CONCRETE PUMPING HOLDINGS, INC. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended October 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-38166
CONCRETE PUMPING HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 83-1779605 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
500 E. 84th Avenue, Suite A-5 Thornton, Colorado | 80229 |
(Address of Principal Executive Offices) | (Zip Code) |
(303) 289-7497 |
(Registrant's Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.0001 per share | BBCP | Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the common equity held by non-affiliates of the registrant was $209,028,284 based upon the market price of $8.13 per share on April 30, 2021. As of January 11, 2022, 56,668,481 shares of common stock, par value $0.0001 per share, were issued and outstanding.
Documents Incorporated by Reference: Portions of the registrant's definitive proxy statement relating to the registrant's 2022 Annual Meeting of Stockholders to be filed hereafter are incorporated by reference into Part III of this Annual Report on Form 10-K.
Concrete Pumping Holdings, Inc.
TABLE OF CONTENTS
Page | ||
PART I | ||
Item 1. | ||
Item 1A. | ||
Item 1B. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II | ||
Item 5. | ||
Item 6. | ||
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 7A. | ||
Item 8. | ||
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | |
Item 9A. | ||
Item 9B. | ||
PART III | ||
Item 10. | ||
Item 11. | ||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | |
Item 14. | ||
PART IV | ||
Item 15. | ||
Item 16. | ||
Cautionary Statement Concerning Forward-Looking Statements and Risk Factors Summary
Certain statements in this Annual Report on Form 10-K (this "Annual Report") constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding our business, financial condition, results of operation, cash flows, strategies and prospects, and the potential impact of the COVID-19 pandemic on our business. These forward-looking statements may be identified by terminology such as "likely," "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue," or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Annual Report are reasonable, we cannot guarantee future results. Our forward-looking statements speak only as of the date of this report or as of the date they are made, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered.
The forward-looking statements contained in this Annual Report are based on our current expectations and beliefs concerning future developments and their potential effects. These statements involve known and unknown risks, uncertainties (some of which are beyond our control) and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the items in the following list, which also summarizes some of the principal risks relating to the Company and its business:
● | the adverse effects of the coronavirus ("COVID-19") pandemic on our business, the economy and the markets we serve; |
● | the length and severity of, and the pace of recovery following, the COVID-19 pandemic; |
● | general economic and business conditions, which may affect demand for commercial, infrastructure, and residential construction; |
● | our ability to successfully implement our operating strategy; |
● | our ability to successfully identify, manage and integrate acquisitions; |
● | governmental requirements and initiatives, including those related to mortgage lending, financing or deductions, funding for public or infrastructure construction, land usage, and environmental, health, and safety matters; |
● | seasonal and inclement weather conditions, which impede the installation of ready-mixed concrete; |
● | the cyclical nature of, and changes in, the real estate and construction markets, including pricing changes by our competitors; |
● | our ability to maintain favorable relationships with third parties who supply us with equipment and essential supplies; |
● | our ability to retain key personnel and maintain satisfactory labor relations; |
● | disruptions, uncertainties or volatility in the credit markets that may limit our, our suppliers' and our customers' access to capital; |
● | personal injury, property damage, results of litigation and other claims and insurance coverage issues; |
● | our substantial indebtedness and the restrictions imposed on us by the terms of our indebtedness; |
● | the effects of currency fluctuations on our results of operations and financial condition; |
● | other factors as described below in the section entitled "Risk Factors." |
PART I
Item 1. Business
Concrete Pumping Holdings, Inc. is a Delaware corporation headquartered in Thornton, Colorado. We refer to Concrete Pumping Holdings, Inc. as the "Company," "CPH,", "us", "we" or "our" in this Annual Report, and these designations include our subsidiaries unless we state otherwise. On December 6, 2018 (the "Closing Date"), the Company, formerly known as Concrete Pumping Holdings Acquisition Corp., consummated a business combination transaction (the "Business Combination") pursuant to which it acquired (i) the private operating company formerly called Concrete Pumping Holdings, Inc. and (ii) the former special purpose acquisition company called Industrea Acquisition Corp ("Industrea"). In connection with the closing of the Business Combination, the Company changed its name to Concrete Pumping Holdings, Inc.
Our principal executive offices are located at 500 E. 84th Ave., Suite A-5, Thornton, Colorado, 80229. We maintain a website at https://www.concretepumpingholdings.com/. The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, this Annual Report.
Overview
CPH is a leading provider of concrete pumping services and concrete waste management services in the United States ("U.S.") and the United Kingdom ("U.K.") based on fleet size, primarily operating under what we believe are the only established, national concrete pumping brands in both geographies - Brundage-Bone Concrete Pumping, Inc. ("Brundage-Bone") for concrete pumping in the U.S., Camfaud Group Limited ("Camfaud") in the U.K., and Eco-Pan, Inc. ("Eco-Pan") for waste management services in both the U.S. and U.K. The Brundage-Bone business was founded in 1983 in Denver, Colorado. Since then, the Company has expanded across the U.S. and U.K. through more than 60 acquisitions. Eco-Pan was founded in 1999 and was acquired by CPH in 2014. In November 2016, we entered the U.K. market through the acquisition of Camfaud and in May 2019, we acquired Capital Pumping LP and its affiliates ("Capital"), a concrete pumping provider based in Texas. The Capital acquisition provided us with complementary assets and operations and significantly expanded our footprint and business in Texas.
Concrete pumping is a highly specialized method of concrete placement that requires skilled operators to position a truck-mounted, fully-articulating boom for precise delivery of ready-mix concrete from mixer trucks to placing crews on a construction job site. In addition, proper concrete washout handling is an important area of focus for our Company given rising awareness of environmental factors. We believe that our large fleet of specialized pumping equipment, washout pans and trucks, and highly-trained operators enable us to be the trusted provider of concrete placement and waste management solutions to our customers. We deliver and facilitate substantial labor cost savings, shortened concrete placement times, enhanced worksite safety, and efficient concrete washout containment, and thereby help improve the overall quality of construction projects. As of October 31, 2021, we operated a fleet of approximately 1,300 units of equipment, with approximately 1,300 employees and approximately 140 locations globally.
With almost 40 years of experience, we believe we are the only nationally-scaled provider of concrete pumping services in the U.S. and the U.K., with the most comprehensive and reliable fleet and highly-skilled operators to provide quality service. We are especially equipped to support large and technically complex construction projects, which generally command higher price points than smaller projects. In addition, we have actively focused our business on commercial and infrastructure construction projects, while continuing to pursue profitable residential opportunities. Our fleet is capable of handling multiple large projects concurrently, and can be deployed on short-notice across the U.S. and the U.K., thereby allowing us to efficiently allocate resources depending on market conditions to more profitable markets. Our highly complementary Eco-Pan business provides customers with a one-stop solution for their concrete washout needs. We plan to continue establishing additional Eco-Pan locations across the U.S. and the U.K., and further penetrate our existing concrete pumping customer base by cross-selling our Eco-Pan services.
As of October 31, 2021, we estimate our share of the concrete pumping market to be approximately 13% in the U.S. and approximately 34% in the U.K., based on fleet size. In the U.S. and U.K. markets, we serve a large and diverse customer base and as of October 31, 2021, our top ten customers represented less than 10% of our total revenue and had an average tenure of more than 20 years.
Segments
We operate through the following four reportable segments:
U.S. Concrete Pumping: Our U.S. concrete pumping services segment represented 73% of our total revenue for the year ended October 31, 2021 and services from this segment are primarily provided under our Brundage-Bone and Capital Pumping brands, which as of October 31, 2021 operated a total fleet of approximately 780 equipment units from a diversified footprint of approximately 90 locations across 19 states. We provide operated concrete pumping services, for which customers are billed on a negotiated time and volume basis based on the duration of the job and yards of concrete pumped. Additional charges (such as a fuel surcharge and travel costs) are frequently added based on specific project requirements. Typically, we send a single operator with each concrete pump. We do not take ownership of the concrete and thus have minimal inventory or product liability risk. We typically do not engage in fixed-bid work or have surety bonding requirements and operate a daily fee-based revenue model regardless of overall construction project completion.
U.S. Concrete Waste Management Services: Our U.S. concrete waste management services segment represented 12% of our total revenue for the year ended October 31, 2021. Through our Eco-Pan business, we are a leading provider of concrete waste management services in the U.S. Eco-Pan provides a full-service, cost-effective, regulation-compliant solution to manage environmental issues caused by concrete washout. Eco-Pan is a route-based solution that operates approximately 90 trucks and over 6,900 custom metal pans or containers for construction sites from 17 locations in the U.S. as of October 31, 2021. We charge a round-trip delivery fee and a daily usage fee for the pans and containers, that is typically negotiated on a weekly or monthly rental rate. This provides a turnkey solution to the customer compared to the alternatives of bagging the waste concrete, pouring it into an on-site lined pit, or disposing of it into trash dumpsters and arranging for a pick-up. Eco-Pan delivers watertight pans to job sites to collect concrete washwater, and subsequently delivers it to recycling centers. Disposal fees charged by the recycling centers are passed on to the customer. To the extent that the pans are held at the job site for an extended number of days or irregular waste is found in the pan, we charge incremental fees. Our trucks are designed to allow for the pick-up and re-delivery of multiple pans, leading to significant incremental efficiencies as route densities increase.
U.K. Operations: Our U.K. operations represented 15% of our total revenue for the year ended October 31, 2021 and consisted of concrete pumping and concrete waste management services. Our concrete pumping services are primarily provided through either our Camfaud brand (operated pumping services) or our Premier Concrete Pumping brand (rental of pumping equipment on a long-term basis without an operator). Mobile equipment is charged to customers under a minimum hire rate, which is typically five to eight hours. Our concrete pumping business in the U.K. is comprised of a fleet of approximately 380 equipment units that are serviced from 30 locations as of October 31, 2021. In addition, during the third quarter of fiscal 2019 we started concrete waste management operations under our Eco-Pan brand name in the U.K. and the results of these operations are included in this segment. Our Eco-Pan business in the U.K. is operated from a shared Camfaud location as of October 31, 2021. We bill our customers for our Eco-Pan services in the same manner as our U.S. Eco-Pan services.
Corporate: Our Corporate segment is primarily related to the intercompany leasing of real estate to certain of our U.S Concrete Pumping branches.
Competitive Environment
The concrete pumping industry is highly fragmented in both the U.S. and the U.K. In the U.S., we believe there are approximately 1,000 industry participants, the majority of which operate with an average of five to ten pumps each, a limited number having a multi-regional presence (average of 50-60 pumps) and no other company having a national presence. We believe many industry participants are undercapitalized, utilize aged equipment and operate only smaller and significantly fewer boom pumps. In a typical geographic market, we generally compete with only one or two other concrete pumping companies that can perform the larger and more complex projects that we typically target.
In the concrete waste management industry, we compete with local operators who may have a small number of washout pans but are not capable of offering services across the U.S. We believe we are the only operator of scale with a national footprint in this industry and estimate that there is only one competitor on a national level. While the technology underlying the washout pans is less sophisticated than that for a concrete pump, we believe having the route density that Eco-Pan has achieved is a differentiator in terms of profitability. Our U.K. operations is the pioneer of the concrete waste management service in the U.K. and as such, we are not aware of any equivalent competitor in the U.K.
Equipment
Our fleet is operated by approximately 830 experienced employees as of October 31, 2021, each of whom is required to complete rigorous training and safety programs. In addition, we have approximately 110 skilled mechanics who perform in-house equipment servicing. As of October 31, 2021, we owned 100% of our fleet consisting of approximately 820 boom pumps, ranging in size from 17 to 65 meters, 70 placing booms, 20 telebelts, 250 stationary pumps, and 90 waste management trucks. As of October 31, 2021, the average age of our fleet was approximately 9 years old and most of our equipment had useful lives of 20 to 25 years.
Customers
We serve a base of more than 14,000 customers (often with several projects per customer) across the U.S. and the U.K. and have an approximate 93% customer retention rate based on our top 500 customers and 100% customer retention rate of our top 100 customers as of October 31, 2021. In addition, as of October 31, 2021, our top ten customers represented less than 10% of our total revenue and had an average tenure of more than 20 years. Our customer composition is largely dependent on geographic location and general economic and construction market trends within individual operating markets. We actively monitor regional trends and target customers in fast-growing markets through our extensive geographic footprint and knowledge of the local construction markets in each region in which we operate.
Our customer base consists of general contractors or concrete contractors that span across the commercial, infrastructure and residential end markets. We also sell replacement parts to regional operators that lack the capital and scale to independently maintain a sufficiently stocked replacement parts inventory. Our contractual arrangements with customers are typically on a project-to-project purchase order basis.
Suppliers
We primarily purchase pumping equipment, replacement parts, and fuel for our day-to-day operations. Concrete pumping equipment is primarily sourced from three suppliers - Schwing, Putzmeister, and Alliance. There are a number of other suppliers as well and we are not solely dependent upon any single one. We believe we are the concrete pumping industry's largest consumer of concrete pumping supplies and, as such, have significant leverage with respect to making purchases. We typically purchase fuel in bulk at favorable prices and utilize onsite fuel storage facilities.
Employees
As of October 31, 2021, we had approximately 1,300 employees across the U.S. and the U.K., of which approximately 940 are highly-skilled equipment operators and mechanics, approximately 100 are managers, approximately 50 are in sales, and approximately 60 are dispatchers. The remaining employees include administrative support, corporate functions, and laborers. Our employees have an average tenure of over five years for pump operators. Additionally, our regional managers have, on average, approximately 30 years of experience in the concrete pumping industry. We maintain a highly sophisticated, industry recognized training program, which ensures all operators can meet the requirements of any project. Operators are trained in concrete pumping as well as in basic mechanical repair, while shop managers are trained in inspection and maintenance of all critical truck systems.
Approximately 120 employees in CPH's workforce are unionized across California, Oregon and Washington. These individuals are represented by the International Union of Operating Engineers ("IUOE") under three separate collective bargaining agreements. We have historically maintained favorable relations with the IUOE and have not experienced any significant disputes, disagreements, strikes or work stoppages.
Safety
To our knowledge, we are the only concrete pumping company in the U.S. and the U.K. with a comprehensive, active safety program, including an in-house corporate safety department and a designated safety trainer at each branch. As part of our safety management program, we actively track key safety performance indicators at each branch location to monitor safety performance and take corrective action when needed. Over the last two years, our Total Recordable Incident Rate ("TRIR") has remained better than industry averages.
Environmental Matters
We are subject to various federal, state and local and environmental laws and regulations, including those governing the discharge of pollutants into air or water, the management, storage and disposal of, or exposure to, hazardous substances and wastes, the responsibility to investigate and clean up contamination, and occupational health and safety. Fines and penalties may be imposed for non-compliance with applicable environmental, health and safety requirements and the failure to have or to comply with the terms and conditions of required permits. We are not aware of any material instances of non-compliance with respect to environmental regulations.
Available Information
We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, available free of charge on our website as soon as reasonably practicable after we file or furnish the materials electronically with the Securities and Exchange Commission ("SEC"). To obtain any of this information, go to our investor relations website, www.ir.concretepumpingholdings.com, and select "SEC Filings". Our investor relations website includes our Code of Business Conduct and Ethics and charters for the Audit, Compensation, Corporate Governance/Nominating Committees. These materials may also be obtained, free of charge, at www.ir.concretepumpingholdings.com (select "Governance").
Item 1A. Risk Factors
Risks Related to the Company's Business and Operations
The COVID-19 pandemic, including the efforts to mitigate its impact, has had and may continue to have a material adverse effect on our business, liquidity, results of operations, financial condition and price of our securities.
Despite recent progress in the administration of vaccines, both the outbreak of recent variants, including Delta and Omicron, and the related containment and mitigation measures that have been put into place across the globe, have had and are likely to continue to have a serious adverse impact on the global economy and our business, the severity and duration of which are uncertain. To date, the COVID-19 pandemic has negatively impacted our revenue volumes primarily in the U.K. and certain markets in the U.S. This impact was most heavily pronounced in the second and third quarters of fiscal 2020. Beginning in the fourth quarter of fiscal 2020, revenue volumes began showing signs of improvement, and as of fiscal 2021 year-end, they have largely returned back to pre-pandemic levels for most of our markets in the U.S. and near pre-pandemic levels in the U.K.; however, the impact from COVID-19 remains an issue in certain markets. In addition, the COVID-19 pandemic drove a sustained decline in our stock price and a deterioration in general economic conditions in its fiscal 2020 second quarter, which qualified as a triggering event necessitating the evaluation of its goodwill and long-lived assets for indicators of impairment, which led to the identification of impairments. Additional impairments may be recorded in the future based on events and circumstances, including those related to COVID-19.
The COVID-19 pandemic has resulted in a decrease in the availability of, and an increase in the cost of, contractors and subcontractors, including as a result of infections, recommended self-quarantining or governmental mandates to direct production activities to support public health efforts. Our ability to provide construction services depends on our customers' ability to find and maintain skilled contractors, subcontractors and employees. If our customers are unable to keep skilled subcontractors, contractors and employees due to COVID-19 or other issues, our services may be postponed or cancelled, which could materially affect our financial performance.
Likewise, the continued uncertainty about the duration of the COVID-19 pandemic may disrupt our employee retention and talent management strategies and affect our business operations. COVID-19 has created uncertainty with respect to the return to the workforce which affects our employee retention and talent management strategies. We cannot predict with certainty how the post-COVID return to workforce measures will affect our employee retention and talent management strategies. The consequences that may result from continued disruptions or a failure of our employee retention and talent management strategies can include inadequate staffing levels, lack of key talent, or eroding employee morale and productivity.
In addition, construction activities and land development are subject to extensive government regulations. In response to the COVID-19 pandemic, many countries and localities across the world have implemented a variety of regulations in order to slow and limit the transmission of the virus. Such regulations relate to zoning, design and business standards, as well as land use, health, safety and the environment. Due to the COVID-19 pandemic, construction-related activity has been halted in several locations in which we operate, most notably our U.K. operations and certain markets in the U.S., in part, due to new government regulations implemented in response to this pandemic. To date, we have experienced declines in demand for our services due to shelter-in-place orders and mandates to halt all residential and commercial construction. The continuation or reimplementation of any such regulations can delay construction and negatively impact our cash position in light of continuing obligations to serve our outstanding debt obligations.
Furthermore, the extent to which the COVID-19 pandemic will ultimately impact our business and results of operations is highly uncertain and will be affected by a number of factors, including: the duration and extent of the pandemic; the duration and extent of imposed or recommended containment and mitigation measures; the extent, duration and effective execution of government stabilization and recovery efforts, including those from the successful distribution of an effective vaccine; the impact of the pandemic on economic activity, including on construction projects and our customers' demand for our services; our ability to effectively operate, including as a result of travel restrictions and mandatory business and facility closures; the ability of our customers to pay us for services rendered; any further closures of our and our customers' offices and facilities and inability to retain employees; and any additional project delays or shutdowns. Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements. The occurrence of these events has had and may continue to have a material adverse effect on our business, financial condition, results of operations, including further impairment to our goodwill and intangible assets, and/or stock price.
Our business is cyclical in nature and a slowdown in the economic recovery or a decrease in general economic activity could have a material adverse effect on our revenues and operating results.
Substantially all of our customer base comes from the commercial, infrastructure and residential construction markets. A worsening of economic conditions or a decrease in construction expenditures and/or investments could cause weakness in our end markets, cause declines in construction and industrial activity, and adversely affect our revenue and operating results.
The following factors, among others, may cause weakness in our end markets, either temporarily or long-term:
● | the depth and duration of an economic downturn and lack of availability of credit; |
● | uncertainty regarding general or regional economic conditions; |
● | reductions in corporate spending for plants and facilities or government spending for infrastructure projects; |
● | the cyclical nature of our customers' businesses, particularly those operating in the commercial, infrastructure and residential construction sectors; |
● | an increase in the cost of construction materials; |
● | a decrease in investment in certain of our key geographic markets; |
● | changes in interest rates and lending standards; |
● | an overcapacity in the businesses that drive the need for construction; |
● | adverse weather conditions, which may temporarily affect a particular region or regions; |
● | reduced construction activity in our end markets; |
● | terrorism or hostilities involving the U.S. or the U.K.; |
● | change in structural construction designs of buildings (e.g., wood versus concrete); |
● | risks of political or economic instability (e.g., negative impact on our U.K. business as a result of Brexit); and |
● | oversupply of equipment or new entrants into the market resulting in pricing uncertainty. |
A downturn in any of our end markets in one or more of our geographic markets caused by these or other factors could have a material adverse effect on our business, financial conditions, results of operations and cash flows.
Our business is seasonal and subject to adverse weather.
Since our business is primarily conducted outdoors, erratic weather patterns, seasonal changes and other weather-related conditions affect our business. Adverse weather conditions, including hurricanes and tropical storms, cold weather, snow, and heavy or sustained rainfall, reduce construction activity, restrict the demand for our products and services, and impede our ability to deliver and pump concrete efficiently or at all. In addition, during periods of extended adverse weather or other operational delays, we may elect to continue to pay certain hourly employees to maintain our workforce, which may adversely impact our results of operations. In addition, severe drought conditions can restrict available water supplies and restrict production. Consequently, these events could adversely affect our business, financial condition, results of operations, liquidity and cash flows.
Our revenue and operating results have varied historically from period to period and any unexpected periods of decline could result in an overall decline in our available cash flows.
Our revenue and operating results have varied historically from period to period and may continue to do so. We have identified below certain of the factors that may cause our revenue and operating results to vary:
● | seasonal weather patterns in the construction industry on which we rely, with activity tending to be lowest in the winter and spring; |
● | the timing of expenditures for maintaining existing equipment, new equipment and the disposal of used equipment; |
● | changes in demand for our services or the prices we charge due to changes in economic conditions, competition or other factors; |
● | changes in the interest rates applicable to our variable rate debt, and the overall level of our debt; |
● | fluctuations in fuel costs; |
● | general economic conditions in the markets where we operate; |
● | the cyclical nature of our customers' businesses; |
● | price changes in response to competitive factors; |
● | other cost fluctuations, such as costs for employee-related compensation and benefits; |
● | labor shortages, work stoppages or other labor difficulties and labor issues in trades on which our business may be dependent in particular regions; |
● | potential enactment of new legislation affecting our operations or labor relations; |
● | timing of acquisitions and new branch openings and related costs; |
● | possible unrecorded liabilities of acquired companies and difficulties associated with integrating acquired companies into our existing operations; |
● | changes in the exchange rate between the U.S. dollar ("USD") and Great Britain pound sterling ("GBP"); |
● | potential increased demand from our customers to develop and provide new technological services in our business to meet changing customer preferences; |
● | our ability to control costs and maintain quality; |
● | our effectiveness in integrating new locations and acquisitions; and |
● | possible write-offs or exceptional charges due to changes in applicable accounting standards, reorganizations or restructurings, obsolete or damaged equipment or the refinancing of our existing debt. |
Accordingly, our operating results in any particular quarter may not be indicative of the results that can be expected for any other quarter or for the entire year. Furthermore, negative trends in the concrete pumping and waste management industries or in our geographic markets could have material adverse effects on our business, financial condition, results of operations, liquidity and cash flows.
