CONCRETE PUMPING HOLDINGS, INC. 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 aDelaware corporation headquartered inThornton, Colorado . The audited consolidated financial statements included herein include the accounts ofConcrete Pumping Holdings, Inc. and its wholly owned subsidiaries includingBrundage-Bone Concrete Pumping, Inc. ("Brundage-Bone"),Capital Pumping, LP ("Capital"), andCamfaud Group Limited ("Camfaud"), andEco-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 ofRichard O'Brien Companies and its affiliates, which solidified our presence in theColorado andPhoenix, 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 inTexas .
All businesses operating within ourU.S Concrete Pumping segment are concrete pumping service providers inthe 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 inThornton (nearDenver ),Colorado . InSeptember 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 ourTexas market. In addition, the Company completed its greenfield expansion intoLas Vegas during fiscal 2021. Subsequent to the fiscal 2021 year end, the Company acquired the assets ofPioneer Concrete Pumping Service, Inc. ("Pioneer") inNovember 2021 for the purchase price of$20.1 million , which added complementary assets in ourGeorgia andTexas markets.
OurU.S. ConcreteWaste Management Services segment consists of ourU.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 theU.S. with its corporate headquarters inThornton, Colorado .U.K. Operations OurU.K. Operations segment consists of ourCamfaud , Premier andU.K. based Eco-Pan businesses.Camfaud is a concrete pumping service provider in theU.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 theU.K. , with its corporate headquarters in Epping (nearLondon ),England . In addition, we have concrete waste management operations under our Eco-Pan brand name in theU.K. and currently operate from a sharedCamfaud location. 26
--------------------------------------------------------------------------------
Table of Contents Corporate
Our Corporate segment is primarily related to the intercompany leasing of real
estate to certain of our
Impacts of COVID-19 InMarch 2020 , theWorld 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 ofApril 30, 2020 . ThroughOctober 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 theU.K. and certain markets in theU.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 theU.S. and near pre-pandemic levels in theU.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 InJanuary 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$15.0 million of borrowings under the ABL Facility, were used to repay all outstanding indebtedness under our then-existing Term Loan Agreement (as defined below), datedDecember 6, 2018 , and pay related fees and expenses. 27
--------------------------------------------------------------------------------
Table of Contents
Restatement and Revision of Prior Period Financial Statements
As described in additional detail in the Explanatory Note to our Annual Report on Form 10-K/A for the year endedOctober 31, 2020 , filed with theSEC onJune 11, 2021 , theSEC released a public statement onApril 12, 2021 (the "SEC Statement") informing market participants that warrants issued by special purpose acquisition companies ("SPACs") may require classification as a liability of the entity measured at fair value, with changes in fair value each period reported in earnings. The Company previously classified its publicly traded warrants (the "public warrants") and private placement warrants (the "private warrants") (collectively the "Warrants"), which were issued in August of 2017, as equity. Following consideration of the guidance in the SEC Statement, the Company concluded that its Warrants should have been classified as liabilities and measured at fair value, with changes in fair value each period reported in earnings. As such, the Company previously restated its consolidated financial statements as ofOctober 31, 2019 and, while not material, the Company previously revised its consolidated financial statements as of and for the fiscal year endedOctober 31, 2020 to correct the accounting for its Warrants. The consolidated financial statements for the year endedOctober 31, 2020 included in this Annual Report on Form 10-K reflect the impacts of such revisions. Results of Operations Year Ended October 31, (dollars in thousands) 2021 2020 Revenue$ 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 ) 28
--------------------------------------------------------------------------------
Table of Contents
Twelve Months Ended
For the twelve-months endedOctober 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
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 %
29--------------------------------------------------------------------------------
Table of ContentsU.S. Concrete Pumping Revenue for ourU.S. Concrete Pumping segment decreased by 0.1%, or$0.3 million , from$229.7 million in the twelve-months endedOctober 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 inTexas , the South East and the central part ofthe 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 ourU.K. Operations segment increased by 22.9%, or$9.0 million , from$39.1 million in the twelve-months endedOctober 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.
