 ) Other adjustments1 (58 ) (1,777 ) Adjusted EBITDA $ 77,523 $ 68,0911 Other adjustments includes the adjustment for warrant liabilities revaluation, restructuring costs, director costs, public company expense, extraordinary expenses and gain/loss on currency transactions. Starting in the first quarter of fiscal 2023, we will modify the method in which adjusted EBITDA is calculated by no longer including an add-back for director costs (which were $2.0 millionin 2022 and $2.4 millionin 2021) or expenses related to being a publicly-traded company (which were $0.5 millionin both 2022 and 2021). 34
Table of Contents Year Ended October 31, (in thousands) 2022 2021
U.K.Operations Net income (loss) $ 2,080 $ (1,028 )Interest expense, net 2,923 3,159 Income tax expense (benefit) (130 ) 1,759 Depreciation and amortization 7,709 8,238 EBITDA 12,582 12,128 Transaction expenses - - Stock-based compensation - - Other income, net (15 ) (53 ) Other adjustments 3,150 3,264 Adjusted EBITDA $ 15,717 $ 15,339Year Ended October 31, (in thousands) 2022 2021 U.S.Concrete Waste Management ServicesNet income $ 8,898 $ 5,500Interest expense, net - - Income tax expense 2,803 1,486 Depreciation and amortization 8,601 9,447 EBITDA 20,302 16,433 Transaction expenses - - Stock-based compensation - - Other income, net (24 ) (22 ) Other adjustments 2,560 2,000 Adjusted EBITDA $ 22,838 $ 18,411Year Ended October 31, (in thousands) 2022 2021 Corporate Net income (loss) $ 11,157 $ (8,586 )Interest expense, net - - Income tax expense 388 353 Depreciation and amortization 848 840 EBITDA 12,393 (7,393 ) Transaction expenses - - Stock-based compensation - - Change in fair value of warrant liabilities (9,894 ) 9,894 Other income, net - - Other adjustments - - Adjusted EBITDA $ 2,499 $ 2,50135
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Critical Accounting Policies and Estimates
In presenting our financial statements in conformity with
U.S.GAAP, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material impact to our consolidated and combined results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our business activities are in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
Listed below are those estimates that we believe are critical and require the
use of complex judgment in their application.
In accordance with Accounting Standards Codification ("ASC") Topic 350, Intangibles-Goodwill and Other ("ASC 350"), the Company evaluates goodwill for possible impairment annually, generally as of
August 31st, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step (generally referred to as a "step 0" analysis) is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step (generally referred to as a "step 1" analysis) where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating fair value of individual reporting units and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions including those relating to the duration and severity of COVID-19. These assumptions and estimates include projected revenue, cash flow margins, capital expenditures, trade name royalty rates, discount rate, tax amortization benefit and other market factors outside of our control. The Company elects to perform a qualitative assessment for the other quarterly reporting periods throughout the fiscal year. When we perform any goodwill impairment test, the estimated fair value of our reporting units are determined using an income approach that utilizes a discounted cash flow ("DCF") model and a market approach that utilizes the guideline public company method ("GPC"), both of which are weighted for each reporting unit and are discussed below in further detail. In accordance with ASC Topic 820, Fair Value Measurement ("ASC 820"), we evaluated the methods for reasonableness and reliability and assigned weightings accordingly. A mathematical weighting is not prescribed by ASC 820, rather it requires judgement. As such, each of the valuation methods were weighted by accounting for the relative merits of each method and considered, among other things, the reliability of the valuation methods and the inputs used in the methods. In addition, in order to assess the reasonableness of the fair value of our reporting units as calculated under both approaches, we also compare the Company's total fair value to its market capitalization and calculate an implied control premium (the excess sum of the reporting unit's fair value over its market capitalization). We evaluate the implied control premium by comparing it to control premiums of recent comparable market transactions, as applicable. 36
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Under the income approach, the DCF model is based on expected future after-tax operating cash flows of the reporting unit, discounted to a present value using a risk-adjusted discount rate. Estimates of future cash flows require management to make significant assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amount and timing of cash flows and the probability of achieving the estimated cash flows, (ii) the probability of regulatory approvals, and (iii) future economic conditions, including the extent and duration of the COVID-19 pandemic, all of which may differ from actual future cash flows. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rate, which is intended to reflect the risks inherent in future cash flow projections, used in the DCF model, is based on estimates of the weighted average cost of capital ("WACC") of market participants relative to our reporting unit. Financial and credit market volatility can directly impact certain inputs and assumptions used to develop the WACC. Any changes in these assumptions may affect our fair value estimate and the result of an impairment test. The discount rates and other inputs and assumptions are consistent with those that a market participant would use. The GPC method provides an estimate of value using multiples derived from the stock prices of publicly traded companies. This method requires a selection of comparable publicly-traded companies on major exchanges and involves a certain degree of judgment, as no two companies are entirely alike. These companies should be engaged in the same or a similar line of business as the reporting units be evaluated. Once comparable companies are selected, the application of the GPC method includes (i) analysis of the guideline public companies' financial and operating performance, growth, intangible asset's value, size, leverage, and risk relative to the respective reporting unit, (ii) calculation of valuation multiples for the selected guideline companies, and (iii) application of the valuation multiples to each reporting unit's selected operating metrics to arrive at an indication of value. Market multiples for the selected guideline public companies are developed by dividing the business enterprise value of each guideline public company by a measure of its financial performance (e.g., earnings). The business enterprise value is calculated taking the market value of equity (share price times fully-diluted shares outstanding) plus total interest bearing debt net of cash, preferred stock and minority interest. The market value of equity is based upon the stock price of equity as of the valuation date, and the debt figures are taken from the most recently available financial statements as of the valuation date. In selecting appropriate multiples to apply to each reporting unit, we perform a comparative analysis between the reporting units and the guideline public companies. In making a selection, we consider the revenue growth, profitability and the size of the reporting unit compared to the guideline public companies, and the overall EBITDA multiples implied from the transaction price. In addition, we consider a control premium for purposes of estimating the fair value of our reporting units as we believe that a market participant buyer would be required to pay a premium for control of our business. The control premium utilized is based on control premiums observed in recent comparable market transactions. The Company elected to have a step one impairment analysis performed as of
August 31, 2022on the Company's U.S. Concrete Pumping, U.S.Concrete Waste Management Services, and U.K.Operations reporting units. Management's projections used to estimate the undiscounted cash flows included modest annual increases to revenue volumes and rates, cash flow margins that are consistent with recently achieved actual amounts, terminal growth rates of 3.0% and discount rates ranging from 10.0% to 11.3%.
As a result of the goodwill impairment analysis, the fair values of its
substantially exceeded their carrying values by 82% and 32%, respectively.
U.S. Concrete Pumpingreporting unit, which had goodwill of $147.5 million, the fair value was approximately 7% greater than its carrying value. Changes in any of the significant assumptions used could materially affect the expected cash flows and such impacts could result in a potentially material non-cash impairment charge. The most sensitive assumption is the discount rate and a 50 basis point increase in the discount rate would not have resulted in any of the reporting units' carrying values exceeding their fair values. 37
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Business combinations and asset acquisitions
The Company applies the principles provided in ASC 805, Business Combinations
(“ASC 805”), to determine whether a transaction involves an asset or a business.
If it is determined an acquisition is a business combination, tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized to the extent the fair value of the consideration transferred exceeds the fair value of the net assets acquired. Transaction costs for business combinations are expensed as incurred in accordance with ASC 805. If it is determined an acquisition is an asset acquisition, the purchase consideration (which will include certain transaction costs) is allocated first to indefinite lived intangible assets (if applicable) based on their fair values with the remaining balance of purchase consideration being allocated to the acquired assets and liabilities based on their relative fair values. The application of acquisition accounting requires the Company to make fair value determinations as of the valuation date. In making these determinations, the Company is required to make estimates and assumptions that affect the recorded amounts, including, but not limited to, expected future cash flows, market comparable and discount rates, replacement costs of property and equipment and the amounts to be recovered in future periods from acquired deferred tax assets. To assist the Company in making these fair value determinations, the Company may engage third-party valuation specialists or internal specialists who generally assist the Company in the fair value determination of identifiable assets such as customer relationships, property and equipment and any other significant asset or liabilities. The Company's estimates in this area impact, among other items, the amount of depreciation and amortization and income tax expense or benefit that we report. The Company's estimates of fair value are based upon assumptions that the Company believes to be reasonable, but which are inherently uncertain.
Recently Issued Accounting Standards
For a detailed description of recently adopted and new accounting pronouncements refer to Note 3 to the Company's audited financial statements included elsewhere in this Annual Report.
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