Our business is highly competitive and competition may increase, which could have a material adverse effect on our business.
The concrete pumping industry is highly competitive and fragmented. Many of the markets in which we operate are served by several competitors, ranging from larger regional companies to small, independent businesses with a limited fleet and geographic scope of operations. Some of our principal competitors may have more flexible capital structures or may have greater name recognition in one or more of our geographic markets. We generally compete on the basis of, among other things, quality and breadth of service, expertise, reliability, price and the size, quality and availability of our fleet of pumping equipment, which is significantly affected by the level of our capital expenditures. If we are required to reduce or delay capital expenditures for any reason, including due to restrictions contained in, or debt service payments required by, our credit facilities or otherwise, the ability to replace our fleet or the age of our fleet may put us at a disadvantage to our competitors and adversely impact our ability to generate revenue. In addition, our industry may be subject to competitive price decreases in the future, particularly during cyclical downturns in our end markets, which can adversely affect revenue, profitability and cash flow. We may encounter increased competition from existing competitors or new market entrants in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are dependent on our relationships with key suppliers to obtain equipment for our business.
We depend on a small group of key manufacturers of concrete pumping equipment to sell equipment to us. We have historically relied primarily on three suppliers and we cannot provide assurance that our favorable working relationships with our suppliers will continue in the future or that they will continue to provide high-quality products, service and support. Any deterioration in the quality of such products, service or support could result in additional maintenance costs and operational issues.
In addition, the concrete industry has historically been subject to periods of supply shortages, particularly in a strong economy. We cannot predict the impact on our suppliers of changes in the economic environment and other developments in their respective businesses. Insolvency, financial difficulties, strategic changes or other factors may result in our suppliers not being able to fulfill the terms of their agreements with us, whether satisfactorily or at all. Further, such factors may render suppliers unwilling to extend contracts that provide favorable terms to us or may force them to seek to renegotiate existing contracts with us. Termination of our relationship with any of our key suppliers, or interruption of our access to concrete pumping equipment, pipe or other supplies, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
As the average fleet age increases, our offerings may not be as attractive to potential customers and our operating costs may increase, impacting our results of operations.
As our equipment ages, the cost of maintaining such equipment, if not replaced within a certain period of time or amount of use, will likely increase. We estimate that our fleet assets generally will have a useful life of up to 25 years depending on the size of the machine, hours in service, yardage pumped, and, in certain instances, other circumstances unique to an asset. We manage our fleet of equipment according to the wear and tear that a specific machine or type of equipment is expected to experience over its useful life. As of October 31, 2021, the average age of our concrete pumping equipment was approximately nine years. If the average age of our equipment increases, whether as a result of our inability to access sufficient capital to maintain or replace equipment in a timely manner or otherwise, our investment in the maintenance, parts and repair for individual pieces of equipment may exceed the book value or replacement value of that equipment. We cannot provide assurance that costs of maintenance will not materially increase in the future. Any material increase in such costs could have a material adverse effect on our business, financial condition and results of operations. Additionally, as our equipment ages, it may become less attractive to potential customers, thus decreasing our ability to effectively compete for new business.
The costs of new equipment we use in our fleet may increase, requiring us to spend more for replacement equipment or preventing us from procuring equipment on a timely basis.
The cost of new equipment for use in our concrete pumping fleet could increase due to increased material costs to our suppliers or other factors beyond our control. Such increases could materially adversely impact our financial condition, results of operations and cash flows in future periods. Furthermore, changes in technology or customer demand could cause certain of our existing equipment to become obsolete and require us to purchase new equipment at increased costs.
We sell used equipment on a regular basis. Our fleet is subject to residual value risk upon disposition and may not sell at the prices or in the quantities we expect.
We continuously evaluate our fleet of equipment as we seek to optimize our vehicle size and capabilities for our end markets in multiple locations. We therefore seek to sell used equipment on a regular basis. The market value of any given piece of equipment could be less than its depreciated value at the time it is sold. The market value of used equipment depends on several factors, including:
● | the market price for comparable new equipment; |
● | the time of year that it is sold; |
● | the supply of similar used equipment on the market; |
● | the existence and capacities of different sales outlets; |
● | the age of the equipment, and the amount of usage of such equipment relative to its age, at the time it is sold; |
● | worldwide and domestic demand for used equipment; |
● | the effect of advances and changes in technology in new equipment models; |
● | changing perception of residual value of used equipment by the Company's suppliers; and |
● | general economic conditions. |
We include in income from operations the difference between the sales price and the net book value of an item of equipment sold. Changes in our assumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized upon disposal of equipment. Sales of our used concrete pumping equipment at prices that fall significantly below our expectations or in lesser quantities than we anticipate could have a negative impact on our financial condition, results of operations and cash flows.
If we determine that our goodwill has become impaired, we may incur impairment charges, which would negatively impact our operating results.
Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations.
We assess potential impairment of our goodwill at least annually. Impairment may result from significant changes in the manner of use of the acquired assets, negative industry or economic trends or significant underperformance relative to historical or projected operating results. An impairment of our goodwill may have a material adverse effect on our results of operations.
During the fiscal year ended October 31, 2020, the COVID-19 pandemic drove a sustained decline in our stock price and a deterioration in general economic conditions, resulting in us recording goodwill and intangibles impairment charges totaling $57.9 million in the second quarter of fiscal 2020. At October 31, 2021, we had remaining recorded goodwill of $224.7 million related to multiple acquisitions.
If we are unable to collect on contracts with customers, our operating results would be adversely affected.
We have billing arrangements with a majority of our customers that provide for payment on agreed terms after our services are provided. If we are unable to manage credit risk issues adequately, or if a large number of customers should have financial difficulties at the same time, our credit losses could increase significantly above their low historical levels and our operating results would be adversely affected. Further, delinquencies and credit losses increased during the last recession and generally can be expected to increase during economic slowdowns or recessions.
Fluctuations in fuel costs or reduced supplies of fuel could harm our business.
Fuel costs represent a significant portion of our operating expenses and we are dependent upon fuel to transport and operate our equipment. We could be adversely affected by limitations on fuel supplies or increases in fuel prices that result in higher costs of transporting equipment to and from job sites and higher costs to operate our concrete pumps and other equipment. Although we are able to pass through the impact of fuel price charges to most of our customers, there is often a lag before such pass-through arrangements are reflected in our operating results and there may be a limit to how much of any fuel price increases we can pass onto our customers. Any such limits may adversely affect our results of operations.
We depend on access to our branch facilities to service our customers and maintain and store our equipment, and natural disasters and other developments could materially adversely affect our business,financialcondition and results of operations.
We depend on our primary branch facilities in the U.S. and U.K., respectively, to store, service and maintain our fleet. These facilities contain most of the specialized equipment we require to service our fleet, in addition to the extensive secure storage areas needed for a significant number of large vehicles. If any of our facilities were to sustain significant damage or become unavailable to us for any reason, including natural disasters, our operations could be disrupted, which could in turn adversely affect our relationships with our customers and our results of operations and cash flow. Any limitation on our access to facilities as a result of any breach of, or dispute under, our leases could also disrupt and adversely affect our operations. In addition, if natural disasters such as forest fires were to cause significant disruptions to the construction projects where we focus our business, our operations could be disrupted, which could in turn materially adversely affect our business, financial condition and results of operations.
Due to the material portion of our business conducted in currency other than U.S. dollars, we have significant foreign currency risk.
Our consolidated financial statements are presented in accordance with GAAP, and we report, and will continue to report, our results in U.S. dollars. Some of our operations are conducted by subsidiaries in the United Kingdom and the results of operations and the financial position of these subsidiaries are recorded in the relevant foreign currencies and then translated into U.S. dollars. Any change in the value of the pound sterling against the U.S. dollar during a given financial reporting period would result in a foreign currency loss or gain on the translation of U.S. dollar denominated revenues and costs. The exchange rates between the pound sterling against the U.S. dollar have fluctuated significantly in recent years and may fluctuate significantly in the future. Consequently, our reported earnings could fluctuate materially as a result of foreign exchange translation gains or losses and may not be comparable from period to period.
Potential acquisitions and expansions into new markets may result in significant transaction expense and expose us to risks associated with entering new markets and integrating new or acquired operations.
We may encounter risks associated with entering new markets in which we have limited or no experience. New operations require significant capital expenditures and may initially have a negative impact on our short-term cash flow, net income and results of operations, or may never become profitable.
In addition, our industry is highly fragmented, and we expect to consider acquisition opportunities when we believe they would enhance our business and financial performance. However, acquisitions may impose significant strains on our management, operating systems and financial resources, and could experience unanticipated integration issues. The pursuit and integration of acquisitions may require substantial attention from our senior management, which will limit the amount of time they have available to devote to our existing operations. Our ability to realize the expected benefits from any future acquisitions depends in large part on our ability to integrate and consolidate the new operations with our existing operations in a timely and effective manner. Future acquisitions could also result in the incurrence of substantial amounts of indebtedness and contingent liabilities (including environmental, employee benefits and safety and health liabilities), accumulation of goodwill that may become impaired, and an increase in amortization expenses related to intangible assets. Any significant diversion of management's attention from our existing operations, the loss of key employees or customers of any acquired business, any major difficulties encountered in the opening of start-up locations or the integration of acquired operations or any associated increases in indebtedness, liabilities or expenses could have a material adverse effect on our business, financial condition or results of operations.
We may not realize the anticipated synergies, cost savings or profits from acquisitions.
We have completed a number of acquisitions in recent years that we believe present revenue, profit and cost-saving synergy opportunities. However, the integration of recent or future acquisitions may not result in the realization of the full benefits of the revenue, profit and cost synergies that we expected at the time or currently expect within the anticipated time frame or at all. Moreover, we may incur substantial expenses or unforeseen liabilities in connection with the integration of acquired businesses. While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately and may exceed our estimates. Accordingly, the expected benefits of any acquisition may be offset by costs or delays incurred in integrating the businesses. Failure of recent or future acquisitions to meet our expectations and be integrated successfully could have a material adverse effect on our financial condition and results of operations.
Disruptions in ourinformation technology systems due to cyber security threats or other factors could limit our ability to effectively monitor and control our operations and adversely affect our operating results, and unauthorized access to customer information on our systems could adversely affect our relationships with our customers or result in liability.
Our information technology systems, including our enterprise resource planning system, facilitate our ability to monitor and control our assets and operations and adjust to changing market conditions and customer needs. Any disruptions in these systems or the failure of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our assets and operations and adjust to changing market conditions in a timely manner. Many of our business records at most of our branches are still maintained manually, and loss of those records as a result of facility damage, personnel changes or otherwise could also cause such disruptions. In addition, because our systems sometimes contain information about individuals and businesses, our failure to appropriately safeguard the security of the data it holds, whether as a result of our own error or the malfeasance or errors of others, could harm our reputation or give rise to legal liabilities, leading to lower revenue, increased costs and other material adverse effects on our results of operations.
We have taken steps intended to mitigate these risks, including business continuity planning, disaster recovery planning and business impact analysis. However, a significant disruption or cyber intrusion could adversely affect our results of operations, financial condition and liquidity. Furthermore, instability in the financial markets as a result of terrorism, sustained or significant cyber-attacks, or war could also materially adversely affect our ability to raise capital.
Legal and Regulatory Risks
We are exposed to liability claims on a continuing basis, which may exceed the level of our insurance or not be covered at all, and this could have a material adverse effect on our operating performance.
Our business exposes us to claims for personal injury, death or property damage resulting from the use of the equipment we operate, rent, sell, service or repair and from injuries caused in motor vehicle or other accidents in which our personnel are involved. Our business also exposes us to workers' compensation claims and other employment-related claims. We carry comprehensive insurance, subject to deductibles, at levels we believe are sufficient to cover existing and future claims; however, future claims may exceed the level of our insurance, and our insurance may not continue to be available on economically reasonable terms, or at all. Certain types of claims, such as claims for punitive damages, are not covered by our insurance. In addition, we are self-insured for the deductibles on our policies and have established reserves for incurred but not reported claims. If actual claims exceed our reserves, our financial condition, results of operations and cash flows would be adversely affected. Whether or not we are covered by insurance, certain claims may generate negative publicity, which may lead to lower revenues, as well as additional similar claims being filed.
Our business is subject to significant operating risks and hazards that could result in personal injury or damage or destruction to property, which could result in losses or liabilities to the Company.
Construction sites are potentially dangerous workplaces and often put our employees and others in close proximity with mechanized equipment and moving vehicles. Our equipment has been involved in workplace incidents and incidents involving mobile operators of our equipment in transit in the past and may also be involved in such incidents in the future.
Our profitability and relationships with our customers is dependent on our safety record. If serious accidents or fatalities occur, regardless of whether we were at fault, or our safety record were to deteriorate, we may be ineligible to bid on certain work, be exposed to possible litigation, and existing service arrangements could be terminated, which could have a material adverse impact on our financial position, results of operations, cash flows and liquidity. Adverse experiences with hazards and claims could have a negative effect on our reputation with our existing or potential new customers and our prospects for future work.
In any concrete construction environment, our workers are subject to the usual hazards associated with providing construction and related services on construction sites, including environmental hazards, industrial accidents, hurricanes, adverse weather conditions and flooding. Operating hazards can cause personal injury or death, damage to or destruction of property, plant and equipment, environmental damage, performance delays, monetary losses or legal liability.
We have operations throughout the United States and the United Kingdom, which subjects us to multiple federal, state, and local laws and regulations. Moreover, we operate at times as a government contractor or subcontractor which subjects us to additional laws, regulations, and contract provisions. Changes in law, regulations, government contract provisions, or other legal requirements, or our material failure to comply with any of them, can increase our costs and have other negative impacts on our business.
Each of our sites exposes us to a host of different local laws and regulations. These requirements address multiple aspects of our operations, such as worker safety, consumer rights, privacy, employee benefits, antitrust, emissions regulations and may also impact other areas of our business, such as pricing. In addition, government contracts and subcontracts are subject to a wide range of requirements not applicable in the purely commercial context, such as extensive auditing and disclosure requirements; anti-money laundering, anti-bribery and anti-gratuity rules; political campaign contribution and lobbying limitations; and small and/or disadvantaged business preferences. Even when a government contractor has reasonable policies and practices in place to address these risks and requirements, it is still possible for problems to arise. Moreover, government contracts or subcontracts are generally riskier than commercial contracts, because, when problems arise, the adverse consequences can be severe, including civil false claims (which can involve penalties and treble damages), suspension and debarment, and even criminal prosecution. Moreover, the requirements of laws, regulations, and government contract provisions are often different in different jurisdictions. Changes in these requirements, or any material failure by us to comply with them, can increase our costs, negatively affect our reputation, reduce our business, require significant management time and attention and generally otherwise impact our operations in adverse ways.
We are subject to numerous environmental and safety regulations. If we are required to incur compliance or remediation costs that are not currently anticipated, our liquidity and operating results could be materially and adversely affected.
Our facilities and operations are subject to comprehensive and frequently changing federal, state and local laws and regulations relating to environmental protection and health and safety. These laws and regulations govern, among other things, occupational safety, employee relations, the discharge of substances into the air, water and land, the handling, storage, transport, use and disposal of hazardous materials and wastes and the cleanup of properties affected by pollutants. If we violate environmental or safety laws or regulations, we may be required to implement corrective actions and could be subject to civil or criminal fines or penalties or other sanctions. We cannot assure you that we will not have to make significant capital or operating expenditures in the future in order to comply with applicable laws and regulations or that we will comply with applicable environmental laws at all times. Such violations or liability could have a material adverse effect on our business, financial condition and results of operations.
Environmental laws also impose obligations and liability for the investigation and cleanup of properties affected by hazardous substance or fuel spills or releases. These liabilities are often joint and several and may be imposed on the parties generating or disposing of such substances or on the owner or operator of affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances. We may also have liability for past contaminated properties historically owned or operated by companies that we have acquired or merged with, even though we never owned or operated such properties. Accordingly, we may become liable, either contractually or by operation of law, for investigation, remediation, monitoring and other costs even if the contaminated property is not presently owned or operated by us, or if the contamination was caused by third parties during or prior to our ownership or operation of the property. Contamination and exposure to hazardous substances can also result in claims for damages, including personal injury, property damage, and natural resources damage claims.
Most of our properties currently have above or below ground storage tanks for fuel and other petroleum products and oil-water separators (or equivalent wastewater collection/treatment systems). Given the nature of our operations (which involve the use of diesel and other petroleum products, solvents and other hazardous substances) for fueling and maintaining our equipment and vehicles, and the historical operations at some of our properties, we may incur material costs associated with soil or groundwater contamination. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to remediation liabilities or other claims or costs that may be material.
The JOBS Act permits "emerging growth companies" like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
We qualify as an "emerging growth company" as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, which we refer to as the "JOBS Act." As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We had revenues during the fiscal year ended October 31, 2021 of $315.8 million. As of October 31, 2022, we will no longer be an emerging growth company.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
We cannot predict if investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for securities and our stock price may be more volatile.
If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act or our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned, and our stock price may suffer.
Section 404 of the Sarbanes-Oxley Act requires any company subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its consolidated subsidiaries' internal control over financial reporting. To comply with this statute, we are currently required to document, test and report on our internal controls over financial reporting. In addition, starting in our 2022 fiscal year, our independent auditors will be required to issue an opinion on our audit of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of our testing, our management has previously identified and may identify in the future, material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act.
We may be adversely affected by recent developments relating to Brexit.
On January 31, 2020, the U.K. withdrew from the European Union ("EU"), which is commonly referred to as Brexit. On December 24, 2020, the U.K. and EU reached an agreement which contains rules for how the U.K. and EU are to live, work and trade together. On December 31, 2020, the transition period ended, and the U.K. left the EU single market and customs union.
While almost all of the work performed by our UK Operations segment is performed domestically in the U.K., the effects of and the perceptions as to the impact from the withdrawal of the U.K. from the EU has and may continue to adversely affect business activity and economic and market conditions in the U.K., the Eurozone, and globally and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the pound sterling and the euro. In addition, Brexit could lead to additional political, legal and economic instability in the EU or labor shortages due to changes and restrictions regarding the free movement of people into the U.K. from the EU. Since some of the proposed changes due to Brexit have only recently become effective (i.e. further tightening of border controls on January 1, 2022), the Company is still assessing and monitoring the impact that Brexit will have on its business. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect the value of our assets in the U.K., as well as our business, financial condition, results of operations and cash flows.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
We are subject to income taxes in the U.S. and U.K., and our domestic tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
● | expected timing and amount of the release of any tax valuation allowances; |
● | tax effects of stock-based compensation; |
● | costs related to intercompany restructurings; |
● | changes in tax laws, regulations or interpretations thereof; and |
● | lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates |
In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal and state authorities or by U.K. authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.
Changes in lawsor, regulations or rules, or a failure to comply with any laws, regulations or rules, may adversely affect our business, investments and results of operations.
We are subject to laws, regulations and rules enacted by national, regional and local governments and Nasdaq. In particular, we are required to comply with certain SEC, Nasdaq and other legal or regulatory requirements in the U.S. and U.K. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly. Those laws, regulations or rules and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws, regulations or rules, as interpreted and applied, could have a material adverse effect on our business and results of operations.
Employee Related Risks
Our business depends on favorable relations with our employees. Any deterioration of these relations, including those with our union-represented employees, issues with our collective bargaining agreements, labor shortages or increases in labor costs could disrupt our ability to serve our customers, lead to higher labor costs or the payment of withdrawal liability in connection with multiemployer plans, adversely affecting our business, financial condition and results of operations.
As of October 31, 2021, approximately 11% of our employees in the United States (but none of our employees in the United Kingdom) were represented by unions or covered by collective bargaining agreements. The states in which our employees are represented by unions or covered by collective bargaining agreements are California, Washington and Oregon. There can be no assurance that our non-unionized employees will not become members of a union or become covered by a collective bargaining agreement, including through an acquisition of a business whose employees are subject to such an agreement. Any significant deterioration in employee relations, shortages of labor or increases in labor costs at any of our locations could have a material adverse effect on our business, financial condition or results of operations. A slowdown or work stoppage that lasts for a significant period of time could cause lost revenues and increased costs and could adversely affect our ability to meet our customers' needs.
Furthermore, our labor costs could increase as a result of the settlement of actual or threatened labor disputes. In addition, our collective bargaining agreement with our union in California is effective through June 30, 2022 and will continue on a year-to-year basis after unless parties provide advance written notice to change, amend, modify, or terminate the Agreement. No such notices have been given or received. Our collective bargaining agreement with our union in Oregon expires in 2024. Our collective bargaining agreement with our union in Washington expires in 2037. We cannot assure you that renegotiation of these agreements will be successful or will not result in adverse economic terms or work stoppages or slowdowns.
Under our collective bargaining agreements, we are, and have previously been, obligated to contribute to several multiemployer pension plans on behalf of our unionized employees. A multiemployer pension plan is a defined benefit pension plan that provides pension benefits to the union-represented workers of various generally unrelated companies. Under the Employment Retirement Income Security Act of 1974 ("ERISA"), an employer that has an obligation to contribute to an underfunded multiemployer plan, as well as any other entities that are treated as a single employer with such employer under applicable tax and ERISA rules, may become jointly and severally liable, generally upon complete or partial withdrawal from a multiemployer plan, for its proportionate share of the plan's unfunded benefit obligations. These liabilities are known as "withdrawal liabilities." Certain of the multiemployer plans to which we are obligated to contribute have been significantly underfunded in the past. If any of the multiemployer plans were to become significantly underfunded again, and go into an "endangered status," the trustees of the plan would be required to adopt and maintain a rehabilitation plan and we may be required to pay a surcharge on top of our regular contributions to the plan.
We currently have no intention of withdrawing, in either a complete or partial withdrawal, from any of the multiemployer plans to which we currently contribute, and we have not been assessed any withdrawal liability in the past when we have ceased participating in certain multiemployer plans to which we previously contributed. In addition, we believe that the "construction industry" multiemployer plan exception may apply if we did withdraw from any of our current multiemployer plans. The "construction industry" exception generally delays the imposition of withdrawal liability in connection with an employer's withdrawal from a "construction industry" multiemployer plan unless and until (among other things) that employer continues or resumes covered operations in the relevant geographic market without continuing or resuming (as applicable) contributions to the multiemployer plan. If this exception applies, withdrawal liability may be delayed or even inapplicable if we cease participation in any multiemployer plan(s). However, there can be no assurance that we will not withdraw from one or more multiemployer plans in the future, that the "construction industry exception" would apply if we did withdraw, or that we will not incur withdrawal liability if we do withdraw. Accordingly, we may be required to pay material amounts of withdrawal liability if one or more of those plans is underfunded at the time of withdrawal and withdrawal liability applies in connection with our withdrawal. In addition, we may incur material liabilities if any multiemployer plan(s) in which we participate requires us to increase our contribution levels to alleviate existing underfunding and/or becomes insolvent, terminates or liquidates.