Revenue for theU.S. ConcreteWaste Management Services segment improved by 7.5%, or$2.7 million , from$35.9 million in the twelve-months endedOctober 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
Gross Margin Gross margin for the twelve-months endedOctober 31, 2021 decreased 150 basis points from 45.1% in the twelve-months endedOctober 31, 2020 to 43.6%. The slight decrease in gross margin for the twelve-months endedOctober 31, 2021 was primarily due to inflationary pressures seen throughout theU.S. , specifically for labor and fuel costs.
General and Administrative Expenses
G&A expenses for the twelve-months endedOctober 31, 2021 were$99.4 million , a decrease of$11.7 million from$111.1 million in the twelve-months endedOctober 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). 30
--------------------------------------------------------------------------------
Table of Contents
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 ofApril 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 ourU.S Concrete Pumping reporting unit and a$14.4 million impairment to ourU.K. Operations reporting unit. No impairments were identified throughOctober 31, 2021 .
Change in Fair Value of Warrant Liabilities
During the years endedOctober 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 endedOctober 31, 2021 were$0.3 million and there were no transaction costs during fiscal 2020. OnJanuary 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, datedDecember 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 endedOctober 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 inJanuary 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
(1) Of the
of warrant liabilities, no amount was deductible for tax purposes; and
(2) As a result of an increase in the corporation tax rate in the
19% to 25% that goes into effect on
the value of its net deferred tax liability, resulting in an increase to
income tax expense of $2.1 million .
For the twelve-months ended
(1) Of the
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
rate from 17% to 19% in fiscal 2020, we recorded $0.9 million of tax
expense.
31--------------------------------------------------------------------------------
Table of Contents
Adjusted EBITDA1 and Net Loss
Net Loss Adjusted EBITDA
Year Ended October 31, Year Ended October 31, Change
(in thousands) 2021 2020 2021 2020 $ %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 ourU.S. Concrete Pumping segment was$68.1 million for the twelve-months endedOctober 31, 2021 , down 9.1% from$74.9 million for the twelve-months endedOctober 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
Adjusted EBITDA for ourU.S. ConcreteWaste Management Services segment was$18.4 million for the twelve-months endedOctober 31, 2021 , up 4.1% from$17.7 million for the twelve-months endedOctober 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.
32
--------------------------------------------------------------------------------
Table of Contents
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 ofOctober 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 OnJanuary 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), datedDecember 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, datedDecember 6, 2018 , among the Company, certain subsidiaries of the Company, Credit Suisse AG,Cayman Islands Branch as administrative agent andCredit Suisse Loan Funding LLC ,Jefferies Finance LLC andStifel 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, datedDecember 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 onJanuary 28, 2021 . 33
--------------------------------------------------------------------------------
Table of Contents 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 andAugust 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 asecond-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 theGuarantors' 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
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
the Company can increase the ABL Facility by up to an additional
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
? 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 GBPborrowings) 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
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 quarterlyaverage 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
? The ABL Facility also includes (i) a springing financial covenant (fixed
charges coverage ratio) based on excess availability levels that theCompany 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
34
--------------------------------------------------------------------------------
Table of Contents Cash Flows Cash generated from operating activities typically reflects net income, as adjusted for non-cash expense items such as depreciation, amortization and stock-based compensation, and changes in our operating assets and liabilities. Generally, we believe our business requires a relatively low level of working capital investment due to low inventory requirements and 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 endedOctober 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 endedOctober 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 endedOctober 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 endedOctober 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 ofCamfaud in excess of amounts established in purchase accounting.
We used
Net cash used in financing activities was$43.9 million for the twelve-months endedOctober 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 ofCamfaud of$1.2 million . 35
--------------------------------------------------------------------------------
Table of Contents
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 competitorswho 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 36
--------------------------------------------------------------------------------
Table of Contents
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
37--------------------------------------------------------------------------------
Table of Contents
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.
38--------------------------------------------------------------------------------
Table of Contents
Critical Accounting Policies and Estimates
In presenting our financial statements in conformity withU.S. GAAP, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material impact to our consolidated and combined results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our business activities are in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
Listed below are those estimates that we believe are critical and require the use of complex judgment in their application.
In accordance with 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.
39--------------------------------------------------------------------------------
Table of Contents
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 theU.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. 40
--------------------------------------------------------------------------------
Table of Contents
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.
© Edgar Online, source