Labor relations matters at construction sites where we provide services may result in increases in our operating costs, disruptions in our business and decreases in our earnings.
Labor relations matters at construction sites where we provide services may result in work stoppages, which would in turn affect our ability to provide services at such locations. If any such work stoppages were to occur at work sites where we provide services, we could experience a significant disruption of our operations, which could materially and adversely affect our business, financial condition, results of operations, liquidity, and cash flows. Also, labor relations matters affecting our suppliers could adversely impact our business from time to time.
Turnover of members of our management, staff and pump operators and our ability to attract and retain key personnel may affect our ability to efficiently manage our business and execute our strategy.
Our business depends on the quality of, and our ability to attract and retain, our senior management and staff, and competition in our industry and the business world for top management talent is generally significant. Although we believe we generally have competitive pay packages, we can provide no assurance that our efforts to attract and retain senior management staff will be successful. In addition, the loss of services of certain members of our senior management could adversely affect our business until suitable replacements can be found.
We depend upon the quality of our staff personnel, including sales and customer service personnel who routinely interact with and fulfill the needs of our customers, and on our ability to attract and retain and motivate skilled operators and fleet maintenance personnel and other associated personnel to operate our equipment in order to provide our concrete pumping services to our customers. There is significant competition for qualified personnel in a number of our markets where we face competition from the oil and gas industry for qualified drivers and operators. There is a limited number of persons with the requisite skills to serve in these positions, and such positions require a significant investment by us in initial training of operators of our equipment. We cannot provide assurance that we will be able to locate, employ, or retain such qualified personnel on terms acceptable to us or at all. Our costs of operations and selling, general and administrative expenses have increased in certain markets and may increase in the future if we are required to increase wages and salaries to attract qualified personnel, and there is no assurance that we can increase our prices to offset any such cost increases. There is also no assurance that we can effectively limit staff turnover as competitors or other employers seek to hire our personnel. A significant increase in such turnover could negatively affect our business, financial condition, results of operations and cash flows.
Risks Related to our Indebtedness
Our financing agreements could limit our financial and operating flexibility.
Our credit facilities impose, and any future financing agreements could impose, operating and financial restrictions on our activities, including restricting our ability to incur additional indebtedness, pay dividends or make other payments, make loans and investments, sell assets, incur certain liens, enter into transactions with affiliates and consolidate, merge or sell assets. These covenants could limit the ability of the respective restricted entities to fund future working capital and capital expenditures, engage in future acquisitions or development activities, or otherwise realize the value of their assets and opportunities fully because of the need to dedicate a portion of cash flow from operations to payments on debt. In addition, such covenants limit the flexibility of the respective restricted entities in planning for, or reacting to, changes in the industries in which they operate.
We have a significant amount of indebtedness, which could adversely affect our cash flow and our ability to operate our business and to fulfill our obligations under our indebtedness.
We have a significant amount of indebtedness. As of October 31, 2021, we had $376.0 million of indebtedness outstanding in addition to $120.6 million of availability under our ABL Facility.
Our substantial level of indebtedness increases the possibility that we may not generate enough cash flow from operations to pay, when due, the principal of, interest on or other amounts due in respect of, these obligations. Other risks relating to our long-term indebtedness include:
● | increased vulnerability to general adverse economic and industry conditions; |
● | higher interest expense if interest rates increase on our floating rate borrowings and our hedging strategies do not effectively mitigate the effects of these increases; |
● | need to divert a significant portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions, investments and other general corporate purposes; |
● | limited ability to obtain additional financing, on terms we find acceptable, if needed, for working capital, capital expenditures, acquisitions and other investments, which may adversely affect our ability to implement our business strategy; |
● | limited flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate or to take advantage of market opportunities; and |
● | a competitive disadvantage compared to our competitors that have less debt. |
In addition, it is possible that we may need to incur additional indebtedness in the future in the ordinary course of business. The terms of our senior secured second lien notes due 2026 (the "Senior Notes") and ABL credit agreement (the "ABL Facility") allow us to incur additional debt subject to certain limitations. If new debt is added to current debt levels, the risks described above could intensify. In addition, our inability to maintain certain leverage ratios could result in acceleration of a portion of our debt obligations and could cause us to be in default if we are unable to repay the accelerated obligations.
Changes in interest rates may adversely affect our earnings and/or cash flows.
On July 27, 2017, the United Kingdom's Financial Conduct Authority ("FCA"), which regulates the London Inter-Bank Offered Rate ("LIBOR"), announced that after December 31, 2021, it would no longer compel banks to submit the rates required to calculate LIBOR. On March 5, 2021, the ICE Benchmark Administration, which administers LIBOR, and the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative immediately after December 31, 2021, for all non-U.S. dollar LIBOR settings and one-week and two-month U.S. dollar LIBOR settings, and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings (the "LIBOR Announcement").
For USD borrowings, our ABL Facility currently bears interest at variable interest rates that use LIBOR. As a result of the LIBOR Announcement, during fiscal 2021, we modified our ABL Facility as it pertains to GBP borrowings, changing the benchmarks to be used starting October 1, 2021, to the Sterling Overnight Interbank Average Rate ("SONIA"). No modification has been made yet to our ABL Facility as it pertains to USD borrowings, though changes will be required in the future. Currently, it is anticipated that the new benchmark for our USD borrowings will be the Secured Overnight Financing Rate ("SOFR"). The shift to SOFR and SONIA from LIBOR is complex and may adversely affect our business, financial condition, results of operations, liquidity and cash flows.
Our business could be hurt if we are unable to obtain capital as required, resulting in a decrease in our revenue and cash flows.
We require capital for, among other purposes, purchasing equipment to replace existing equipment that has reached the end of its useful life and for growth resulting from expansion into new markets, completing acquisitions and refinancing existing debt. If the cash that we generate from our business, together with cash that we may borrow under our credit facilities, is not sufficient to fund our capital requirements, we will require additional debt or equity financing. If such additional financing is not available to fund our capital requirements, we could suffer a decrease in our revenue and cash flows that would have a material adverse effect on our business. Furthermore, our ability to incur additional debt is and will be contingent upon, among other things, the covenants contained in our credit facilities. In addition, our credit facilities place restrictions on our and our restricted subsidiaries' ability to pay dividends and make other restricted payments (subject to certain exceptions). We cannot be certain that any additional financing that we require will be available or, if available, will be available on terms that are satisfactory to us. If we are unable to obtain sufficient additional capital in the future, our business could be materially adversely affected.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under applicable debt instruments, which may not be successful.
Our ability to make scheduled payments on or to refinance our indebtedness obligations, including our credit facilities, depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund debt service obligations, we may be forced to reduce or delay investments and capital expenditures, sell assets, seek additional capital or restructure or refinance indebtedness. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness.
Risks Related to our Securities
There can be no assurance that we will be able to comply with Nasdaq's continued listing standards.
If Nasdaq delists our shares of common stock from trading on its exchange for failure to meet the continued listing standards, we and our shareholders could face significant material adverse consequences including:
● | a limited availability of market quotations for our shares; |
● | a determination that our common stock is a "penny stock" which will require brokers trading in our common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock; |
● | a decreased ability to issue additional shares or obtain additional financing in the future. |
Shares of our common stock have been thinly traded in the past.
Although a trading market for our common stock exists, the trading volume has not been significant and there can be no assurance that an active trading market for our common stock will develop or, if developed, be sustained in the future. As a result of the thin trading market or "float" for our stock, the market price for our common stock may fluctuate significantly more than the stock market as a whole. Without a large float, our common stock is less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile. In the absence of an active public trading market, an investor may be unable to liquidate his or her investment in our common stock. Trading of a relatively small volume of our common stock may have a greater impact on the trading price for our stock than would be the case if our public float were larger. We cannot predict the prices at which our common stock will trade in the future.
In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our shares of common stock become delisted from Nasdaq for any reason, and are quoted on the OTC Markets, the liquidity and price of our shares may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your shares unless a market can be established or sustained.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our industry, or if they change their recommendations regarding our common stock adversely, then the price and trading volume of our common stock could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our industry, or our competitors. If any of the analysts who may cover the Company change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our peers, the price of our common stock would likely decline. If any analyst who covers the Company were to cease coverage of the Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline.
The sale of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
CFLL Holdings, LLC owns 15,477,138 shares, or 27% of outstanding shares of common stock and BBCP Investors, LLC owns 11,005,275 shares, or 20% of our outstanding shares of our common stock. These shares are registered for resale and are not subject to any contractual restrictions on transfer. The sale of some or all of these shares by these investors could put downward pressure on the market price of our common stock.
In addition, the shares of our common stock reserved for future issuance under our Omnibus Incentive Plan will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and Rule 144, as applicable. Following an amendment to our 2018 Omnibus Incentive Plan on October 29, 2020, a total of 4.8 million shares of common stock were reserved for issuance under our 2018 Omnibus Incentive Plan, of which 0.4 million shares of common stock remain available for future issuance as of October 31, 2021. In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to holders of our common stock.
Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality, adverse weather and other factors, some of which are beyond our control, resulting in a decline in our stock price.
Our quarterly operating results may fluctuate significantly because of several factors, including:
● | labor availability and costs for hourly and management personnel; |
● | profitability of our products, especially in new markets and due to seasonal fluctuations; |
| ● | seasonal weather patterns in the construction industry on which we rely, with activity tending to be lowest in the winter and spring; | |
● | changes in interest rates; |
● | impairment of long-lived assets; |
● | macroeconomic conditions, both nationally and locally; |
● | negative publicity relating to products we serve; |
● | changes in consumer preferences and competitive conditions; |
● | expansion to new markets; and |
● | fluctuations in commodity prices. |
We may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least 65% of the then-outstanding warrants. As a result, the exercise price of our warrants could be increased, the exercise period could be shortened and the number of shares of common stock purchasable upon exercise of a warrant could be decreased without a warrant holder's approval.
Our warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision but requires the approval by the holders of at least 65% of the then-outstanding public warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least 65% of the then-outstanding public warrants approve of such amendment. Although our ability to amend the terms of the warrants with the consent of at least 65% of the then-outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of common stock purchasable upon exercise of a warrant or automatically at our option.
Our warrants are exercisable for common stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
As of October 31, 2021, there were 13,017,777 public warrants and no private placement warrants outstanding, respectively. The public warrants have an exercise price of $11.50 per share. To the extent such warrants are exercised, additional shares of common stock will be issued, which will result in dilution to the holders of common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our common stock.
We are a holding company with no business operations of our own and we depend on cash flow from our wholly owned subsidiaries to meet our obligations.
We are a holding company with no business operations of its own or material assets other than the stock of our subsidiaries, all of which are wholly-owned. All of our operations are conducted by our subsidiaries and as a holding company, we require dividends and other payments from our subsidiaries to meet cash requirements. The terms of any credit facility may restrict our subsidiaries from paying dividends and otherwise transferring cash or other assets to us. If there is an insolvency, liquidation or other reorganization of any of our subsidiaries, our stockholders likely will have no right to proceed against their assets. Creditors of those subsidiaries will be entitled to payment in full from the sale or other disposal of the assets of those subsidiaries before we, as an equity holder, would be entitled to receive any distribution from that sale or disposal. If our subsidiaries are unable to pay dividends or make other payments to us when needed, we will be unable to satisfy our obligations.
Anti-takeover provisions contained in the Company's Charter and Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
The Charter of the Company contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. These provisions include:
● | a staggered board of directors providing for three classes of directors, which limits the ability of a stockholder or group to gain control of our Board; |
● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
● | the right of our Board to elect a director to fill a vacancy created by the expansion of our Board or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our Board; |
● | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; |
● | a prohibition on stockholders calling a special meeting and the requirement that a meeting of stockholders may only be called by members of our Board, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and |
● | advance notice procedures that stockholders must comply with in order to nominate candidates to our Board or to propose matters to be acted upon at a meeting of stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us. |
The Charter of the Company designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
The Charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or our stockholders, (iii) any action asserting a claim against the Company, our directors, officers or employees arising pursuant to any provision of the DGCL, the Charter or the Bylaws, or (iv) any action asserting a claim against the Company, our directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim (A) as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or (C) arising under the Securities Act or for which the Court of Chancery does not have subject matter jurisdiction including, without limitation, any claim arising under the Exchange Act, as to which the federal district court for the District of Delaware shall be the sole and exclusive forum.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of the Charter described in the preceding paragraph. However, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and such persons. Alternatively, a court may determine that the choice of forum provision is unenforceable. If a court were to find these provisions of the Charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties
Our corporate office is located at 500 E. 84th Avenue, Suite A-5, Thornton, CO 80229, where we lease approximately 13,415 square feet of office space in the building. We operate from a base of approximately 90 locations in 19 states in the U.S. and 30 locations in the U.K. as of October 31, 2021. We own 16 of our locations in the U.S. We lease all remaining U.S locations and all of our locations in the U.K. Certain facilities are shared between Brundage-Bone and Eco-Pan and certain locations operate without a formal lease. We believe that our properties are suitable for our current operating needs.
Item 3. Legal Proceedings
From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any litigation that we believe to be material and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect of our business, operating result, financial condition or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is currently listed on Nasdaq under the symbol "BBCP" and our public warrants are quoted on the OTC Pink marketplace operated by OTC Markets Group, Inc. under the symbol "BBCPW." As of October 31, 2021, there were 126 holders of record of shares of our common stock and 1 holder of record of our public warrants. A substantially greater number of holders of common stock are "street name" or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions. As a result, we are unable to estimate the total number of stockholders represented by the record holders of our common stock.
Dividend Policy
The Company has not paid any cash dividends on its common stock to date. It is the present intention of the Company to retain any earnings for use in its business operations and, accordingly, the Company does not anticipate the Board declaring any dividends in the foreseeable future.
Item 6. [Reserved]
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 Note Regarding Forward-Looking Statements," 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 Delaware corporation headquartered in Thornton, 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 our 2018 acquisition of Richard O'Brien Companies and its affiliates, which solidified our presence in the Colorado and Phoenix, Arizona markets and our 2019 acquisition of Capital and its affiliates, which provided us with complementary assets and operations and significantly expanded our geographic footprint and business in Texas.
U.S. Concrete Pumping
All businesses operating within our U.S Concrete 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 neither company contracts to purchase, mix, or deliver concrete. This segment collectively has approximately 90 branch locations across 19 states with their corporate headquarters in Thornton (near Denver), Colorado.
In September 2021, the Company acquired assets from Hi-Tech Concrete Pumping Services ("Hi-Tech") for the total purchase consideration of $12.3 million. This acquisition added complementary assets in our Texas market. In addition, the Company completed its greenfield expansion into Las Vegas during fiscal 2021. Subsequent to the fiscal 2021 year end, the Company acquired the assets of Pioneer Concrete Pumping Service, Inc. ("Pioneer") in November 2021 for the purchase price of $20.1 million, which added complementary assets in our Georgia and Texas markets.
U.S. Concrete Waste Management Services
Our U.S. Concrete Waste Management Services segment 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 17 operating locations across the U.S. with its corporate headquarters in Thornton, Colorado.
U.K. Operations
Our U.K. Operations segment consists of our Camfaud, Premier and U.K. based Eco-Pan businesses. Camfaud is 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. Camfaud has 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 Camfaud location.
Corporate
Our Corporate segment is primarily related to the intercompany leasing of real estate to certain of our U.S Concrete Pumping branches.
Impacts of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has rapidly changed market and economic conditions globally and may continue to create significant uncertainty in the macroeconomic environment.
In addition, the COVID-19 pandemic drove a sustained decline in the Company's stock price and a deterioration in general economic conditions in its fiscal 2020 second quarter, which qualified as a triggering event necessitating the evaluation of its goodwill and long-lived assets for indicators of impairment. As a result of the evaluation, the Company conducted a quantitative interim impairment test as of April 30, 2020. Through October 31, 2021, no impairments were identified. The Company will continue to evaluate its goodwill and intangible assets in future quarters. Additional impairments may be recorded in the future based on events and circumstances, including those related to COVID-19 discussed above.
Despite recent progress in the administration of vaccines, both the outbreak of recent variants, including Delta and Omicron, and the related containment and mitigation measures that have been put into place across the globe, have had and are likely to continue to have a serious adverse impact on the global economy and the Company, the severity and duration of which are uncertain. To date, the COVID-19 pandemic has negatively impacted the Company's revenue volumes primarily in the U.K. and certain markets in the U.S. This impact was most heavily pronounced in the second and third quarters of fiscal 2020. Beginning in the fourth quarter of fiscal 2020, revenue volumes began showing signs of improvement, and as of fiscal 2021 year-end, they have largely returned back to pre-pandemic levels for most of our markets in the U.S. and near pre-pandemic levels in the U.K.; however, the impact from COVID-19 remains an issue in certain markets. The full extent to which the COVID-19 pandemic will impact the Company's business, financial condition, and results of operations in the future is highly uncertain and will be affected by a number of factors. These include the duration and extent of the pandemic; the duration and extent of imposed or recommended containment and mitigation measures; the extent, duration, and effective execution of government stabilization and recovery efforts, including those from the successful distribution of an effective vaccine; the impact of the pandemic on economic activity, including on construction projects and the Company's customers' demand for its services; the Company's ability to effectively operate, including as a result of travel restrictions and mandatory business and facility closures; the ability of the Company's customers to pay for services rendered; any further closures of the Company's and the Company's customers' offices and facilities and inability to retain employees; and any additional project delays or shutdowns. Customers have and may continue to slow down decision-making, delay planned work or seek to terminate existing agreements. Any of these events may have a material adverse effect on the Company's business, financial condition, and/or results of operations, including further impairment to our goodwill and intangible assets. The Company will continue to evaluate the effect of COVID-19 on its business.
Notes Offering
In January 2021, Brundage-Bone, closed its private offering of $375.0 million in 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 million of 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.
Restatement and Revision of Prior Period Financial Statements
As described in additional detail in the Explanatory Note to our Annual Report on Form 10-K/A for the year ended October 31, 2020, filed with the SEC on June 11, 2021, the SEC released a public statement on April 12, 2021 (the "SEC Statement") informing market participants that warrants issued by special purpose acquisition companies ("SPACs") may require classification as a liability of the entity measured at fair value, with changes in fair value each period reported in earnings.
The Company previously classified its publicly traded warrants (the "public warrants") and private placement warrants (the "private warrants") (collectively the "Warrants"), which were issued in August of 2017, as equity. Following consideration of the guidance in the SEC Statement, the Company concluded that its Warrants should have been classified as liabilities and measured at fair value, with changes in fair value each period reported in earnings. As such, the Company previously restated its consolidated financial statements as of October 31, 2019 and, while not material, the Company previously revised its consolidated financial statements as of and for the fiscal year ended October 31, 2020 to correct the accounting for its Warrants. The consolidated financial statements for the year ended October 31, 2020 included in this Annual Report on Form 10-K reflect the impacts of such revisions.
Results of Operations
Year Ended October 31, | ||||||||
(dollars in thousands) | 2021 | 2020 | ||||||
Revenue | $ | 315,808 | $ | 304,301 | ||||
Cost of operations | 178,081 | 166,998 | ||||||
Gross profit | 137,727 | 137,303 | ||||||
Gross margin | 43.6 | % | 45.1 | % | ||||
General and administrative expenses | 99,369 | 111,087 | ||||||
Goodwill and intangibles impairment | - | 57,944 | ||||||
Transaction costs | 312 | - | ||||||
Income (loss) from operations | 38,046 | (31,728 | ) | |||||
Other income (expense): | ||||||||
Interest expense, net | (25,190 | ) | (34,408 | ) | ||||
Loss on extinguishment of debt | (15,510 | ) | - | |||||
Change in fair value of warrant liabilities | (9,894 | ) | (261 | ) | ||||
Other income, net | 117 | 169 | ||||||
Total other expense | (50,477 | ) | (34,500 | ) | ||||
Loss before income taxes | (12,431 | ) | (66,228 | ) | ||||
Income tax expense (benefit) | 2,642 | (4,977 | ) | |||||
Net loss | (15,073 | ) | (61,251 | ) | ||||
Less accretion of liquidation preference on preferred stock | (1,750 | ) | (1,930 | ) | ||||
Loss available to common shareholders | $ | (16,823 | ) | $ | (63,181 | ) |
Twelve Months Ended October 31, 2021 and October 31, 2020
For the twelve-months ended October 31, 2021, our net loss was $15.1 million, compared to a net loss of $61.3 million in the same period a year ago. The primary drivers impacting comparability between the two periods were (1) an $11.7 million improvement in general and administrative ("G&A") expenses, (2) a $57.9 million goodwill and intangibles impairment recorded in fiscal 2020 (with no related charge recorded in fiscal 2021), (3) a $9.2 million reduction in interest expense, offset by (4) a $15.5 million loss on extinguishment of debt recorded in fiscal 2021 (with no related charge in fiscal 2020), (5) $9.6 million in higher expense from the revaluation of warrant liabilities from fiscal 2020 to fiscal 2021 and (6) $7.7 million in higher income tax expense in fiscal 2021 when compared to fiscal 2020.
Total Assets
October 31, | October 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Total Assets | ||||||||
U.S. Concrete Pumping | $ | 591,820 | $ | 570,536 | ||||
U.K. Operations | 109,631 | 109,726 | ||||||
U.S. Concrete Waste Management Services | 145,199 | 140,209 | ||||||
Corporate | 26,648 | 25,517 | ||||||
Intersegment | (80,633 | ) | (72,230 | ) | ||||
| $ | 792,665 | $ | 773,758 |
Total assets increased from $773.8 million as of October 31, 2020 to $792.7 million as of October 31, 2021. The increase was primarily attributable to growth in our U.S Concrete Pumping segment where we have grown organically through capital expenditures while also completing some limited asset acquisitions during the third and fourth quarters of fiscal 2021.
Revenue
Year Ended October 31, | Change | |||||||||||||||
(in thousands) | 2021 | 2020 | $ | % | ||||||||||||
Revenue | ||||||||||||||||
U.S. Concrete Pumping | $ | 229,475 | $ | 229,740 | $ | (265 | ) | -0.1 | % | |||||||
U.K. Operations | 48,098 | 39,145 | 8,953 | 22.9 | % | |||||||||||
U.S. Concrete Waste Management Services | 38,591 | 35,890 | 2,701 | 7.5 | % | |||||||||||
Corporate | 2,500 | 2,500 | - | 0.0 | % | |||||||||||
Intersegment | (2,856 | ) | (2,974 | ) | 118 | -4.0 | % | |||||||||
Total revenue | $ | 315,808 | $ | 304,301 | $ | 11,507 | 3.8 | % |
U.S. Concrete Pumping
Revenue for our U.S. Concrete Pumping segment decreased by 0.1%, or $0.3 million, from $229.7 million in the twelve-months ended October 31, 2020 to $229.5 million for fiscal 2021. Revenue attributable to growth investments was $1.7 million for fiscal 2021. While revenue in many of our markets has returned back to, or even improved from pre-pandemic levels, the impact from COVID-19 in certain markets, especially on commercial work, remains an issue and therefore drove the slight decline in revenue. In addition, certain of our markets, most notably in Texas, the South East and the central part of the United States, experienced severe adverse weather during fiscal 2021, which included much higher than average levels of precipitation and some historically rare freezing temperatures, which impacted our ability to provide service.
U.K. Operations
Revenue for our U.K. Operations segment increased by 22.9%, or $9.0 million, from $39.1 million in the twelve-months ended October 31, 2020 to $48.1 million for fiscal 2021. Excluding the impact from foreign currency translation, revenue was up 14.0% year-over-year. The increase in revenue was primarily attributable to the recovery from the impact of COVID-19.
U.S. Concrete Waste Management Services
Revenue for the U.S. Concrete Waste Management Services segment improved by 7.5%, or $2.7 million, from $35.9 million in the twelve-months ended October 31, 2020 to $38.6 million for fiscal 2021. The increase in revenue was primarily due to organic growth and pricing improvements that more than offset impacts from COVID-19 in certain markets.
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 U.S Concrete Pumping branches. These revenues are eliminated in consolidation through the Intersegment line item.
Gross Margin
Gross margin for the twelve-months ended October 31, 2021 decreased 150 basis points from 45.1% in the twelve-months ended October 31, 2020 to 43.6%. The slight decrease in gross margin for the twelve-months ended October 31, 2021 was primarily due to inflationary pressures seen throughout the U.S., specifically for labor and fuel costs.
General and Administrative Expenses
G&A expenses for the twelve-months ended October 31, 2021 were $99.4 million, a decrease of $11.7 million from $111.1 million in the twelve-months ended October 31, 2020. The overall decrease was largely due to (1) a $4.9 million decrease in stock-based compensation expense and (2) a $6.3 million decrease in the amortization of intangible assets.
G&A expenses as a percent of revenue were 31.5% for fiscal 2021 compared to 36.5% for the same period a year ago. Excluding non-cash costs for depreciation expense, amortization of intangibles, and stock-based compensation expense, our G&A expenses were $63.6 million for the fiscal year 2021 (20.1% of revenue), down $1.0 million from $64.4 million for fiscal 2020 (21.2% of revenue).
Goodwill and Intangibles Impairment
During the second quarter of fiscal year 2020, as a result of the COVID-19 impact on the Company's market capitalization, with the assistance of a third party valuation specialist, we performed an interim impairment test over our indefinite-lived trade name intangible assets and goodwill as of April 30, 2020. The analysis resulted in $57.9 million in impairments, including a $5.0 million impairment of our Brundage-Bone trade-name, a $38.5 million goodwill impairment for our U.S Concrete Pumping reporting unit and a $14.4 million impairment to our U.K. Operations reporting unit. No impairments were identified through October 31, 2021.
Change in Fair Value of Warrant Liabilities
During the years ended October 31, 2021 and 2020 we recognized a $9.9 million and a $0.3 million expense, respectively, on the fair value remeasurement of our liability-classified warrants. The increase seen in the fair value remeasurement of the public warrants year-over-year is due to the substantial increase in the Company's share price.
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 for the twelve months ended October 31, 2021 were $0.3 million and there were no transaction costs during fiscal 2020.
On January 28, 2021, we (1) closed on our private offering of $375.0 million in aggregate principal amount of Senior Notes, (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. In connection with the foregoing, we incurred $15.5 million in debt extinguishment costs relating to the write-off of all unamortized deferred debt issuance costs that were related to the Term Loan Agreement. No such charges were incurred in fiscal 2020.
Interest Expense, Net
Interest expense, net for the year ended October 31, 2021 was $25.2 million, down $9.2 million from the same period from a year ago due to having lower average debt from strategic refinance activities secured in January 2021 and the associated lower competitive interest rates during the fiscal 2021 periods when compared to the fiscal 2020 periods.
Income Tax (Benefit) Provision
For the twelve-months ended October 31, 2021, the Company recorded an income tax expense of $2.6 million on a pretax loss of $12.4 million. Our income tax provision was mostly impacted by the following factors during fiscal 2021:
(1) | Of the $9.9 million expense that was recorded related to the revaluation 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 U.K. from 19% to 25% that goes into effect on April 1, 2023, the Company adjusted the value of its net deferred tax liability, resulting in an increase to income tax expense of $2.1 million. |
For the twelve-months ended October 31, 2020, the Company recorded an income tax benefit of $5.0 million on a pretax loss of $66.0 million. Our income tax provision was mostly impacted by the following factors during fiscal 2020:
(1) | Of the $57.9 million of impairments recorded for goodwill and intangibles by the Company during the second quarter of fiscal 2020, only $11.2 million was deductible for tax purposes ($2.7 million tax benefit to the Company) as the remaining impairment was related to nondeductible goodwill; | |
(2) | We recorded a tax benefit of $1.4 million in fiscal 2020 related to write-up in the carrying value of certain net operating losses ("NOL") carryforwards as it was determined that those NOLs would be carried back to prior years pursuant to the provisions included in the CARES Act; and | |
(3) | As a result of the increase in the deferred statutory U.K. corporate tax rate from 17% to 19% in fiscal 2020, we recorded $0.9 million of tax expense. |
Adjusted EBITDA1and Net Loss
Net Loss | Adjusted EBITDA | |||||||||||||||||||||||
Year Ended October 31, | Year Ended October 31, | Change | ||||||||||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | $ | % | ||||||||||||||||||
U.S. Concrete Pumping | $ | (10,959 | ) | $ | (50,140 | ) | $ | 68,091 | $ | 74,886 | $ | (6,795 | ) | -9.1 | % | |||||||||
U.K. Operations | (1,028 | ) | (16,620 | ) | 15,339 | 12,228 | 3,111 | 25.4 | % | |||||||||||||||
U.S. Concrete Waste Management Services | 5,500 | 4,404 | 18,411 | 17,686 | 725 | 4.1 | % | |||||||||||||||||
Corporate | (8,586 | ) | 1,105 | 2,501 | 2,501 | - | 0.0 | % | ||||||||||||||||
Total | $ | (15,073 | ) | $ | (61,251 | ) | $ | 104,342 | $ | 107,301 | $ | (2,959 | ) | -2.8 | % |
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 Pumping
Adjusted EBITDA for our U.S. Concrete Pumping segment was $68.1 million for the twelve-months ended October 31, 2021, down 9.1% from $74.9 million for the twelve-months ended October 31, 2020. The year-over-year decline was primarily attributable to the year-over-year change in revenue and higher costs due to inflation that drove a slight decline in our gross margins as discussed previously.
U.K. Operations
Adjusted EBITDA for our U.K. Operations segment was $15.3 million for the twelve-months ended October 31, 2021, up 25.4% from $12.2 million for the twelve-months ended October 31, 2020. The year-over-year increase was primarily attributable to the year-over-year improvement in revenue discussed previously.
U.S. Concrete Waste Management Services
Adjusted EBITDA for our U.S. Concrete Waste Management Services segment was $18.4 million for the twelve-months ended October 31, 2021, up 4.1% from $17.7 million for the twelve-months ended October 31, 2020. The increase was primarily attributable to the year-over-year change in revenue discussed previously.
Corporate
There was no change in Adjusted EBITDA for our Corporate segment for the periods presented.
Liquidity and Capital Resources
Overview
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. 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 $125.0 million, subject to a borrowing base limitation. As of October 31, 2021, we had $9.3 million of cash and cash equivalents and $120.6 million of available borrowing capacity under the ABL Facility, providing total available liquidity of $129.9 million.
Capital Resources
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. 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 agreements in place governing such debt could provide for operating and financing covenants that could restrict our operations.
Senior Notes and ABL Facility
On January 28, 2021, Brundage-Bone (the "Issuer") (i) completed a private offering of $375.0 million in aggregate principal amount of its 6.000% 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 (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 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. Summarized terms of these facilities are included below.
Term Loan Agreement and ABL Credit Agreement
As part of the Business Combination, the Company entered into (i) a Term Loan Agreement, dated December 6, 2018, among the Company, certain subsidiaries of the Company, Credit Suisse AG, Cayman Islands Branch as administrative agent and Credit Suisse Loan Funding LLC, Jefferies Finance LLC and Stifel Nicolaus & Company Incorporated LLC as joint lead arrangers and joint bookrunners, and the other Lenders party thereto (as amended, the "Term Loan Agreement") and (ii) a Credit Agreement, dated December 6, 2018, 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 and the other parties thereto ("ABL Credit Agreement"). As noted above, the Term Loan Agreement was repaid and the ABL Credit Agreement was amended on January 28, 2021.
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 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; |
● | 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 October 31, 2021 was $375.0 million and as of that date, the Company was in compliance with all covenants under the Indenture.
Asset Based Revolving Lending Facility
Summarized terms of the ABL Facility are as follows:
● | Borrowing availability in USD and GBP up to a maximum aggregate principal amount of $125.0 million and an accordion feature under which the Company can increase the ABL Facility by up to an additional $75.0 million; |
● | Up to $7.5 million of the borrowing capacity available for standby letters of credit; |
● | All loans advanced will mature and be due and payable, and the facility will terminate, in full on January 28, 2026; |
● | Amounts borrowed may be repaid and reborrowed at any time, subject to the terms and conditions of the agreement; |
● | Borrowings in USD and GBP (through September 30, 2021 for GBP borrowings) bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at 2.0% and 1.00% per annum, respectively. After September 30, 2021, borrowings in GBP bear interest at the SONIA rate plus an applicable margin currently set at 2.0326%. The applicable margin with respect to the ABL Facility is subject to a step-down of 0.25% based on excess availability levels; |
| ● | The unused line fee percentage is 25 basis points if the quarterly average amount drawn is greater than 50% of the borrowing availability; 50 basis points if the quarterly average amount drawn is less than 50% of borrowing availability; | |
● | US ABL Facility obligations will be secured by a first-priority perfected security interest in substantially all the assets of the US ABL Guarantors, subject to certain exceptions; |
● | UK ABL Facility obligations will be secured by a first priority perfected security interest in substantially all assets of the US ABL Guarantors and the UK 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 October 31, 2021 was $1.0 million and the Company was in compliance with all debt covenants thereunder.
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 customers paying the Company as invoices are submitted daily for many 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, 2021 was $75.8 million. The Company had a net loss of $15.1 million that included a decrease of $2.5 million in our net deferred income taxes, a gain on sale of assets of $1.2 million and significant non-cash charges, net totaling $90.2 million as 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 million increase in the fair value of warrant liabilities. In addition, we had cash inflows related to the following activity: (1) an increase of $4.0 million in accounts payable, (2) an increase of $1.0 million in accrued payroll, accrued expenses and other current liabilities and (3) an increase of $0.5 million in income taxes payable. These amounts were partially offset by outflows related to the following activity: (1) an increase of $4.2 million in trade receivables, and (2) an increase of prepaid expenses and other current assets of $1.8 million.
We used $56.6 million to fund investing activities during the twelve-months ended October 31, 2021. The Company used $62.8 million for the purchase of property, plant and equipment and $0.8 million for the purchase of intangible assets. These amounts were partially offset by $7.0 million in proceeds from the sale of property, plant and equipment.
Net cash used in financing activities was $16.0 million for the twelve-months ended October 31, 2021. Financing activities during this period included $0.9 million in net payments under the Company's ABL Facility, $375.0 million in proceeds from the issuance of Senior Notes, $381.2 million in payments made to extinguish the Company's Term Loan Agreement and $8.5 million in the payment of debt issuance costs.
Net cash provided by operating activities during the twelve-months ended October 31, 2020 was $79.0 million. The Company had a net loss of $61.3 million that included an increase of $1.0 million in our net deferred income taxes, a gain on sale of assets of $1.5 million and significant non-cash charges, net totaling $132.4 million as follows: (1) goodwill and intangibles impairment of $57.9 million, (2) depreciation of $28.3 million, (3) amortization of intangible assets of $33.4 million, (4) amortization of deferred financing costs of $4.1 million (5) stock-based compensation expense of $11.5 million and (6) change in fair value of warrant liabilities of $0.3 million. In addition, we had cash inflows related to the following activity: (1) a decrease of $1.6 million in trade receivables, (2) a decrease of prepaid expenses and other current assets of $1.7 million, and (3) an increase of $5.8 million in accrued payroll, accrued expenses and other current liabilities. These amounts were partially offset by outflows related to the following activity: (1) a decrease of $1.0 million in income taxes payable, (2) a decrease of $0.8 million in accounts payable, and (3) a $0.5 million payment of contingent consideration in connection with the acquisition of Camfaud in excess of amounts established in purchase accounting.
We used $35.9 million to fund investing activities during the twelve-months ended October 31, 2020. The Company used $39.3 million for the purchase of property, plant and equipment, which was partially offset by $3.5 million in proceeds from the sale of property, plant and equipment.
Net cash used in financing activities was $43.9 million for the twelve-months ended October 31, 2020. Financing activities during this period included $21.7 million in net payments under the Company's ABL Credit Agreement, $20.9 million in payments on the Company's Term Loan Agreement, and the payment of the contingent consideration in connection with the acquisition of Camfaud of $1.2 million.
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, 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 provide 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, expenses related to being a newly publicly-traded company and other non-recurring costs, which includes the $2.0 million charge recorded during fiscal 2020 related to a settlement with the Company's prior shareholders.
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
Consolidated | ||||||||
Net loss | $ | (15,073 | ) | $ | (61,251 | ) | ||
Interest expense, net | 25,190 | 34,408 | ||||||
Income tax expense (benefit) | 2,642 | (4,977 | ) | |||||
Depreciation and amortization | 55,906 | 61,655 | ||||||
EBITDA | 68,665 | 29,835 | ||||||
Transaction expenses | 312 | - | ||||||
Loss on debt extinguishment | 15,510 | - | ||||||
Stock-based compensation | 6,591 | 11,455 | ||||||
Change in fair value of warrant liabilities | 9,894 | 261 | ||||||
Other income, net | (117 | ) | (169 | ) | ||||
Goodwill and intangibles impairment | - | 57,944 | ||||||
Other adjustments | 3,487 | 7,975 | ||||||
Adjusted EBITDA | $ | 104,342 | $ | 107,301 | ||||
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
U.S. Concrete Pumping | ||||||||
Net loss | $ | (10,959 | ) | $ | (50,140 | ) | ||
Interest expense, net | 22,031 | 31,452 | ||||||
Income tax benefit | (956 | ) | (5,955 | ) | ||||
Depreciation and amortization | 37,381 | 41,717 | ||||||
EBITDA | 47,497 | 17,074 | ||||||
Transaction expenses | 312 | - | ||||||
Loss on debt extinguishment | 15,510 | - | ||||||
Stock-based compensation | 6,591 | 11,455 | ||||||
Other income, net | (42 | ) | (37 | ) | ||||
Goodwill and intangibles impairment | - | 43,500 | ||||||
Other adjustments | (1,777 | ) | 2,894 | |||||
Adjusted EBITDA | $ | 68,091 | $ | 74,886 |
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
U.K. Operations | ||||||||
Net loss | $ | (1,028 | ) | $ | (16,620 | ) | ||
Interest expense, net | 3,159 | 2,955 | ||||||
Income tax expense | 1,759 | 80 | ||||||
Depreciation and amortization | 8,238 | 8,422 | ||||||
EBITDA | 12,128 | (5,163 | ) | |||||
Transaction expenses | - | - | ||||||
Loss on debt extinguishment | - | - | ||||||
Stock-based compensation | - | - | ||||||
Other income, net | (53 | ) | (132 | ) | ||||
Goodwill and intangibles impairment | - | 14,444 | ||||||
Other adjustments | 3,264 | 3,079 | ||||||
Adjusted EBITDA | $ | 15,339 | $ | 12,228 |
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
U.S. Concrete Waste Management Services | ||||||||
Net income | $ | 5,500 | $ | 4,404 | ||||
Interest expense, net | - | - | ||||||
Income tax expense | 1,486 | 593 | ||||||
Depreciation and amortization | 9,447 | 10,687 | ||||||
EBITDA | 16,433 | 15,684 | ||||||
Transaction expenses | - | - | ||||||
Loss on debt extinguishment | - | - | ||||||
Stock-based compensation | - | - | ||||||
Other income, net | (22 | ) | - | |||||
Goodwill and intangibles impairment | - | - | ||||||
Other adjustments | 2,000 | 2,002 | ||||||
Adjusted EBITDA | $ | 18,411 | $ | 17,686 |
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
Corporate | ||||||||
Net income (loss) | $ | (8,586 | ) | $ | 1,105 | |||
Interest expense, net | - | 1 | ||||||
Income tax expense | 353 | 305 | ||||||
Depreciation and amortization | 840 | 829 | ||||||
EBITDA | (7,393 | ) | 2,240 | |||||
Transaction expenses | - | - | ||||||
Loss on debt extinguishment | - | - | ||||||
Stock-based compensation | - | - | ||||||
Change in fair value of warrant liabilities | 9,894 | 261 | ||||||
Other income, net | - | - | ||||||
Goodwill and intangibles impairment | - | - | ||||||
Other adjustments | - | - | ||||||
Adjusted EBITDA | $ | 2,501 | $ | 2,501 |
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. As we are an emerging growth company, we have qualified for and have previously elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. The Company will no longer be an emerging growth company as of October 31, 2022 and will have to adopt and comply with accounting and legal standards for non-emerging growth companies as of fiscal 2022.
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.
Goodwill and Intangible Assets
In accordance with 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 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 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, trade name royalty rates, discount rate, tax amortization benefit and other market factors outside of our control.
During the second quarter of fiscal year 2020, the Company identified a triggering event from the recent decline in its stock price and deterioration in general economic conditions resulting from the COVID-19 pandemic. As a result, the Company performed an interim step one goodwill impairment analysis in accordance with Accounting Standards Update ("ASU") 2017-04, Intangibles - Goodwill and Other (ASC 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04") and recorded a goodwill and intangibles impairment charge of $57.9 million. The Company elects to perform a qualitative assessment for the other quarterly reporting periods throughout the fiscal year. No such impairment was required during fiscal 2021.
When we perform a quantitative 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 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.
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 impairment charges were primarily due to COVID-19, which negatively impacted our market capitalization, drove an increase in the discount rate that is utilized in our DCF models, and negatively impacted near-term cash flow expectations.
Income Taxes
We are subject to income taxes in the U.S., U.K. and other jurisdictions. Significant judgment is required in determining our provision for income tax, including evaluating uncertainties in the application of accounting principles and complex tax laws.
Income taxes include federal, state and foreign taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the differences between the financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized.
Stock-Based Compensation.
ASC Topic 718, Compensation-Stock Compensation ("ASC 718") requires that share-based compensation expense be measured and recognized at an amount equal to the fair value of share-based payments granted under compensation arrangements. The fair value of each restricted stock award or stock option awards (with an exercise price of $0.01) that only contains a time-based vesting condition is equal to the market value of our common stock on the date of grant. A substantial portion of the Company's stock awards contain a market condition. For those awards, we estimate the fair value using a Monte Carlo simulation model whereby the fair value of the awards is fixed at grant date and amortized over the longer of the remaining performance or service period. The Monte Carlo Simulation valuation model incorporates the following assumptions: expected stock price volatility, the expected life of the awards, a risk-free interest rate and expected dividend yield. Significant judgment is required in determining the expected volatility of our common stock. Due to the limited history of trading of the Company's common stock, the Company determined expected volatility based on a peer group of publicly traded companies.
The Company accounts for forfeitures as they occur.
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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act; therefore, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item.
Item 8. Consolidated Financial Statements
TABLE OF CONTENTS
Page | |
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Concrete Pumping Holdings, Inc.
Thornton, Colorado
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Concrete Pumping Holdings, Inc. (the "Company") as of October 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for the years then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2018.
Dallas, Texas
January 12, 2022
Concrete Pumping Holdings, Inc.
Consolidated Balance Sheets
October 31, | October 31, | |||||||
(in thousands except per share amounts) | 2021 | 2020 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 9,298 | $ | 6,736 | ||||
Trade receivables, net | 49,034 | 44,343 | ||||||
Inventory | 4,902 | 4,630 | ||||||
Income taxes receivable | 275 | 1,602 | ||||||
Prepaid expenses and other current assets | 4,110 | 2,694 | ||||||
Total current assets | 67,619 | 60,005 | ||||||
Property, plant and equipment, net | 337,771 | 304,254 | ||||||
Intangible assets, net | 158,539 | 183,839 | ||||||
Goodwill | 224,700 | 223,154 | ||||||
Other non-current assets | 2,168 | 1,753 | ||||||
Deferred financing costs | 1,868 | 753 | ||||||
Total assets | $ | 792,665 | $ | 773,758 | ||||
Current liabilities: | ||||||||
Revolving loan | $ | 990 | $ | 1,741 | ||||
Term loans, current portion | - | 20,888 | ||||||
Current portion of capital lease obligations | 103 | 97 | ||||||
Accounts payable | 10,706 | 6,587 | ||||||
Accrued payroll and payroll expenses | 12,226 | 13,065 | ||||||
Accrued expenses and other current liabilities | 23,940 | 18,879 | ||||||
Income taxes payable | 274 | 1,055 | ||||||
Total current liabilities | 48,239 | 62,312 | ||||||
Long term debt, net of discount for deferred financing costs | 369,084 | 343,906 | ||||||
Capital lease obligations, less current portion | 278 | 380 | ||||||
Deferred income taxes | 70,566 | 68,019 | ||||||
Warrant liability | 16,923 | 7,031 | ||||||
Total liabilities | 505,090 | 481,648 | ||||||
| Commitments and contingencies (see Note 13) | ||||||||
Zero-dividend convertible perpetual preferred stock, $0.0001par value, 2,450,980shares issued and outstanding as of October 31, 2021 and October 31, 2020 | 25,000 | 25,000 | ||||||
Stockholders' equity | ||||||||
Common stock, $0.0001par value, 500,000,000shares authorized, 56,564,642and 56,463,992issued and outstanding as of October 31, 2021 and October 31, 2020, respectively | 6 | 6 | ||||||
Additional paid-in capital | 374,272 | 367,681 | ||||||
Treasury stock | (461 | ) | (131 | ) | ||||
Accumulated other comprehensive income (loss) | 3,671 | (606 | ) | |||||
Accumulated deficit | (114,913 | ) | (99,840 | ) | ||||
Total stockholders' equity | 262,575 | 267,110 | ||||||
Total liabilities and stockholders' equity | $ | 792,665 | $ | 773,758 |
See accompanying notes to consolidated financial statements.
Concrete Pumping Holdings, Inc.
Consolidated Statements of Operations
Year Ended October 31, | ||||||||
(in thousands, except share and per share amounts) | 2021 | 2020 | ||||||
Revenue | $ | 315,808 | $ | 304,301 | ||||
Cost of operations | 178,081 | 166,998 | ||||||
Gross profit | 137,727 | 137,303 | ||||||
General and administrative expenses | 99,369 | 111,087 | ||||||
Goodwill and intangibles impairment | - | 57,944 | ||||||
Transaction costs | 312 | - | ||||||
Income (loss) from operations | 38,046 | (31,728 | ) | |||||
Other income (expense): | ||||||||
Interest expense, net | (25,190 | ) | (34,408 | ) | ||||
Loss on extinguishment of debt | (15,510 | ) | - | |||||
Change in fair value of warrant liabilities | (9,894 | ) | (261 | ) | ||||
Other income, net | 117 | 169 | ||||||
Total other expense | (50,477 | ) | (34,500 | ) | ||||
Loss before income taxes | (12,431 | ) | (66,228 | ) | ||||
Income tax expense (benefit) | 2,642 | (4,977 | ) | |||||
Net loss | (15,073 | ) | (61,251 | ) | ||||
Less accretion of liquidation preference on preferred stock | (1,750 | ) | (1,930 | ) | ||||
Loss available to common shareholders | $ | (16,823 | ) | $ | (63,181 | ) | ||
Weighted average common shares outstanding | ||||||||
Basic | 53,413,594 | 52,752,884 | ||||||
Diluted | 53,413,594 | 52,752,884 | ||||||
Net loss per common share | ||||||||
Basic | $ | (0.31 | ) | $ | (1.20 | ) | ||
Diluted | $ | (0.31 | ) | $ | (1.20 | ) |
See accompanying notes to consolidated financial statements.
Concrete Pumping Holdings, Inc.
Consolidated Statements of Comprehensive Loss
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
Net loss | $ | (15,073 | ) | $ | (61,251 | ) | ||
Other comprehensive income (loss): | ||||||||
Foreign currency translation adjustment | 4,277 | (7 | ) | |||||
Total comprehensive loss | $ | (10,796 | ) | $ | (61,258 | ) |
See accompanying notes to consolidated financial statements.
Concrete Pumping Holdings, Inc.
Consolidated Statements of Changes in Stockholders' Equity
October 31, 2019 through October 31, 2021
Common | Additional Paid-In | Treasury | Accumulated Other Comprehensive | Accumulated | ||||||||||||||||||||
(in thousands) | Stock | Capital | Stock | Income (loss) | Deficit | Total | ||||||||||||||||||
Balance at October 31, 2019 | $ | 6 | $ | 356,227 | $ | - | $ | (599 | ) | $ | (38,589 | ) | $ | 317,045 | ||||||||||
Stock-based compensation expense | - | 11,454 | - | - | - | 11,454 | ||||||||||||||||||
Shares issued upon exercise of stock options, net of shares used for tax withholding | - | - | (131 | ) | - | - | (131 | ) | ||||||||||||||||
Net loss | - | - | - | - | (61,251 | ) | (61,251 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | (7 | ) | - | (7 | ) | ||||||||||||||||
Balance at October 31, 2020 | $ | 6 | $ | 367,681 | $ | (131 | ) | $ | (606 | ) | $ | (99,840 | ) | $ | 267,110 | |||||||||
Stock-based compensation expense | - | 6,591 | - | - | - | 6,591 | ||||||||||||||||||
Shares issued upon exercise of stock options, net of shares used for tax withholding | - | - | (330 | ) | - | - | (330 | ) | ||||||||||||||||
Net loss | - | - | - | - | (15,073 | ) | (15,073 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | 4,277 | - | 4,277 | ||||||||||||||||||
Balance at October 31, 2021 | $ | 6 | $ | 374,272 | $ | (461 | ) | $ | 3,671 | $ | (114,913 | ) | $ | 262,575 |
See accompanying notes to consolidated financial statements.
Concrete Pumping Holdings, Inc.
Consolidated Statements of Cash Flows
For the Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
Net loss | $ | (15,073 | ) | $ | (61,251 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Goodwill and intangibles impairment | - | 57,944 | ||||||
Depreciation | 28,795 | 28,264 | ||||||
Deferred income taxes | 2,547 | (1,029 | ) | |||||
Amortization of deferred financing costs | 2,335 | 4,100 | ||||||
Amortization of intangible assets | 27,111 | 33,392 | ||||||
Stock-based compensation expense | 6,591 | 11,454 | ||||||
Change in fair value of warrant liabilities | 9,894 | 261 | ||||||
Loss on extinguishment of debt | 15,510 | - | ||||||
Net gain on the sale of property, plant and equipment | (1,178 | ) | (1,508 | ) | ||||
Payment of contingent consideration in excess of amounts established in purchase accounting | - | (526 | ) | |||||
Net changes in operating assets and liabilities (net of acquisitions): | ||||||||
Trade receivables, net | (4,172 | ) | 1,597 | |||||
Inventory | (200 | ) | 624 | |||||
Prepaid expenses and other current assets | (1,771 | ) | 1,651 | |||||
Income taxes payable, net | 497 | (998 | ) | |||||
Accounts payable | 3,972 | (796 | ) | |||||
Accrued payroll, accrued expenses and other current liabilities | 977 | 5,791 | ||||||
Net cash provided by operating activities | 75,835 | 78,970 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (62,792 | ) | (39,339 | ) | ||||
Proceeds from sale of property, plant and equipment | 6,977 | 3,486 | ||||||
Purchases of intangible assets | (750 | ) | - | |||||
Net cash used in investing activities | (56,565 | ) | (35,853 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds on long term debt | 375,000 | - | ||||||
Payments on long term debt | (381,206 | ) | (20,888 | ) | ||||
Proceeds on revolving loan | 280,034 | 285,861 | ||||||
Payments on revolving loan | (280,891 | ) | (307,518 | ) | ||||
Payment of debt issuance costs | (8,464 | ) | - | |||||
Payments on capital lease obligations | (97 | ) | (91 | ) | ||||
Purchase of treasury stock | (330 | ) | (131 | ) | ||||
Payment of contingent consideration established in purchase accounting | - | (1,161 | ) | |||||
Net cash used in financing activities | (15,954 | ) | (43,928 | ) | ||||
Effect of foreign currency exchange rate on cash | (754 | ) | 74 | |||||
Net increase (decrease) in cash and cash equivalents | 2,562 | (737 | ) | |||||
Cash and cash equivalents: | ||||||||
Beginning of period | 6,736 | 7,473 | ||||||
End of period | $ | 9,298 | $ | 6,736 |
See accompanying notes to consolidated financial statements.
Concrete Pumping Holdings, Inc.
Consolidated Statements of Cash Flows (Continued)
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
Supplemental cash flow information: | ||||||||
Cash paid for interest | $ | 17,371 | $ | 33,100 | ||||
Cash paid for income taxes | $ | 994 | $ | 3,352 | ||||
Non-cash investing and financing activities: | ||||||||
Equipment purchases included in accrued expenses and accounts payable | $ | 7,135 | $ | 4,149 |
See accompanying notes to consolidated financial statements.
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").
On December 6, 2018 (the "Closing Date"), the Company, formerly known as Concrete Pumping Holdings Acquisition Corp., consummated a business combination transaction (the "Business Combination") pursuant to which it acquired (i) the private operating company formerly called Concrete Pumping Holdings, Inc. ("CPH") and (ii) the former special purpose acquisition company called Industrea Acquisition Corp ("Industrea"). In connection with the closing of the Business Combination, the Company changed its name to Concrete Pumping Holdings, Inc.
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 neither company contracts to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately 90 branch locations across 19 states, with its corporate headquarters in Thornton (near Denver), Colorado. Camfaud has 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 17 operating locations across the U.S. with its corporate headquarters in Thornton, Colorado.
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.
Impacts of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has rapidly changed market and economic conditions globally and may continue to create significant uncertainty in the macroeconomic environment.
In addition, the COVID-19 pandemic drove a sustained decline in the Company's stock price and a deterioration in general economic conditions in the Company's fiscal 2020second quarter, which qualified as a triggering event necessitating the evaluation of its goodwill and long-lived assets for indicators of impairment. As a result of the evaluation, the Company conducted a quantitative interim impairment test as of April 30, 2020 resulting in non-cash impairment charges of $43.5 million and $14.4 million to the Company's U.S. Concrete Pumping and U.K. Operations reporting units, respectively. No impairments were identified through October 31, 2021. The Company will continue to evaluate its goodwill and intangible assets in future quarters. Additional impairments may be recorded in the future based on events and circumstances, including those related to COVID-19 discussed above.
Despite recent progress in the administration of vaccines, both the outbreak, and recent impact from various variants, including Delta and Omicron and the containment and mitigation measures have had and are likely to continue to have a serious adverse impact on the global economy, the severity and duration of which are uncertain. To date, the COVID-19 pandemic has negatively impacted revenue volumes primarily in the U.K. and certain markets in the U.S. This impact was most heavily pronounced in the second and third quarters of fiscal 2020. Beginning in the fourth quarter of fiscal 2020, revenue volumes began showing signs of improvement, and as of fiscal 2021 year-end, they have largely returned back to pre-pandemic levels for most of our markets in the United States and near pre-pandemic levels in the United Kingdom; however, the impact from COVID-19 remains an issue in certain markets. The full extent to which the COVID-19 pandemic will impact the Company's business, financial condition, and results of operations in the future is highly uncertain and will be affected by a number of factors. These include the duration and extent of the pandemic; the duration and extent of imposed or recommended containment and mitigation measures; the extent, duration, and effective execution of government stabilization and recovery efforts, including those from the successful distribution of an effective vaccine; the impact of the pandemic on economic activity, including on construction projects and the Company's customers' demand for its services; the Company's ability to effectively operate, including as a result of travel restrictions and mandatory business and facility closures; the ability of the Company's customers to pay for services rendered; any further closures of the Company's and the Company's customers' offices and facilities; and any additional project delays or shutdowns. Customers have and may continue to slow down decision-making, delay planned work or seek to terminate existing agreements. Any of these events may have a material adverse effect on the Company's business, financial condition, and/or results of operations, including further impairment to our goodwill and intangible assets. The Company will continue to evaluate the effect of COVID-19 on its business.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying Consolidated Financial Statements have been prepared 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"). 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 October 31, 2021 and for all periods presented. All intercompany balances and transactions have been eliminated in consolidation. As discussed below, the consolidated financial statements as of and for the year ended October 31, 2020 have been revised to reflect warrants as liabilities rather than equity.
Principles of consolidation
The Consolidated Financial Statements include all amounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated.
Revision of Previously Issued Consolidated Financial Statements
On April 12, 2021, the SEC released a public statement (the "SEC Statement") informing market participants that warrants issued by special purpose acquisition companies ("SPACs") may require classification as a liability measured at fair value, with changes in fair value each period reported in earnings. The SEC Statement discussed certain features of warrants issued in SPAC transactions that may be common across many entities. The SEC Statement indicated that when one or more of such features is included in a warrant, the warrant should be classified as a liability at fair value, with changes in fair value each period reported in earnings. The Company previously classified its publicly traded warrants (the "public warrants") and private placement warrants (the "private warrants") (collectively the "Warrants"), which were issued in August of 2017, as equity. Following consideration of the guidance in the SEC Statement, the Company concluded that its Warrants should have been classified as liabilities and measured at fair value, with changes in fair value each period reported in earnings. As such, the Company previously restated its (1) consolidated financial statements as of October 31, 2019 and for the Successor period from December 6, 2018 through October 31, 2019 and (2) unaudited consolidated interim financial statements for the periods ended July 31, 2019, April 30, 2019, and January 31, 2019. Also, while not material and therefore not being restated, the Company revised its (1) consolidated financial statements as of and for the fiscal year ended October 31, 2020 and (2) the unaudited consolidated interim financial statements for the periods ended July 31, 2020, April 30, 2020, and January 31, 2020 to correct the accounting for its Warrants. The restatements/revisions had no impact on the Company's net revenue, operating income, liquidity, cash and cash equivalents, or cash flows from operating, investing and financing activities.
Use of estimates
The preparation of financial statements in conformity with U.S. 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates include the liability for incurred but unreported claims under various partially self-insured polices, allowance for doubtful accounts, goodwill impairment analysis, valuation of share-based compensation and accounting for business combinations. Actual results may differ from those estimates, and such differences may be material to the Company's consolidated financial statements.
Trade receivables
Trade receivables are carried at the original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts. Generally, the Company does not require collateral for their accounts receivable; however, the Company may file statutory liens or take other appropriate legal action when necessary on construction projects in which collection problems arise. A trade receivable is typically considered to be past due if any portion of the receivable balance is outstanding for more than 30 days. The Company does not charge interest on past-due trade receivables.
Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. The allowance for doubtful accounts was $0.7 million and $0.6 million as of October 31, 2021 and 2020, respectively. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.
Inventory
Inventory consists primarily of replacement parts for concrete pumping equipment. Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. The Company evaluates inventory and records an allowance for obsolete and slow- moving inventory to account for cost adjustments to market. Based on management's analysis, noallowance for obsolete and slow-moving inventory was required as of October 31, 2021 and 2020.
Fair Value Measurements
The FASB's standard on fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This standard establishes three levels of inputs that may be used to measure fair value:
Level 1- Quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities.
Level 3- Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities
Deferred financing costs
Deferred financing costs representing third-party, non-lender debt issuance costs are deferred and amortized using the effective interest rate method over the term of the related long-term-debt agreement, and the straight-line method for the revolving credit agreement.
Debt issuance costs, including any original issue discounts, related to term loans are reflected as a direct deduction from the carrying amount of the long-term debt liability that is included in long term debt, net of discount for deferred financing costs in the accompanying consolidated balance sheet. Debt issuance costs related to revolving credit facilities are capitalized and reflected in deferred financing in the accompanying consolidated balance sheet. Amortization of the debt issuance costs are recorded in interest expense.
Goodwill
In accordance with ASC Topic 350, Intangibles-Goodwill and Other ("ASC 350"), the Company evaluates goodwill for possible impairment annually 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 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 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.
During the second quarter of fiscal year 2020, the Company identified a triggering event from the recent decline in its stock price resulting from the COVID-19 pandemic. As a result, the Company performed an interim step one goodwill impairment analysis in accordance with Accounting Standards Update ("ASU") 2017-04, Intangibles - Goodwill and Other (ASC 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). Refer to Note 8 for further discussion.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Expenditures for additions and betterments are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred; however, maintenance and repairs that improve or extend the life of existing assets are capitalized. The carrying amount of assets disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains or losses from property and equipment disposals are recognized in the year of disposal. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives:
In Years | ||
Buildings and improvements | 15 to 40 | |
Capital lease assets-buildings | 40 | |
Furniture and office equipment | 2 to 7 | |
Machinery and equipment | 3 to 25 | |
Transportation equipment | 3 to 7 |
Capital lease assets are being amortized over the estimated useful life of the asset (see Note 13).
Intangible Assets
Intangible assets are recorded at cost or their estimated fair value (when acquired through a business combination) less accumulated amortization (if finite-lived).
Intangible assets with finite lives, except for customer relationships, are amortized on a straight-line basis over their estimated useful lives. Customer relationships are amortized on an accelerated basis over their estimated useful lives. Intangible assets with indefinite lives are not amortized but are subject to annual reviews for impairment. As noted above, the Company identified a triggering event during the second quarter of fiscal 2020 from the recent decline in its stock price and elected to perform an interim impairment test on its indefinite-lived trade names. Refer to Note 8 for further discussion.
Impairment of long-lived assets
ASC 360,Property, Plant and Equipment (ASC 360) requires other long-lived assets to be evaluated for impairment when indicators of impairment are present. If indicators are present, assets are grouped to the lowest level for which identifiable cash flows are largely independent of other asset groups and cash flows are estimated for each asset group over the remaining estimated life of each asset group. If the undiscounted cash flows estimated to be generated by those assets are less than the asset's carrying amount, impairment is recognized in the amount of the excess of the carrying value over the fair value. No indicators of impairment were identified as of October 31, 2021.
Revenue recognition
The Company adopted ASC 606,Revenue Recognition (ASC 606) on October 31, 2021, effective as of November 1, 2020, using the modified retrospective method. Results for reporting periods beginning October 31, 2021 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our legacy accounting under Accounting Standards Codification Topic 605: Revenue Recognition (ASC 605). The adoption of the guidance did not have a material impact on the amount or timing of revenue recognized.
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.
Concrete Pumping Services
The vast majority of all revenue from concrete pumping services comes from the Company's daily service, where the Company sends a single operator with a conventional concrete pump truck (an articulating boom attached to a large truck) to deliver concrete (or other construction material such as aggregate) from one point to another as directed by the customer. Customers are billed on either (1) a solely time basis or (2) a time and volume pumped basis. Additional charges (such as a fuel surcharge and travel costs) are frequently added based on specific project requirements. The Company's performance obligations related to these jobs are satisfied daily and invoiced accordingly and as such, there are no unsatisfied performance obligations at the end of any day.
A much smaller component of the total concrete pumping services revenue comes from placing boom services. Placing booms have become an essential tool in the efficient construction of high-rise buildings. A placing boom is the articulating boom component of a conventional concrete pump truck, positioned on the uppermost floor of a building construction project. Concrete is then supplied through a pipeline from the pump that remains at ground level. Due to the long term nature of high-rise jobs, these contracts are generally longer term but typically not in excess of one year. Customers are generally invoiced (1) at month end for a fixed monthly placing boom usage fee, (2) daily for time worked and volume of concrete pumped and (3) at the beginning of the job for certain set-up costs and at the end of the job for tear-down costs. As it pertains to the fixed monthly usage fee and daily fees related to time worked and volume of concrete pumped, which collectively make up a significant portion of the total consideration in the contract, the Company recognizes revenue as invoiced in accordance with ASC 606. For the consideration allocated to set-up and tear-down fees, the Company recognizes revenue on a straight-line basis over the estimated term of the contract. The aggregate asset or liability from these services is not significant. As invoices are issued with terms of net 30 and substantially all of the contracts are completed within a year, we do not disclose the value of unsatisfied performance obligations, which would include the value of future usage of the Company's placing boom asset, hours to worked or cubic yards to be pumped.
Concrete Waste Services
The Company's concrete waste services business consists of service fees charged to customers for the delivery and usage over time of its pans or containers and the disposal of the concrete waste material. For these services, the Company has identified two performance obligations: (1) the daily usage of the pans or containers and (2) the pickup and disposal of the waste material. The fees allocable to these obligations are based on their standalone selling prices based on observable prices and expected cost plus margin approach. The Company recognizes revenue monthly for the daily usage fees and recognizes the revenue attributable to the disposal services when the disposal is completed. The aggregate asset or liability from these services is not significant. As invoices are issued with terms of net 30 and substantially all of the contracts are completed within a year, we do not disclose the value of unsatisfied performance obligations, which would include the remaining days the pans will be utilized or the future pickup and disposal of the waste material.
Practical Expedients Applied
The Company collects sales taxes when required from customers as part of the purchase price, which are then subsequently remitted to the appropriate authorities. The Company has elected to apply the practical expedient provided by ASC 606, which allows entities to make an accounting policy election to exclude sales taxes and other similar taxes from the measurement.
At contract inception, the Company does not expect the period between customer payment and transfer of control of the promised services to the customer to exceed one year as customers are invoiced with terms of 30 days. As such, the Company has used the practical expedient in ASC 606 which states that no adjustment for a significant financing component is necessary.
In addition, the Company incurs limited costs in order to obtain contracts. However, as the amortization period for these assets would be one year or less, the Company has elected the practical expedient permitted by ASC 606 and recognized those incremental costs of obtaining a contract as an expense when incurred. Upon transition to the new the standard, the Company did not restate contracts that begin and are completed within the same annual reporting period. As discussed above, contracts of the Company are typically completed within the year.
Disaggregation of Revenue
Revenue disaggregated by reportable segment and geographic area where the work was performed for the fiscal years ended October 31, 2021 and 2020 is presented in Note 18.
Stock-based compensation
The Company follows ASC 718,Compensation-Stock Compensation (ASC 718), which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors. The fair value of time-based only restricted stock awards and time-based only stock options with a $.01 exercise price are valued at the closing price of the Company's stock as of the date of the grant of these awards. The Company expenses the grant date fair value of the award in the consolidated statements of operations over the requisite service periods on a straight-line basis. For stock awards that include a market-based vesting condition, such as the trading price of the Company's common stock exceeding certain price targets, the Company uses a Monte Carlo Simulation in estimating the fair value at grant date and recognizes compensation expense over the implied service period (median time to vest). Shares exercised are issued out of authorized but not outstanding shares. The Company accounts for forfeitures as they occur.
Income taxes
The Company complies with ASC 740,Income Taxes, which requires an asset and liability approach to financial reporting for income taxes.
The Company computes deferred income tax assets and liabilities annually for differences between the financial statements and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carryback opportunities, and tax planning strategies in making the assessment. Income tax expense includes both the current income taxes payable or refundable and the change during the period in the deferred tax assets and liabilities. The tax benefit from an uncertain tax position is only recognized in the consolidated balance sheet if the tax position is more likely than not to be sustained upon an examination. The Company recognizes interest and penalties related to underpayment of income taxes in general and administrative expense in the consolidated statements of operations.
Camfaud files income tax returns in the U.K. Camfaud's national statutes are generally open for one year following the statutory filing period.
Foreign currency translation
The functional currency of Camfaud is the Pound Sterling (GBP). The assets and liabilities of the Company's foreign subsidiaries are translated into U.S. Dollars using the period end exchange rates for the periods presented, and the consolidated statements of operations are translated at the average exchange rate for the periods presented. The resulting translation adjustments are recorded as a component of comprehensive income on the consolidated statements of comprehensive income and the only component of accumulated in other comprehensive income. The functional currency of our other subsidiaries is the United States Dollar.
Earnings per share
The Company calculates earnings per share in accordance with ASC 260,Earnings per Share. The two-class method of computing earnings per share is required for entities that have participating securities. The two-class method is an earnings allocation formula that determines earnings per share for participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. For purposes of ASC 260, the two-class method is computed based on the following participating stock: (1) Common Stock and (2) Restricted Stock Awards.
Basic earnings (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the weighted average number of shares of Common Stock outstanding each period. Diluted earnings (loss) per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents which would arise from the exercise of stock options outstanding using the treasury stock method and the average market price per share during the period. Common stock equivalents are not included in the diluted earnings (loss) per share calculation when their effect is antidilutive.
An anti-dilutive impact is an increase in earnings per share or a reduction in net loss per share resulting from the conversion, exercise, or contingent issuance of certain securities.
Business combinations and asset acquisitions
The Company applies the principles provided in ASC 805,Business Combinations, 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 for any differences between the fair value of consideration transferred and the fair value of 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 to the acquired assets and liabilities based on their relative fair values.
Concentrations
As of October 31, 2021 there were threeprimary vendors that the Company relied upon to purchase concrete pumping boom equipment. However, should the need arise, there are alternate vendors who can provide concrete pumping boom equipment.
Cash balances held at financial institutions may, at times, be in excess of federally insured limits. The Company places its temporary cash balances in high-credit quality financial institutions.
The Company's customer base is dispersed across the U.S. and U.K. The Company performs ongoing evaluations of its customers' financial condition and requires no collateral to support credit sales. During the periods described above, no customer represented 10 percent or more of sales or trade receivables.
Note 3. New Accounting Pronouncements
The Company has opted to take advantage of the extended transition period available to emerging growth companies pursuant to the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") for new accounting standards.
Newly adopted accounting pronouncements
ASU 2014-09,Revenue from Contracts with Customers (ASC 606) ("ASU 2014-09") - In May 2014, the FASB issued ASU No.2014-09,which is a comprehensive new revenue recognition model. Under ASU 2014-09 and the related clarifying ASUs, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. Following the issuance of ASU 2020-05 that deferred the effective date for certain companies, ASU 2014-09 is effective for emerging growth companies that have elected to use private company adoption dates in annual reporting periods beginning after December 15, 2019 and interim reporting periods within annual reporting periods beginning after December 15, 2020 and is to be adopted using either a full retrospective or modified retrospective transition method. The Company adopted the guidance using the modified retrospective transition method applied to contracts that were not completed as of November 1, 2020. As a result of the adoption of the guidance, there were no required changes to the opening retained earnings balance and no significant changes were recorded related to the timing or amounts of recognition of revenue. Our expanded revenue disclosure is presented in Note 2.
Recently issued accounting pronouncements not yet effective
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 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 plans to adopt the new standard effective for the year ending October 31, 2022. The Company is currently evaluating the impact of the pending adoption of the new standard on the consolidated financial statements.
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 emerging growth companies that have elected to use private company adoption dates with annual and interim periods beginning after December 15, 2022, with early adoption permitted. The Company plans to adopt the new standard effective for the year ending October 31, 2022. 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.
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. The Company is evaluating the anticipated impact of this standard on its consolidated financial statements as well as timing of adoption.
Note 4. Business Combinations and Asset Acquisitions
We completed three acquisitions in fiscal 2021 and none in fiscal 2020, all of which qualified as asset acquisitions. Except for the acquisition of Hi-Tech, these acquisitions are not significant to our results of operations. The consideration for the acquisitions in fiscal 2021 consisted of cash and was allocated to identified tangible and intangible assets.
September 2021 Hi-Tech Acquisition
In September 2021, the Company acquired the assets of Hi-Tech Concrete Pumping Services ("Hi-Tech") for total purchase consideration of $12.3 million. This transaction was treated as an asset acquisition. The Company allocated $11.5 million to the purchase of Hi-Tech's equipment. The remaining $0.8 million was allocated to definite lived assembled workforce and customer relationships intangible assets. 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.
Note 5. 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 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 Company believes the carrying values of its capital lease obligations represent 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 October 31, 2021 and 2020 is presented in the table below based on the prevailing interest rates and trading activity of the Notes.
October 31, | October 31, | |||||||||||||||
2021 | 2020 | |||||||||||||||
(in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
Term loans | $ | - | $ | - | $ | 381,205 | $ | 365,003 | ||||||||
Senior notes | $ | 375,000 | $ | 390,938 | $ | - | $ | - | ||||||||
Capital lease obligations | $ | 381 | $ | 381 | $ | 477 | $ | 477 |
Deferred consideration
In connection with the acquisition of Camfaud in November 2016, former Camfaud shareholders were eligible to receive earnout payments ("deferred consideration") of up to $3.1 million if certain Earnings before interest, taxes, depreciation, and amortization ("EBITDA") targets were met. In accordance with ASC 805, the Company reviewed the deferred consideration on a quarterly basis in order to determine its fair value. Changes in the fair value of the liability are recorded within general and administrative expenses in the consolidated statements of operations in the period in which the change was made. The Company estimated the fair value of the deferred consideration based on its probability assessment of Camfaud's EBITDA achievements during the 3 year earnout period. In developing these estimates, the Company considered its revenue and EBITDA projections, its historical results, and general macro-economic environment and industry trends. This fair value measurement was based on significant revenue and EBITDA inputs not observed in the market, which represents a Level 3 measurement. The fair value of the deferred consideration was $1.7 million at October 31, 2019, which also represented the date at which the 3-year earnout period ended. The deferred consideration was fully paid out during the fiscal 2020first quarter. In accordance with US GAAP, the related cash outflows are reflected in the statement of cash flows with $1.2 million being included in financing activities, reflecting the payment of contingent consideration that was originally established in purchase accounting, and the remaining $0.5 million being included in operating activities, reflecting the payment amount that is in excess of the contingent consideration that was originally established in purchase accounting.
Warrants
At both October 31, 2021 and 2020, there were 13,017,777 public warrants and noprivate warrants outstanding. Each warrant entitles its holder to purchase oneshare 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 1 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.
Note 6. Prepaid Expenses and Other Current Assets
The significant components of prepaid expenses and other current assets at October 31, 2021 and 2020 are comprised of the following:
October 31, | October 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Prepaid insurance | $ | 949 | $ | 1,399 | ||||
Prepaid licenses and deposits | 360 | 429 | ||||||
Prepaid rent | 331 | 149 | ||||||
Other current assets and prepaids | 2,470 | 717 | ||||||
Total prepaid expenses and other current assets | $ | 4,110 | $ | 2,694 |
Note 7. Property, Plant and Equipment
The significant components of property, plant and equipment at October 31, 2021 and 2020 are comprised of the following:
October 31, | October 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Land, building and improvements | $ | 27,062 | $ | 26,728 | ||||
Capital leases-land and buildings | 828 | 828 | ||||||
Machinery and equipment | 374,034 | 318,029 | ||||||
Transportation equipment | 2,935 | 2,338 | ||||||
Furniture and office equipment | 2,880 | 1,230 | ||||||
Property, plant and equipment, gross | 407,739 | 349,153 | ||||||
Less accumulated depreciation | (69,968 | ) | (44,899 | ) | ||||
Property, plant and equipment, net | $ | 337,771 | $ | 304,254 |
Depreciation expense for the year ended October 31, 2021 was $28.8 million. Depreciation expense for the year ended October 31, 2020 was $28.3 million. Depreciation expense related to revenue producing machinery and equipment is recorded in cost of operations and an immaterial amount of depreciation expense related to the Company's capital leases and furniture and fixtures is included in general and administrative expenses in the consolidated statements of operations.
Note 8. Goodwill and Intangible Assets
The Company has recognized goodwill and certain intangible assets in connection with prior business combinations. During the second quarter of fiscal 2020, the Company identified a triggering event resulting from a sustained decline in its stock price and deterioration in general economic conditions resulting from COVID-19. As a result, the Company, with the assistance of a third party valuation specialist, performed an interim impairment test on its indefinite-lived trade name intangible assets and goodwill as of April 30, 2020.
The valuation methodology used to value the trade-names was based on the relief-from-royalty method which is an income based measure that derives the value from total revenue growth projected and what percentage is attributable to the trade name. As a result of the analysis, the Company identified that the fair value of its Brundage-Bone Concrete Pumping trade name was approximately 11.8% below its carrying value and as such, recorded a non-cash impairment charge of $5.0 million in intangibles impairment in its consolidated statements of operations for the year ended October 31, 2020. The impaired trade name has a remaining value of $37.3 million as of October 31, 2021. In addition, the Company concluded that the fair values of its Eco-Pan and Capital Pumping trade names exceeded their carrying values by approximately 7.8% and 109.1%, respectively, and their remaining values are $7.7 million and $5.5 million as of October 31, 2021, respectively.
The goodwill impairment test was performed on the Company's U.S. Concrete Pumping, U.S. Concrete Waste Management Services, and U.K. Operations reporting units. The valuation methodologies used to value the reporting units included the discounted cash flow method (income approach) and the guideline public company method (market approach). As a result of the goodwill impairment analysis, the Company identified that the fair values of its U.S. Concrete Pumping and U.K. Operations reporting units were approximately 6.9% and 14.8% below their carrying values, respectively. As such, the Company recorded non-cash impairment charges of $38.5 million and $14.4 million to its U.S. Concrete Pumping and U.K. Operations reporting units, respectively, in its consolidated statements of operations for the year ended October 31, 2020. In addition, the Company concluded that the fair value of its U.S. Concrete Waste Management Services reporting unit exceeded its carrying value by approximately 4.5% and, as such, no impairment charge was recorded.
The factors leading to the impairment of the Company's goodwill and intangibles were primarily due to (1) lower anticipated future net revenues and earnings in its estimate of future cash flows resulting from COVID-19 and (2) a higher discount rate applied to future cash flows as a result of uncertainties of the overall economic impact from COVID-19. There is inherent uncertainty associated with key assumptions used by the Company in its impairment analyses including the duration of the economic downturn associated with COVID-19 and the recovery period.
A qualitative impairment assessment was done on the annual assessment date and no impairment was identified through fiscal 2021. The Company will continue to evaluate its goodwill and intangible assets in future quarters. Additional impairments may be recorded based on events and circumstances, including those related to COVID-19 discussed in Note 1.
The following table summarizes the composition of intangible assets at October 31, 2021 and at October 31, 2020:
October 31, | October 31, | ||||||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||||||
Gross | Foreign Currency | Net | Gross | Foreign Currency | Net | ||||||||||||||||||||||
Carrying | Accumulated | Translation | Carrying | Carrying | Accumulated | Translation | Carrying | ||||||||||||||||||||
(in thousands) | Value | Impairment | Amortization | Adjustment | Amount | Value | Impairment | Amortization | Adjustment | Amount | |||||||||||||||||
Customer relationship | $ | 195,220 | $ | - | $ | (91,169 | ) | $ | (539 | ) | $ | 103,512 | $ | 193,585 | $ | - | $ | (64,676 | ) | $ | (106 | ) | $ | 128,803 | |||
Trade name | 5,748 | - | (1,598 | ) | (71 | ) | 4,079 | 5,432 | - | (1,020 | ) | (14 | ) | $ | 4,398 | ||||||||||||
Trade name (indefinite life) | 55,500 | (5,000 | ) | - | - | 50,500 | 55,500 | (5,000 | ) | - | - | $ | 50,500 | ||||||||||||||
Assembled workforce | 350 | - | - | - | 350 | - | - | - | - | $ | - | ||||||||||||||||
Noncompete agreements | 200 | - | (102 | ) | - | 98 | 200 | - | (62 | ) | - | $ | 138 | ||||||||||||||
Total intangibles | $ | 257,018 | $ | (5,000 | ) | $ | (92,869 | ) | $ | (610 | ) | $ | 158,539 | $ | 254,717 | $ | (5,000 | ) | $ | (65,758 | ) | $ | (120 | ) | $ | 183,839 |
Amortization expense for the year ended October 31, 2021 was $27.1 million. Amortization expense for the year ended October 31, 2020 was $33.4 million. The estimated aggregate amortization expense for intangible assets over the next five fiscal years ending October 31 and thereafter is as follows:
(in thousands) | ||||
2022 | $ | 22,010 | ||
2023 | 17,499 | |||
2024 | 14,058 | |||
2025 | 11,301 | |||
2026 | 9,247 | |||
Thereafter | 33,924 | |||
Total | $ | 108,039 |
The changes in the carrying value of goodwill by reportable segment for the twelve-month period ended October 31, 2021 are as follows:
(in thousands) | U.S. Concrete Pumping | U.K. Operations | U.S. Concrete Waste Management Services | Total | ||||||||||||
| Balance at October 31, 2019 | $ | 185,782 | $ | 41,173 | $ | 49,133 | $ | 276,088 | ||||||||
| Measurement-period adjustments | 200 | - | - | 200 | ||||||||||||
| Impairments* | (38,500 | ) | (14,444 | ) | - | (52,944 | ) | |||||||||
| Foreign currency translation | - | (190 | ) | - | (190 | ) | ||||||||||
Balance at October 31, 2020 | $ | 147,482 | $ | 26,539 | $ | 49,133 | $ | 223,154 | ||||||||
Foreign currency translation | - | 1,546 | - | 1,546 | ||||||||||||
Balance at October 31, 2021 | $ | 147,482 | $ | 28,085 | $ | 49,133 | $ | 224,700 |
* Represents cumulative goodwill adjustment
Note 9. Long-Term Debt and Revolving Lines of Credit
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 (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. 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 1 and August 1 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; |
● | 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 October 31, 2021 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 are as follows:
Dated December 6, 2018 | As of January 28, 2021 (as amended on September 30, 2021) | |
Borrowing availability in U.S. Dollars and GBP up to a maximum of $60.0 million; | Borrowing availability in U.S. Dollars and GBP up to a maximum aggregate principal amount of $125.0 million and an 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 $7.5 million and for swing loan borrowings of up to $7.5 million. Any issuance of letters of credit or making of a swing loan will reduce the amount available under the ABL Facility; | Same; | |
All loans advanced will mature and be due and payable in full on December 6, 2023; | All loans advanced will mature and be due and payable, and the facility will terminate, in full on January 28, 2026; | |
Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement; | Same; | |
Borrowings in U.S. Dollars and GBP bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at 2.25% and 1.25%, respectively. The ABL Facility is subject to two step-downs of 0.25% and 0.50% based on excess availability levels; | Borrowings in U.S. Dollars and GBP (through September 30, 2021 for GBP borrowings) bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at 2.25% and 1.25%, respectively. After September 30, 2021, borrowings in GBP bear interest at the SONIA rate plus an applicable margin currently set at 2.0326%. The ABL Facility is subject to a step down of 0.25% based on excess availability levels; | |
The unused line fee percentage is 25 basis points if the quarterly average amount drawn is greater than 50% of the borrowing availability; 50 basis points if the quarterly average amount drawn is less than 50% of borrowing availability; | Same; | |
U.S. ABL Facility obligations will be secured by (i) a perfected first priority security interest in substantially all personal property of the Company and certain of its subsidiaries that are loan parties thereunder consisting of all accounts receivable, inventory, cash, intercompany notes, books and records, chattel paper, deposit, securities and operating accounts and all other working capital assets and all documents, instruments and general intangibles related to the foregoing (the "U.S. ABL Priority Collateral") and (ii) a perfected second priority security interest in substantially all Term Loan Agreement priority collateral, in each case subject to customary exceptions and limitations; | US ABL Facility obligations will be 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 will be secured by (i) a perfected first-priority security interest in (A) the U.S. ABL Priority Collateral, (B) all of the stock (or other ownership interests) in, and held by, the U.K. borrower subsidiaries of the Company, and (C) all of the current and future assets and property of the U.K subsidiaries of the Company that are loan parties thereunder, including a first-ranking floating charge over all current and future assets and property of each U.K. subsidiary of the Company that is a loan party thereunder; and (ii) a perfected, second-priority security interest in substantially all Term Loan Agreement priority collateral, in each case subject to customary exceptions and limitations; and | UK ABL Facility obligations will be 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 UK subsidiaries, and by each of the US ABL Borrowers and the US ABL Guarantors, subject to certain exceptions; | |
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. | Same. |
The outstanding balance under the ABL Facility as of October 31, 2021 was $1.0 million and as of that date, the Company was in compliance with all debt covenants.
As of October 31, 2021, we had $120.6 million of available borrowing capacity under the ABL Facility.
Term Loan Agreement
Summarized terms of the Term Loan Agreement are as follows:
● | Provides for an original aggregate principal amount of $357.0 million. This amount was increased in May 2019 by $60.0 million in connection with the acquisition of Capital; |
● | The initial term loans advanced will mature and be due and payable in full sevenyears after the Closing Date, with principal amortization payments in an annual amount equal to 5.00% of the original principal amount; |
● | Borrowings under the Term Loan Agreement, will bear interest at either (1) an adjusted LIBOR rate or (2) an alternate base rate, plus an applicable margin of 6.00% or 5.00%, respectively; |
● | The Term Loan Agreement is secured by (i) a first priority perfected lien on substantially all of the assets of the Company and certain of its subsidiaries that are loan parties thereunder to the extent not constituting ABL Facility priority collateral and (ii) a second priority perfected lien on substantially all ABL Facility priority collateral, in each case subject to customary exceptions and limitations; |
● | The Term Loan Agreement includes certain non-financial covenants. |
As discussed above, all outstanding borrowings under the Term Loan Agreement were repaid on January 28, 2021. The pay-off of the term loan were treated as a debt extinguishment while the amended ABL facility was treated as a debt modification. In accordance with debt extinguishment accounting rules, the Company recorded $15.5 million in debt extinguishment costs related to the write-off of all unamortized deferred debt issuance costs that were related to the term loan and capitalized $7.0 million of debt issuance costs related to the Senior Notes. For the amendments to the ABL Facility, the Company capitalized $1.5 million of debt issuance costs.
The table below is a summary of the composition of the Company's long-term debt balances at October 31, 2021 and 2020.
October 31, | October 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Short term portion of term loan | - | 20,888 | ||||||
Long term portion of term loan | - | 360,317 | ||||||
Senior notes - all long term | 375,000 | - | ||||||
Total debt, gross | 375,000 | 381,205 | ||||||
Less unamortized deferred financing costs offsetting long term debt | (5,916 | ) | (16,411 | ) | ||||
Total debt, net of unamortized deferred financing costs | $ | 369,084 | $ | 364,794 |
Future maturities of the Senior Notes for the fiscal years ending October 31 is as follows:
| (in thousands) | ||||
2022 | $ | - | ||
| 2023 | - | |||
| 2024 | - | |||
| 2025 | - | |||
| 2026 | 375,000 | |||
| Total | $ | 375,000 |
Note 10. Accrued Payroll and Payroll Expenses
The following table summarizes accrued payroll and expenses at October 31, 2021 and 2020:
October 31, | October 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Accrued vacation | $ | 1,967 | $ | 1,667 | ||||
Accrued payroll | 1,727 | 1,507 | ||||||
Accrued bonus | 3,593 | 4,752 | ||||||
| Accrued employee-related taxes | 4,606 | 4,819 | ||||||
Other accrued | 333 | 320 | ||||||
Total accrued payroll and payroll expenses | $ | 12,226 | $ | 13,065 |
Note 11. Accrued Expenses and Other Current Liabilities
The following table summarizes accrued expenses and other current liabilities at October 31, 2021 and 2020:
October 31, | October 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Accrued insurance | $ | 7,473 | $ | 7,806 | ||||
Accrued interest | 5,627 | 146 | ||||||
Accrued equipment purchases | 4,955 | 4,149 | ||||||
Accrued sales and use tax | 690 | 311 | ||||||
Accrued property taxes | 917 | 882 | ||||||
Accrued professional fees | 1,134 | 1,213 | ||||||
Accrued due to related party | - | 1,765 | ||||||
Other | 3,144 | 2,607 | ||||||
Total accrued expenses and other liabilities | $ | 23,940 | $ | 18,879 |
Note 12. Income Taxes
The sources of income before income taxes for the fiscal years ended October 31, 2021 and October 31, 2020 are as follows:
(in thousands) | Year Ended October 31, 2021 | Year Ended October 31, 2020 | ||||||
United States | $ | (13,162 | ) | $ | (49,688 | ) | ||
Foreign | 731 | (16,540 | ) | |||||
Total | $ | (12,431 | ) | $ | (66,228 | ) |
The components of the provision for income taxes for the fiscal years ended October 31, 2021 and October 31, 2020 are as follows:
(in thousands) | Year Ended October 31, 2021 | Year Ended October 31, 2020 | ||||||
Current tax provision (benefit): | ||||||||
Federal | $ | - | $ | (4,299 | ) | |||
Foreign | (375 | ) | (9 | ) | ||||
State and local | 470 | 361 | ||||||
Total current tax provision (benefit) | 95 | (3,947 | ) | |||||
Deferred tax provision (benefit): | ||||||||
Federal | $ | 483 | $ | 759 | ||||
Foreign | 2,134 | 126 | ||||||
State and local | (70 | ) | (1,914 | ) | ||||
Total deferred tax benefit | 2,547 | (1,029 | ) | |||||
Net provision (benefit) for income taxes | $ | 2,642 | $ | (4,977 | ) |
For the fiscal years ended October 31, 2021 and October 31, 2020, the income tax provision differs from the expected tax provision computed by applying the U.S. federal statutory rate to income before taxes as a result of the following:
(in thousands) | Year Ended October 31, 2021 | Year Ended October 31, 2020 | ||||||
Income tax benefit per federal statutory rate of 21% for each period | $ | (2,611 | ) | $ | (13,967 | ) | ||
State income taxes, net of federal deduction | 193 | (150 | ) | |||||
Change in deferred tax rate | (92 | ) | (1,654 | ) | ||||
Warrant fair value change | 2,078 | 55 | ||||||
Nontaxable interest income net of foreign income inclusions | - | 717 | ||||||
Deferred tax on undistributed foreign earnings | 505 | (255 | ) | |||||
Impact of tax reform in the U.K. (see discussion below) | 2,125 | 859 | ||||||
Goodwill impairment | - | 9,812 | ||||||
Impact of US tax reform from CARES Act | - | (1,381 | ) | |||||
Settlement with related party | - | 420 | ||||||
Other | 444 | 567 | ||||||
Income tax provision (benefit) | $ | 2,642 | $ | (4,977 | ) |
The tax effects of the temporary differences giving rise to the Company's net deferred tax liabilities for fiscal years ending October 31, 2021 and at October 31, 2020 are summarized as follows:
(in thousands) | Year Ended October 31, 2021 | Year Ended October 31, 2020 | ||||||
Deferred tax assets: | ||||||||
Accrued insurance reserve | $ | 1,329 | $ | 1,637 | ||||
Accrued sales and use tax | 75 | 75 | ||||||
Accrued bonuses and vacation | 1,276 | 1,521 | ||||||
Accrued payroll tax | 675 | 676 | ||||||
Foreign tax credit carryforward | 80 | 80 | ||||||
State tax credit carryforward | 50 | 70 | ||||||
Interest expense carryforward | 649 | 4,089 | ||||||
Stock-based compensation | 3,608 | 3,127 | ||||||
Other | 364 | 335 | ||||||
Net operating loss carryforward | 17,771 | 10,308 | ||||||
Total deferred tax assets | $ | 25,877 | $ | 21,918 | ||||
Valuation allowance | (63 | ) | (63 | ) | ||||
Net deferred tax assets | $ | 25,814 | $ | 21,855 | ||||
Deferred tax liabilities: | ||||||||
Intangible assets | (23,837 | ) | (27,504 | ) | ||||
Property and equipment | (71,400 | ) | (61,761 | ) | ||||
Prepaid expenses | (157 | ) | (128 | ) | ||||
Unremitted foreign earnings | (986 | ) | (481 | ) | ||||
Total net deferred tax liabilities | (96,380 | ) | (89,874 | ) | ||||
Net deferred tax liabilities | $ | (70,566 | ) | $ | (68,019 | ) |
As of October 31, 2021, the Company has the following tax carryforwards:
(in millions) | Balance as of October 31, 2021 | Year that Carryforwards Begin to Expire | ||||||
Federal net operating loss carryforwards | $ | 70.3 | N/A - Carried forward indefinitely | |||||
State net operating loss carryforwards | 35.8 | 2026 | ||||||
Foreign tax carryforwards | 0.1 | 2026 | ||||||
State credit carryforwards | 0.1 | 2023 | ||||||
Interest expense carryforwards | 0.1 | N/A - Carried forward indefinitely | ||||||
Total tax carryforwards | $ | 106.4 |
The Company has provided U.S. deferred taxes on cumulative earnings of all of its non-U.S. affiliates.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carryback opportunities, and tax planning strategies in making the assessment. The Company believes it is more likely than not that it will realize the benefits of these deductible differences, net of the valuation allowance provided. The valuation allowance provided by the Company relates to foreign tax credit carryforwards.
The following table summarizes the changes in the Company's unrecognized tax benefits during the years ended October 31, 2021 and 2020. The Company expects no material changes to unrecognized tax positions within the next twelve months. If recognized, none of these benefits would favorably impact the Company's income tax expense, before consideration of any related valuation allowance:
(in thousands) | Year Ended October 31, 2021 | Year Ended October 31, 2020 | ||||||
Balance, beginning of year | $ | 1,572 | $ | 1,726 | ||||
Increase in current year position | - | - | ||||||
Increase in prior year position | - | - | ||||||
Decrease in prior year position | (120 | ) | (154 | ) | ||||
Lapse in statute of limitations | - | - | ||||||
Balance, end of year | $ | 1,452 | $ | 1,572 |
As of October 31, 2021 and 2020, the company has recognized no interest or penalties.
On May 24, 2021 the House of Commons in the U.K. enacted legislation, the Finance Act 2021, which increases the UK corporation tax rate from 19% to 25% effective April 1, 2023, for companies with profits in excess of GBP 250,000. As a result of the Finance Act 2021 the Company recorded tax expense of $2.2 million related to the remeasurement of certain deferred tax assets and liabilities that are expected to reverse after April 1, 2023.
On March 17, 2020, the House of Commons in the U.K. passed a Budget Resolution under the Provisional Collection of Taxes Act of 1968 (the "Budget Resolution"). The Budget Resolution substantively enacted an increase in the U.K. corporate tax rate for tax periods after March 31, 2020 from 17% to 19%. As a result of the Budget Resolution, the Company recorded tax expense of $0.9 million related to the remeasurement of deferred tax assets and liabilities to reflect the increase in the U.K. corporate tax rate.
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security "CARES" Act into law. The CARES Act included several significant business tax provisions that, among other things, eliminated the taxable income limit for certain net operating losses ("NOL") and allowed businesses to carry back NOL's arising in 2018,2019 and 2020 to the five prior years, accelerated refunds of previously generated corporate alternative minimum tax credits, generally loosened the business interest limitation under IRC section 163(j) from 30 percent to 50 percent among other technical corrections included in the Tax Cuts and Jobs Act tax provisions.
During fiscal years 2016 and 2017, the Company paid federal income taxes totaling $4.3 million (at a federal income tax rate of 34%). As the Company generated NOL carryforwards during fiscal 2018 and 2019, the CARES Act allowed the Company to carry back those NOL's to the fiscal 2016 and 2017 tax returns. During fiscal 2020, the Company carried back all NOL's that were generated in fiscal year 2018 to the 2016 and part of the 2017 tax returns and also carried back a portion of the NOL's accumulated during fiscal 2019 to the remaining income from the 2017 tax return. These carrybacks resulted in a revaluation of the NOL carryforwards from the 21% federal rate in effect prior to the CARES Act to 34%, which was the federal income tax rate for 2016 and 2017. On March 31, 2020, the Company received a demand letter alleging that the Company is required to remit to the prior shareholders of CPH (before the Company went public in December 2018) certain tax refunds from carrying back certain NOL's made available as a result of the passage of the CARES Act. In October 2020, the Company reached a settlement with the prior shareholders of CPH, resulting in the Company agreeing to pay $2.0 million of the $4.3 million in refunds to the prior shareholders of CPH. This $2.0 million charge was recorded in general and administrative expenses in the accompanying consolidated statements of operations. Following the $1.4 million revaluation in the carrying value of the NOL's as a result of the carryback benefit at a higher tax rate, the net financial impact to the Company is a $0.6 million loss. The corresponding due to related party is included in accrued expenses and other current liabilities as of October 31, 2020 in the accompanying consolidated balance sheets. This was settled in 2021 as the income tax refunds from the IRS were received.
Note 13. Commitments and Contingencies
Operating Leases
The Company leases facilities, equipment and vehicles under non-cancelable operating leases with various expiration dates through April 2029. Monthly lease payments range from $25 to $26,144. Total rental expense for the years ended October 31, 2021 and October 31, 2020 was $4.4 million, which also includes the Company's month-to-month leases.
The following is a summary of future minimum lease payments for the years ended October 31:
(in thousands) | Future Payments | |||
2022 | $ | 3,514 | ||
2023 | 2,202 | |||
2024 | 1,396 | |||
2025 | 654 | |||
2026 | 491 | |||
Thereafter | 960 | |||
Total | $ | 9,217 |
Capital Leases
The Company has a limited number of capital leases related to land and buildings. The capital lease obligation recorded as of October 31, 2021 was $0.4 million while the net book value of the leased assets as of October 31, 2020 was $0.5 million.
The following is a summary of future minimum lease payments together with the present value of those payments for the years ended October 31:
(in thousands) | Future Payments | |||
2022 | $ | 115 | ||
2023 | 118 | |||
2024 | 120 | |||
2025 | 61 | |||
2026 | - | |||
Thereafter | - | |||
Total minimum lease payments | 414 | |||
Less the amount representing interest | (33 | ) | ||
Present value of minimum lease payments | $ | 381 |
Insurance
For the years ended October 31, 2021 and October 31, 2020, the Company was partially insured for automobile, general and worker's compensation liability with the following deductibles (per occurrence):
Deductible | ||||
General liability | $ | 350,000 | ||
Automobile | $ | 250,000 | ||
Workers' compensation | $ | 250,000 | ||
The Company has accrued $4.5 million and $5.4 million, as of October 31, 2021 and at October 31, 2020, respectively, for claims incurred but not reported and estimated losses 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 October 31, 2021 and at October 31, 2020, the Company had accrued $1.6 million and $2.4 million, respectively, for 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. As of October 31, 2021, the third party administrator no longer requires the Company to maintain a bank account to facilitate the administration of claims but the Company was required to maintain a bank account in fiscal 2020. The account balance was $0.3 million as of October 31, 2020 and was included in cash and cash equivalents in the accompanying consolidated balance sheets.
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 $7.5 million of standby letters of credit. As of October 31, 2021, total outstanding letters of credit totaled $2.3 million, the vast majority of which had been committed to the Company's general liability insurance provider.
Note 14. 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 the Business Combination, there were:
● | 28,847,707 shares of common stock issued and outstanding; |
● | 34,100,000 warrants outstanding, each exercisable for oneshare 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. After the completion of the warrant exchange and as of October 31, 2020, there were 13,017,777 public warrants and no private 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 notpay dividends and is convertible (effective June 6, 2019) into shares of the Company's common stock at a 1:1ratio (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 October 31, 2021, the additional cumulative amount totaled $5.3 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, and 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. As of October 31, 2021, 13,017,777 public warrants and no private warrants were outstanding.
Note 15. Stock-Based Compensation
The Company rolled forward certain vested options from CPH (see discussion below) to 2,783,479 equivalent vested options in the Successor. No incremental compensation costs were recognized on conversion as the fair value of the options issued were equivalent to the fair value of the vested options of CPH. Exercise prices for those options range from $0.87 to $6.09.
During 2019, 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. All awards in the U.S. are restricted stock awards while awards granted to employees in the U.K. are stock options with exercise prices of $0.01. Regardless of where the awards were granted, the awards vested pursuant to one of the following four conditions:
(1) | Time-based only - Awards vest in equal installments over a five-year period. |
(2) | $13 market-based and time-based vesting - Awards will vest as to first condition once the Company's stock reaches a closing price of $13.00 for 30 consecutive days. Once the first vesting condition is achieved, the stock award will then vest 1/3annually over a three-year period. |
(3) | $16 market-based and time-based vesting - Awards will vest as to first condition once the Company's stock reaches a closing price of $16.00 for 30 consecutive days. Once the first vesting condition is achieved, the stock award will then vest 1/3annually over a three-year period. |
(4) | $19 market-based and time-based vesting - Awards will vest as to first condition once the Company's stock reaches a closing price of $19.00 for 30 consecutive days. Once the first vesting condition is achieved, the stock award will then vest 1/3annually over a three-year period. |
On October 29, 2020 almost all of the then-outstanding stock awards were modified as follows:
(1) | 113 awards for 113 employees accepted a modification to their restricted stock awards (if U.S. employees) or stock options (if U.K. employees) with market-based vesting conditions as follows: |
o | The price vesting targets of $13.00 per share, $16.00 per share or $19.00 per share were reduced to $6.00 per share, $8.00 per share or $10.00 per share, respectively |
o | The market-based awards were exchanged on a 2-for-1 exchange ratio. In total 3,816,450 market-based awards were exchanged for 1,908,165 market-based awards |
(2) | 18 awards for 18 employees had their restricted stock awards (if U.S. employees) or stock options (if U.K. employees) with market-based vesting conditions (the same $13/$16/$19 price targets outlined above) modified as follows: |
o | Each individual's total award was split into the following: (a) 46% of time vesting shares that vested on December 6, 2020, (b) 15% of time vesting shares which will vest ratably 1/3 each year on December 6, 2021, 2022 and 2023, and (c) the remaining 39% will initially vest based on reduced price vesting targets of $6.00 per share, $8.00 per share or $10.00 per share. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period. |
o | In the aggregate, 1,381,426 stock awards were modified as follows: |
(a) | 635,455 shares vested on December 6, 2020, |
(b) | 207,215 shares will vest ratably 1/3 each year on December 6, 2021, 2022 and 2023, and |
(c) | 538,756 shares will vest based on reduced price vesting targets of $6.00 per share, $8.00 per share or $10.00 per share |
As a result of the modifications, and in accordance with ASC 718, the Company updated the fair value of each modified award to be equal to the following:
● | Unrecognized stock-based compensation expense as of October 29, 2020 immediately before the modification plus |
● | The greater of $0 or the difference between fair value of new award immediately after modification less the fair value of old award immediately before modification |
The fair values for the above awards were calculated using a Monte Carlo simulation model and the updated fair value of the stock award is expensed over the new service period for the new award. As a result of the modifications, the Company recorded $5.9 million of compensation expense on day 1 of the modification as the requisite service period is zero. Outside of the unrecognized compensation expense for all other awards, no incremental costs are expected to be incurred in the future.
As of October 31, 2021, the Company had the following outstanding stock-based awards:
| (1) | Time-based only - Awards vest in equal installments over a threeor five-year period. |
(2) | $6 market-based and time-based vesting - Awards will vest as to first condition once the Company's stock reaches a closing price of $6.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest 1/3annually over a three-year period. |
(3) | $8 market-based and time-based vesting - Awards will vest as to first condition once the Company's stock reaches a closing price of $8.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest 1/3annually over a three-year period. |
(4) | $10 market-based and time-based vesting - Awards will vest as to first condition once the Company's stock reaches a closing price of $10.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest 1/3annually over a three-year period. |
Included in the table below is a summary of the awards outstanding at October 31, 2021, following the modification, including the location, type of award, shares outstanding, unrecognized compensation expense, and the date that expense will be recognized through. The total stock compensation expense recognized for restricted stock awards for the years ended October 31, 2021 and October 31, 2020 was $5.8 million and $9.8 million, respectively. The total stock compensation expense recognized for stock options for the years ended October 31, 2021 and October 31, 2020 was $0.8 million and $1.6 million, respectively. In addition, while the table below provides a date through which expense will be recognized on a straight-line basis, if at such time the market-based stock awards vest earlier than the Monte Carlo simulation derived service period, expense recognition will be accelerated.
During fiscal 2021, we granted 99,812 stock awards that have a market-based vesting condition. The assumptions used in the Monte Carlo Simulation for the fiscal 2021 grant were stock price on date of grant, a price target expiration date of December 6, 2023, expected volatility of 73% and a risk-free interest rate of 0.5%.
(in thousands, except shares outstanding and fair value amounts)
Location | Type of Award | Shares Unvested at October 31, 2021 | Weighted Average Fair Value | Unrecognized Compensation Expense at October 31, 2021 | Date Expense will be Recognized Through (Straight-Line Basis) | ||||||||||
U.S. | Time Based Only | 875,632 | $ | 6.56 | $ | 3,228,912 | 12/6/2023 | ||||||||
U.S. | $6 Market/Time- Based | 150,697 | $ | 3.86 | - | 10/29/2020 | |||||||||
U.S. | $6 Market/Time- Based | 191,902 | $ | 8.65 | $ | 273,110 | 3/29/2022 | * | |||||||
U.S. | $6 Market/Time- Based | 191,902 | $ | 8.65 | $ | 630,290 | 3/29/2023 | * | |||||||
U.S. | $6 Market/Time- Based | 191,913 | $ | 8.65 | $ | 833,930 | 3/29/2024 | * | |||||||
U.S. | $8 Market/Time- Based | 150,697 | $ | 3.46 | - | 10/29/2020 | |||||||||
U.S. | $8 Market/Time- Based | 191,903 | $ | 7.45 | $ | 423,243 | 8/23/2022 | ** | |||||||
U.S. | $8 Market/Time- Based | 191,903 | $ | 7.45 | $ | 641,359 | 8/23/2023 | ** | |||||||
U.S. | $8 Market/Time- Based | 191,912 | $ | 7.45 | $ | 780,270 | 8/23/2024 | ** | |||||||
U.S. | $10 Market/Time- Based | 150,706 | $ | 3.15 | - | 10/29/2020 | |||||||||
U.S. | $10 Market/Time- Based | 191,471 | $ | 6.46 | $ | 444,144 | 7/9/2023 | ||||||||
U.S. | $10 Market/Time- Based | 191,467 | $ | 6.46 | $ | 599,208 | 7/9/2024 | ||||||||
U.S. | $10 Market/Time- Based | 191,482 | $ | 6.46 | $ | 704,994 | 7/9/2025 | ||||||||
U.S. | $13 Market/Time- Based | 433 | $ | 4.47 | $ | 317 | 5/4/2022 | ||||||||
U.S. | $13 Market/Time- Based | 433 | $ | 4.47 | $ | 714 | 5/4/2023 | ||||||||
U.S. | $13 Market/Time- Based | 434 | $ | 4.47 | $ | 957 | 5/4/2024 | ||||||||
U.S. | $16 Market/Time- Based | 433 | $ | 3.85 | $ | 403 | 8/27/2022 | ||||||||
U.S. | $16 Market/Time- Based | 433 | $ | 3.85 | $ | 691 | 8/27/2023 | ||||||||
U.S. | $16 Market/Time- Based | 434 | $ | 3.85 | $ | 874 | 8/27/2024 | ||||||||
U.S. | $19 Market/Time- Based | 433 | $ | 3.34 | $ | 420 | 11/19/2022 | ||||||||
U.S. | $19 Market/Time- Based | 433 | $ | 3.34 | $ | 642 | 11/19/2023 | ||||||||
U.S. | $19 Market/Time- Based | 434 | $ | 3.34 | $ | 787 | 11/19/2024 | ||||||||
U.S. | $10 Market/Time- Based | 4,635 | $ | 7.28 | $ | 29,202 | 1/31/2023 | ||||||||
U.S. | $10 Market/Time- Based | 4,635 | $ | 7.28 | $ | 31,061 | 1/31/2024 | ||||||||
U.S. | $10 Market/Time- Based | 4,634 | $ | 7.28 | $ | 31,831 | 1/31/2025 | ||||||||
U.K. | Time Based Only | 132,259 | $ | 6.52 | $ | 443,536 | 12/6/2023 | ||||||||
U.K. | $6 Market/Time- Based | 28,885 | $ | 3.85 | - | 10/29/2020 | |||||||||
U.K. | $6 Market/Time- Based | 27,892 | $ | 8.36 | $ | 39,250 | 3/29/2022 | * | |||||||
U.K. | $6 Market/Time- Based | 27,892 | $ | 8.36 | $ | 89,849 | 3/29/2023 | * | |||||||
U.K. | $6 Market/Time- Based | 27,901 | $ | 8.36 | $ | 118,514 | 3/29/2024 | * | |||||||
U.K. | $8 Market/Time- Based | 28,885 | $ | 3.45 | - | 10/29/2020 | |||||||||
U.K. | $8 Market/Time- Based | 27,892 | $ | 7.20 | $ | 60,581 | 8/23/2022 | ** | |||||||
U.K. | $8 Market/Time- Based | 27,892 | $ | 7.20 | $ | 91,259 | 8/23/2023 | ** | |||||||
U.K. | $8 Market/Time- Based | 27,901 | $ | 7.20 | $ | 110,756 | 8/23/2024 | ** | |||||||
U.K. | $10 Market/Time- Based | 28,886 | $ | 3.14 | - | 10/29/2020 | |||||||||
U.K. | $10 Market/Time- Based | 27,902 | $ | 6.24 | $ | 63,479 | 7/9/2023 | ||||||||
U.K. | $10 Market/Time- Based | 27,892 | $ | 6.24 | $ | 85,174 | 7/9/2024 | ||||||||
U.K. | $10 Market/Time- Based | 27,901 | $ | 6.24 | $ | 100,005 | 7/9/2025 | ||||||||
Total | 3,541,371 | $ | 9,859,764 |
Note: The $13/$16/$19 Market/Time Based shares noted above relate to the shares not exchanged in the October 29, 2020 modification discussed above.
* The $6.00 market condition price target was achieved on March 29, 2021, and on such date, the remaining unrecognized expense for these awards will be accelerated over the new requisite service period.
** The $8.00 market condition price target was achieved on August 23, 2021, and on such date, the remaining unrecognized expense for these awards will be accelerated over the new requisite service period.
Stock Options
The following tables summarize stock option activity for the year ended October 31, 2021:
Options | Weighted average grant date fair value | Weighted average exercise price | ||||||||||
| Outstanding stock options, October 31, 2019 | 2,069,398 | $ | 5.81 | $ | 1.33 | |||||||
| Granted | 7,250 | $ | 4.58 | $ | 0.01 | |||||||
| Forfeited | (25,888 | ) | $ | 4.47 | $ | 0.01 | ||||||
| Exercised | (27,660 | ) | $ | 6.67 | $ | 0.01 | ||||||
| Expired | (500 | ) | $ | 6.67 | $ | 0.01 | ||||||
| Modified | (231,284 | ) | $ | 5.04 | $ | 0.01 | ||||||
Outstanding stock options, October 31, 2020 | 1,791,316 | $ | 6.80 | $ | 1.54 | |||||||
Granted | 30,000 | $ | 2.48 | $ | 0.01 | |||||||
Forfeited | (3,807 | ) | $ | 7.46 | $ | 0.01 | ||||||
Exercised | (133,316 | ) | $ | 5.24 | $ | 0.01 | ||||||
Outstanding stock options, October 31, 2021 | 1,684,193 | $ | 6.85 | $ | 1.63 |
The total intrinsic value of stock options exercised for the years ended October 31, 2021 and October 31, 2020 was $0.9 million and $0.1 million, respectively. The Company realized $0.2 million and $0.0 million in tax benefits related to exercised stock options for the years ended October 31, 2021 and October 31, 2020, respectively.
The following table summarizes information about stock options outstanding at October 31, 2021:
Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||||
Exercise price | Number of options | Weighted average exercise price | Weighted average remaining contractual life (yrs) | Aggregate Intrinsic Value | Number of options | Weighted average exercise price | Weighted average remaining contractual life (yrs) | Aggregate Intrinsic Value | ||||||||||||||||||||||||||
| $0.01 | 473,738 | $ | 0.01 | 8.7 | $ | 4,069 | 3,758 | $ | 0.01 | 7.4 | $ | 32 | ||||||||||||||||||||||
| $0.87 | 886,382 | $ | 0.87 | 3.3 | 6,852 | 886,382 | $ | 0.87 | 3.3 | $ | 6,852 | |||||||||||||||||||||||
| $6.09 | 324,073 | $ | 6.09 | 4.4 | - | 324,073 | $ | 6.09 | 4.4 | - | ||||||||||||||||||||||||
Total | 1,684,193 | $ | 1.63 | 5.0 | $ | 10,921 | 1,214,213 | $ | 2.26 | 3.6 | $ | 6,884 |
As of October 31, 2021, there was $1.2 million of total unrecognized compensation cost related to stock options that is expected to be realized as an expense by the Company over 1.8 weighted average years.
Restricted Stock Awards
The following table is a summary of Restricted Stock Awards activity for the years ended October 31, 2021 and October 31, 2020:
Units | Weighted average grant-date fair value | |||||||
Unvested as of October 31, 2019 | 5,755,459 | $ | 4.44 | |||||
Granted | - | $ | - | |||||
Vested | (229,011 | ) | $ | 6.61 | ||||
Forfeited | (111,656 | ) | $ | 4.49 | ||||
Modified | (1,677,001 | ) | $ | 3.89 | ||||
Unvested as of October 31, 2020 | 3,737,791 | $ | 5.39 | |||||
Granted | 112,349 | $ | 3.80 | |||||
Vested | (757,215 | ) | $ | 5.34 | ||||
Forfeited | (21,534 | ) | $ | 5.00 | ||||
Unvested as of October 31, 2021 | 3,071,391 | $ | 4.98 |
As of October 31, 2021, there was $8.7 million of unrecognized compensation expense related to non-vested restricted stock awards that is expected to be realized as an expense by the Company over 1.8 weighted average years.
The Company realized $0.7 million and $0.3 million in tax benefits related to restricted stock award vestings for the years ended October 31, 2021 and October 31, 2020, respectively.
Note 16. 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 October 31, 2021, the Company had outstanding (1) 13.0 million warrants to purchase shares of common stock at an exercise price of $11.50, (2) 3.1 million outstanding unvested restricted stock awards, (3) 1.2 million outstanding vested incentive stock options, (4) 0.5 million outstanding unvested non-qualified stock options, and (5) 2.5 million shares of Series A Preferred Stock, all of which could potentially be dilutive. For all periods presented, the weighted-average dilutive impact, if any, of these shares was excluded from the calculation of diluted earnings (loss) per common share because their inclusion would have been anti-dilutive. As a result, dilutive earnings (loss) per share is equal to basic earnings (loss) per share.
The table below shows our basic and diluted EPS calculations for the fiscal year ended October 31, 2021 and October 31, 2020:
Year Ended October 31, | ||||||||
(in thousands, except share and per share amounts) | 2021 | 2020 | ||||||
Net loss (numerator): | ||||||||
Net loss attributable to Concrete Pumping Holdings, Inc. | $ | (15,073 | ) | $ | (61,251 | ) | ||
Less: Accretion of liquidation preference on preferred stock | (1,750 | ) | (1,930 | ) | ||||
Less: Undistributed earnings allocated to participating securities | - | - | ||||||
Net loss attributable to common stockholders (numerator for basic earnings per share) | $ | (16,823 | ) | $ | (63,181 | ) | ||
Add back: Undistributed earning allocated to participating securities | - | - | ||||||
Less: Undistributed earnings reallocated to participating securities | - | - | ||||||
Numerator for diluted loss per share | $ | (16,823 | ) | $ | (63,181 | ) | ||
Weighted average shares (denominator): | ||||||||
Weighted average shares - basic | 53,413,594 | 52,752,884 | ||||||
Weighted average shares - diluted | 53,413,594 | 52,752,884 | ||||||
Basic loss per share | $ | (0.31 | ) | $ | (1.20 | ) | ||
Diluted loss per share | $ | (0.31 | ) | $ | (1.20 | ) |
Note 17. Employee Benefits Plan
Retirement plans
The Company offers a 401(k) plan, which covers substantially all employees in the U.S., with the exception of certain union employees. Participating employees may elect to contribute, on a tax-deferred basis, a portion of their compensation, in accordance with Section 401(k) of the Internal Revenue Code. The Company generally provides some form of a matching contribution for most employees in the U.S. Retirement plan contributions for the years ended October 31, 2021 and October 31, 2020 were $0.9 million, $1.0 million, respectively.
Camfaud operates a Small Self-Administered Scheme ("SSAS"), which is the equivalent of a U.S. defined contribution pension plan. The assets of the plan are held separately from those of Camfaud in an independently administered fund. Contributions by Camfaud to the SSAS amounted to $0.3 million for the years ended October 31, 2021 and October 31, 2020, respectively.
Multiemployer plans
Our U.S. Concrete Pumping segment contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements (CBAs) that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects: (a) Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (b) If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (c) If we choose to stop participating in some of its multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. We have no intention of stopping our participation in any multiemployer plan.
The following is a summary of our contributions to each multiemployer pension plan for the years ended October 31, 2021 and 2020:
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
California | $ | 901 | $ | 685 | ||||
Oregon | 308 | 301 | ||||||
Washington | 279 | 273 | ||||||
Total contributions | $ | 1,489 | $ | 1,259 |
No plan was determined to be individually significant. There have been no significant changes that affect the comparability of the contributions. The Company reviews the funded status of each multiemployer defined benefit pension plan at each reporting period to monitor the certified zone status for each of the multiemployer defined benefit pension plans. The zone status for the multiemployer defined benefit pension plan for Oregon was Green (greater than 80 percent funded) and for California and Washington, it was Yellow (less than 80 percent funded but greater than 65 percent funded). The funding status for the Oregon and Washington multiemployer defined benefit pension plans is at January 1, 2020 and for the California multiemployer defined benefit pension plan is at July 1, 2020.
Government regulations impose certain requirements relative to multiemployer plans. In the event of plan termination or employer withdrawal, an employer may be liable for a portion of the plan's unfunded vested benefits. We have not received information from the plans' administrators to determine its share of unfunded vested benefits. We do not anticipate withdrawal from the plans, nor are we aware of any expected plan terminations.
If the construction industry exception applies, then it would delay the imposition of a withdrawal liability. The "construction industry" exception generally delays the imposition of withdrawal liability in connection with an employer's withdrawal from a "construction industry" multiemployer plan unless and until that employer resumes covered operations in the relevant geographic region without a corresponding resumption of contributions to the multiemployer plan. The Company has no intention of withdrawing, in either a complete or partial withdrawal, from any of the multiemployer plans to which the Company currently contributes; however, it has been assessed a withdrawal liability in the past.
Note 18. Segment Reporting
The Company conducts business through the following reportable segments based on geography and the nature of services sold:
● | U.S. Concrete Pumping - Consists of concrete pumping services sold to customers in the U.S. Business in this segment is primarily performed under the Brundage-Bone and Capital Pumping trade names. |
● | U.K. Operations - Consists of concrete pumping services and leasing of concrete pumping equipment to customers in the U.K. Business in this segment is primarily performed under the Camfaud Concrete Pumps and Premier Concrete Pumping trade names. In addition to concrete pumping, we recently started operations of waste management services in the U.K. under the Eco-Pan trade name and the results of this business are included in this segment. This represents the Company's foreign operations. |
● | U.S. Concrete Waste Management Services - Consists of pans and containers rented to customers in the U.S. and the disposal of the concrete waste material services sold to customers in the U.S. Business in this segment is performed under the Eco-Pan trade name. | |
| ● | Corporate - Is primarily related to the intercompany leasing of real estate to certain of the U.S Concrete Pumping branches. |
Any differences between segment reporting and consolidated results are reflected in Intersegment below.
The accounting policies of the reportable segments are the same as those described in Note 2. The Company's Chief Operating Decision Maker ("CODM") 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:
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
Revenue | ||||||||
U.S. Concrete Pumping | $ | 229,475 | $ | 229,740 | ||||
U.K. Operations | 48,098 | 39,145 | ||||||
U.S. Concrete Waste Management Services | 38,591 | 35,890 | ||||||
Corporate | 2,500 | 2,500 | ||||||
Intersegment | (2,856 | ) | (2,974 | ) | ||||
Total revenue | $ | 315,808 | $ | 304,301 | ||||
Income (loss) before income taxes | ||||||||
U.S. Concrete Pumping | $ | (11,915 | ) | $ | (56,095 | ) | ||
U.K. Operations | 731 | (16,540 | ) | |||||
U.S. Concrete Waste Management Services | 6,986 | 4,997 | ||||||
Corporate | (8,233 | ) | 1,410 | |||||
Total income (loss) before income taxes | $ | (12,431 | ) | $ | (66,228 | ) |
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
EBITDA | ||||||||
U.S. Concrete Pumping1 | $ | 47,497 | $ | 17,074 | ||||
U.K. Operations1 | 12,128 | (5,163 | ) | |||||
U.S. Concrete Waste Management Services | 16,433 | 15,684 | ||||||
Corporate | (7,393 | ) | 2,240 | |||||
Total EBITDA | $ | 68,665 | $ | 29,835 | ||||
Consolidated EBITDA reconciliation | ||||||||
Net loss | $ | (15,073 | ) | $ | (61,251 | ) | ||
Interest expense, net | 25,190 | 34,408 | ||||||
Income tax expense (benefit) | 2,642 | (4,977 | ) | |||||
Depreciation and amortization | 55,906 | 61,655 | ||||||
Total EBITDA | $ | 68,665 | $ | 29,835 |
1 The U.S. Concrete Pumping segment's EBITDA for the year ended October 31, 2020 includes the impact of $43.5 million in goodwill and intangibles impairment while the U.K. Concrete Pumping segment's EBITDA for the year ended October 31, 2020 includes the impact of $14.4 million in goodwill and intangibles impairment.
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
Depreciation and amortization | ||||||||
U.S. Concrete Pumping | $ | 37,381 | $ | 41,717 | ||||
U.K. Operations | 8,238 | 8,422 | ||||||
U.S. Concrete Waste Management Services | 9,447 | 10,687 | ||||||
Corporate | 840 | 829 | ||||||
Total depreciation and amortization | $ | 55,906 | $ | 61,655 | ||||
Interest expense, net | ||||||||
U.S. Concrete Pumping | $ | (22,031 | ) | $ | (31,452 | ) | ||
U.K. Operations | (3,159 | ) | (2,955 | ) | ||||
U.S. Concrete Waste Management Services | - | - | ||||||
Corporate | - | (1 | ) | |||||
Total interest expense, net | $ | (25,190 | ) | $ | (34,408 | ) | ||
Transaction costs and debt extinguishment costs | ||||||||
U.S. Concrete Pumping | $ | 15,822 | $ | - | ||||
Total transaction costs including transaction-related debt extinguishment | $ | 15,822 | $ | - |
Total assets by segment for the periods presented are as follows:
October 31, | October 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Total Assets | ||||||||
U.S. Concrete Pumping | $ | 591,820 | $ | 570,536 | ||||
U.K. Operations | 109,631 | 109,726 | ||||||
U.S. Concrete Waste Management Services | 145,199 | 140,209 | ||||||
Corporate | 26,648 | 25,517 | ||||||
Intersegment | (80,633 | ) | (72,230 | ) | ||||
Total assets | $ | 792,665 | $ | 773,758 |
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 October 31, 2021 and 2020 are as follows:
Year Ended October 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
Revenue by Geography | ||||||||
U.S. | $ | 267,710 | $ | 265,156 | ||||
U.K. | 48,098 | 39,145 | ||||||
Total revenue | $ | 315,808 | $ | 304,301 |
October 31, | October 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Long Lived Assets | ||||||||
U.S. | $ | 285,307 | $ | 260,693 | ||||
U.K. | 52,464 | 43,561 | ||||||
Total long lived assets | $ | 337,771 | $ | 304,254 |
Note 19. Related-Party Transactions
As discussed in Note 12, in October 2020, the Company reached a settlement with the prior shareholders of CPH, resulting in the Company recording a $2.0 million charge related to the settlement agreement reached between the Company and the prior shareholders of CPH that is included in general and administrative expenses in the accompanying consolidated statements of operations. The corresponding due to related party is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets and was settled in fiscal 2021 as the income tax refunds from the IRS were received.
Note 20. Subsequent Events
On November 1, 2021, the Company acquired Pioneer Concrete Pumping Service, Inc. ("Pioneer"), a concrete pumping provider headquartered in Atlanta, Georgia with locations in Dallas and San Antonio, Texas, for a purchase price of $20.1 million, which was paid using cash on hand. As of the date of issuance of the Company's Annual Report on Form 10-K, the purchase price allocation for this transaction had not yet been completed.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, we conducted an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2021, the disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company's internal control over financial reporting as of October 31, 2021, utilizing the criteria in the Committee of Sponsoring Organizations of the Treadway Commission's Internal Control-Integrated Framework (2013). Based on its assessment, our management concluded that all previously reported material weaknesses have been remediated and the Company's internal control over financial reporting was effective as of October 31, 2021.
Attestation Report of the Independent Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm on our internal control over financial reporting because Section 103 of the JOBS Act provides that an emerging growth company is not required to provide an auditor's report on internal control over financial reporting for as long as we qualify as an emerging growth company.
Remediation of Prior Material Weakness
Management identified and disclosed a material weakness in internal control in connection with the preparation of the Company's fiscal 2021 second quarter Form 10-Q. Specifically, the weakness in controls were related to errors in our accounting for the warrants issued in connection with our IPO and a simultaneous private placement.In response to this error, we implemented a new control to assess complex accounting issues reached in the past that continue to impact the Company to ensure those conclusions reached are still appropriate. Our plans include increased communication among our personnel and third-party professionals with whom we consult regarding the application of complex accounting transactions.
As of October 31, 2021, management concluded that the above material weakness in our internal controls over financial reporting related to our disclosure controls and procedures related to significant accounting transactions, was fully remediated as a control was put in place and evidenced to confirm that conclusions related to key accounting issues that have been reached in the past remain appropriate.
Changes in Internal Control Over Financial Reporting
Other than changes described under "Remediation of Prior Material Weakness" above, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended October 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information not disclosed below that is required with respect to directors, executive officers, filings under Section 16(a) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") and corporate governance is incorporated herein by reference, when filed, from our proxy statement (the "Proxy Statement") for the Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the fiscal year ended October 31, 2021.
We have adopted a Code of Business Conduct and Ethics ("Code of Ethics") that applies to our directors, officers and employees. We have posted our Code of Ethics on our website (https://ir.concretepumpingholdings.com/governance-docs) and will post on such website any amendments to, or waivers from, a provision of its Code of Ethics applying to an executive officer or director when required by applicable SEC and Nasdaq rules and regulations.
Item 11. Executive Compensation
Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from our Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from our Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from our Proxy Statement.
Item 14. Principal Accountant Fees and Services
Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from our Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(1) Financial Statements and Schedules
The audited consolidated financial statements of Concrete Pumping Holdings, Inc. and its subsidiaries, as required to be filed, are included under Item 8 of this Annual Report. Other schedules have been omitted as they are not applicable or the required information is set forth in the consolidated financial statements or notes thereto.
(2) Exhibits
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
Exhibit No. | Description | |
2.1 | Agreement and Plan of Merger, dated as of September 7, 2018, by and among Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.), Industrea Acquisition Corp., Concrete Pumping Intermediate Acquisition Corp., Concrete Pumping Merger Sub Inc., Industrea Acquisition Merger Sub Inc., Concrete Pumping Holdings, Inc. and PGP Investors, LLC, as the Holder Representative (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-38166) filed by Industrea Acquisition Corp. on September 7, 2018). | |
2.2 | Amendment No. 1 to Agreement and Plan of Merger, dated as of October 30, 2018, by and among Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.), Industrea Acquisition Corp., Concrete Pumping Intermediate Acquisition Corp., Concrete Pumping Merger Sub Inc., Industrea Acquisition Merger Sub Inc., Concrete Pumping Holdings, Inc., and PGP Investors, LLC, as the Holder Representative (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
2.3 | Amendment No. 2 to Agreement and Plan of Merger, dated as of November 16, 2018, by and among Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.), Industrea Acquisition Corp., Concrete Pumping Intermediate Acquisition Corp., Concrete Pumping Merger Sub Inc., Industrea Acquisition Merger Sub Inc., Concrete Pumping Holdings, Inc., and PGP Investors, LLC, as the Holder Representative (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
2.4 | Interest Purchase Agreement, dated as of March 18, 2019, by and between the Company, Brundage-Bone Concrete Pumping, Inc., CPH Acquisition, LLC, ASC Equipment, LP, Capital Pumping, LP, MC Services, LLC, Capital Rentals, LLC, Central Texas Concrete Services, LLC, A. Keith Crawford and Melinda Crawford (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on March 18, 2019). | |
2.5 | First Amendment to Interest Purchase Agreement, dated as of May 14, 2019, by and between Concrete Pumping Holdings, Inc., Brundage-Bone Concrete Pumping, Inc., CPH Acquisition, LLC, ASC Equipment, LP, Capital Pumping, LP, MC Services, LLC, Capital Rentals, LLC, Central Texas Concrete Services, LLC, A. Keith Crawford and Melinda Crawford (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on May 15, 2019). |
3.1 | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
3.2 | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
3.3 | Certificate of Designations (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
4.1 | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
4.2 | Specimen Warrant Certificate (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
4.3 | Warrant Agreement, dated July 26, 2017, between Industrea Acquisition Corp. and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-38166) filed by Industrea Acquisition Corp. on August 1, 2017). | |
4.4 | Assignment and Assumption Agreement, by and among Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.), Industrea Acquisition Corp. and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). |
4.5 | Description of Capital Stock. (incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K (File No. 001-38166), filed Concrete Pumping Holdings, Inc, on January 14, 2020). | |
| 4.6 | Indenture, dated January 28, 2021, among Brundage-Bone Concrete Pumping Holdings Inc., as issuer, Concrete Pumping Holdings, Inc., as a guarantor, Concrete Pumping Intermediate Acquisition Corp., as a guarantor and the other guarantors form time to time party thereto and Deutsche Bank Trust Company Americas, as trustee and notes collateral agent (incorporated by reference from Exhibit 4.1 of the Current Report on Form 8-K filed on February 1, 2021). | |
| 4.7 | Form of 6.000% Senior Secured Second Lien Notes due 2026 (included in Exhibit 4.1). | |
10.1 | Non-Management Rollover Agreement, dated September 7, 2018, by and among Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.), Industrea Acquisition Corp. and the Rollover Holders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-38166), filed by Industrea Acquisition Corp. on September 7, 2018). | |
10.2 | Management Rollover Agreement, dated September 7, 2018, by and among Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.), Industrea Acquisition Corp. and the Rollover Holders party thereto (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-38166), filed by Industrea Acquisition Corp. on September 7, 2018). | |
10.3 | Argand Subscription Agreement, dated September 7, 2018, by and among Industrea Acquisition Corp., Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.) and Argand Partners Fund, LP (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File No. 001-38166), filed by Industrea Acquisition Corp. on September 7, 2018). | |
10.4 | Form of Common Stock Subscription Agreement (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K (File No. 001-38166), filed by Industrea Acquisition Corp. on September 7, 2018). | |
10.5 | Preferred Stock Subscription Agreement, dated September 7, 2018, by and among Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.), Industrea Acquisition Corp. and Nuveen Alternatives Advisors, LLC (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K (File No. 001-38166), filed by Industrea Acquisition Corp. on September 7, 2018). | |
10.6 | Expense Reimbursement Letter, dated September 7, 2018, by and among Argand Partners Fund, LP, CFLL Sponsor Holdings, LLC (f/k/a Industrea Alexandria LLC), Industrea Acquisition Corp., Concrete Pumping Holdings, Inc. and BBCP Investors, LLC (incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K (File No. 001-38166), filed by Industrea Acquisition Corp. on September 7, 2018). |
10.7 | Amended and Restated ABL Credit Agreement, dated January 28, 2021, among Brundage-Bone Concrete Pumping Holdings Inc., as borrower, Concrete Pumping Holdings, Inc., as holdings, Concrete Pumping Intermediate Acquisition Corp., the other loan parties from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, sole lead arranger and sole bookrunner, Wells Fargo Capital Finance (UK) Limited, as UK security agent, and the lenders and issuing banks from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-38166) filed on February 1, 2021). | |
| 10.8 | First Amendment to Amended and Restated ABL Credit Agreement, dated September 30, 2021. |
10.9 | Stockholders Agreement, dated December 6, 2018, by and among Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.) and the Investors party thereto (incorporated by reference to Exhibit 10.35 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
10.10 | First Amendment to Stockholders Agreement, dated April 1, 2019, among Concrete Pumping Holdings, Inc. and the signatories thereto (incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-1 (File No. 333-230673) filed by Concrete Pumping Holdings, Inc. on April 1, 2019). | |
10.11 | Letter Agreement, dated as of December 6, 2018, by and between Concrete Pumping Holdings, Inc. (f/k/a Concrete Pumping Holdings Acquisition Corp.) and Nuveen Alternative Advisors, LLC, on behalf of one or more funds and accounts (incorporated by reference to Exhibit 10.36 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
10.12 | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.37 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on December 10, 2018). | |
10.13* | Concrete Pumping Holdings, Inc. 2018 Omnibus Incentive Plan, as amended October 29, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on November 2, 2020). | |
| 10.14* | Form of first amended stock award agreement for executives (incorporated by reference to Exhibit 10.23 to the Current Report on Form 10-Q (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on January 12, 2021). | |
| 10.15* | Form of second amended stock award agreement for executives (incorporated by reference to Exhibit 10.24 to the Quarterly Report on Form 10-Q (File No. 001-38166) filed by Concrete Pumping Holdings, Inc. on January 12, 2021). | |
10.16* | Employment Agreement by and between Brundage-Bone Concrete Pumping, Inc. and Bruce Young, dated July 11, 2014 (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-4 (File No. 333-227259) filed by Concrete Pumping Holdings, Inc. on October 22, 2018). | |
10.17* | Employment Agreement by and between Brundage-Bone Concrete Pumping, Inc. and Iain Humphries, dated August 4, 2017 (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-4 (File No. 333-227259) filed by Concrete Pumping Holdings, Inc. on October 22, 2018). | |
10.18 | Settlement Agreement and Release, dated as of October 30, 2020, by and between (i) Concrete Pumping Holdings, Inc. and Brundage-Bone Concrete Pumping Holdings, and (ii) PGP Investors, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 8-K (File No. 001-38166), filed by Concrete Pumping Holdings, Inc. on October 30, 2020). | |
21.1 | ||
23.1 | ||
31.1 | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule15d-14(a). | |
31.2 | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule15d-14(a). | |
32.1 | ||
32.2 |
101.INS | Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CONCRETE PUMPING HOLDINGS, INC. | |||
By: | /s/ Iain Humphries | ||
Name: Iain Humphries | |||
Title: Chief Financial Officer and Secretary |
Dated: January 12, 2022
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Bruce Young and Iain Humphries, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Concrete Pumping Holdings, Inc. and in the capacities indicated, on January 12, 2022.
/s/ Bruce Young | Chief Executive Officer and Director | January 12, 2022 | ||
Bruce Young | (principal executive officer) | |||
/s/ Iain Humphries | Chief Financial Officer and Director | January 12, 2022 | ||
Iain Humphries | (principal financial and accounting officer) | |||
/s/ Howard D. Morgan | Chairman of the Board | January 12, 2022 | ||
Howard D. Morgan | ||||
/s/ Brian Hodges | Vice Chairman of the Board | January 12, 2022 | ||
| Brian Hodges | ||||
/s/ Raymond Cheesman | Director | January 12, 2022 | ||
Raymond Cheesman | ||||
/s/ Heather L. Faust | Director | January 12, 2022 | ||
Heather L. Faust |
/s/ David G. Hall | Director | January 12, 2022 | ||
David G. Hall | ||||
/s/ Tom Armstrong | Director | January 12, 2022 | ||
Tom Armstrong | ||||
/s/ Stephen Alarcon | Director | January 12, 2022 | ||
| Stephen Alarcon | ||||
/s/ Ryan Beres | Director | January 12, 2022 | ||
Ryan Beres | ||||
/s/ John Piecuch | Director | January 12, 2022 | ||
John Piecuch | ||||
/s/ M. Brent Stevens | Director | January 12, 2022 | ||
M. Brent Stevens |
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Concrete Pumping Holdings Inc. published this content on 12 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 January 2022 22:30:10 UTC.
