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 Statement Concerning Forward-Looking Statements and Risk Factors Summary” and in Item 1A “Risk Factors” of this Annual Report on Form 10-K. The Company assumes no obligation to update any of these forward-looking statements
Business Overview
The Company is a Delaware corporation headquartered in Denver, Colorado. The audited consolidated financial statements included herein include the accounts of Concrete Pumping Holdings, Inc. and its wholly owned subsidiaries including Brundage-Bone Concrete Pumping, Inc. (“Brundage-Bone”), Capital Pumping, LP (“Capital”), and Camfaud Group Limited (“Camfaud”), and Eco-Pan, Inc. (“Eco-Pan”).
As part of the Company’s business growth strategy and capital allocation policy, strategic acquisitions are considered opportunities to enhance our value proposition through differentiation and competitiveness. Depending on the deal size and characteristics of the M&A opportunities available, we expect to allocate capital for opportunistic M&A utilizing cash on the balance sheet and the revolving line of credit. In recent years and as further described below, we have successfully executed on this strategy, including (1) our September 2021 acquisition of Hi-Tech Concrete Pumping Services (“Hi-Tech”) for the purchase consideration of $12.3 million, which added complementary assets in our Texas market, (2) our November 2021 acquisition of Pioneer Concrete Pumping Service, Inc. (“Pioneer”) for the purchase consideration of $20.2 million, which provided us with complementary assets and operations in both Georgia and Texas and (3) our acquisition of Coastal Carolina Concrete Pumping, Inc. ("Coastal") in August 2022 for the purchase consideration of $30.8 million, which expanded our operations in the Carolinas and Florida.
U.S. Concrete Pumping
All branches 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 these branches do not contract to purchase, mix, or deliver concrete. This segment collectively has approximately 100 branch locations across 20 states with their corporate headquarters in Denver, Colorado.
In recent years, U.S. Concrete Pumping has grown through the acquisitions of Coastal in August 2022, Pioneer in November 2021 and Hi-Tech in September 2021, as described above, and the Company completed its greenfield expansion into Las Vegas during fiscal 2021 and Metro Washington DC in fiscal 2022.
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 18 operating locations across the U.S. with its corporate headquarters in Denver, 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 Macroeconomic Factors and COVID-19 Recovery
Global economic challenges including the impact of the COVID-19 pandemic and the war in Ukraine have contributed to rising inflation, significant increases in fuel costs, supply-chain disruptions, and adverse labor market conditions. For example, the war in Ukraine has had a global impact on the supply and price of fuel and has contributed to increased inflation around the world. While the Company has increased the rates per hour we charge for our services when possible to make up for our increased costs, rising fuel prices had a material impact on our results of operations for the twelve months ended October 31, 2022. The impact from fuel price increases has reduced our gross profit by approximately $10.1 million and our gross margin by approximately 2.5% since October 31, 2021. In regard to the impacts from COVID-19, the Company’s revenue volumes during fiscal 2022 have largely recovered in most of our markets; however, the lingering impact from COVID-19 remains an issue and has contributed to a tight labor market that has impacted our operations in certain markets. We will continue to monitor and adapt our strategic approach as these issues persist.
Looking into our next fiscal year 2023, we believe that residential end market volumes may fluctuate depending on the geographical region as a result of the macroeconomic factors, while commercial and infrastructure end markets may continue to have strong demand. With respect to our financial condition, impairments may be recorded as a result of such adverse challenges. As previously reported during fiscal 2020, the Company reported goodwill and intangible impairment charges as a result of the COVID-19 pandemic, but no impairments were identified through October 31, 2022. The Company will continue to evaluate its goodwill and intangible assets in future quarters.
Restatement and Revision of Prior Period Financial Statements
The Company restated its unaudited consolidated financial statements for the three and nine months ended July 31, 2022 to correct the understatement of accrued payroll which resulted in a decrease in income (loss) before income taxes of $2.0 million for the three and nine months ended July 31, 2022, as described in the Explanatory Note to our Quarterly Report on Form 10-Q/A for the period ended July 31, 2022, filed with the SEC on December 13, 2022. The consolidated financial statements for the year ended October 31, 2022 included in this Annual Report on Form 10-K reflect the impacts of such revisions.
Notes Offering and Upsize of Asset-Based Lending Credit Agreement
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.
In July 2022, the ABL Facility was further amended to, among other changes, increase the maximum revolver borrowings available to be drawn thereunder from $125.0 million to $160.0 million and increase the letter of credit sublimit from $7.5 million to $10.5 million. The $35.0 million in incremental commitments was provided by JPMorgan Chase Bank, N.A.
Results of Operations
|
|
Year Ended October 31, |
|
(dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
401,292 |
|
|
$ |
315,808 |
|
|
|
|
|
|
|
|
|
|
Cost of operations |
|
|
237,682 |
|
|
|
178,081 |
|
Gross profit |
|
|
163,610 |
|
|
|
137,727 |
|
Gross margin |
|
|
40.8 |
% |
|
|
43.6 |
% |
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
113,181 |
|
|
|
99,369 |
|
Transaction costs |
|
|
318 |
|
|
|
312 |
|
Income from operations |
|
|
50,111 |
|
|
|
38,046 |
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(25,891 |
) |
|
|
(25,190 |
) |
Loss on extinguishment of debt |
|
|
- |
|
|
|
(15,510 |
) |
Change in fair value of warrant liabilities |
|
|
9,894 |
|
|
|
(9,894 |
) |
Other income, net |
|
|
88 |
|
|
|
117 |
|
Total other expense |
|
|
(15,909 |
) |
|
|
(50,477 |
) |
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
34,202 |
|
|
|
(12,431 |
) |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
5,526 |
|
|
|
2,642 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
28,676 |
|
|
|
(15,073 |
) |
|
|
|
|
|
|
|
|
|
Less accretion of liquidation preference on preferred stock |
|
|
(1,750 |
) |
|
|
(1,750 |
) |
Income (loss) available to common shareholders |
|
$ |
26,926 |
|
|
$ |
(16,823 |
) |
Twelve Months Ended October 31, 2022 and October 31, 2021
For the twelve-months ended October 31, 2022, our net income was $28.7 million, compared to a net loss of $15.1 million in the same period a year ago. The primary drivers impacting comparability between the two periods were (1) a $25.9 million improvement in gross profit, driven by an $85.5 million increase in revenue that was partially offset by a 280 basis point decline in gross margin, (2) $13.8 million additional expense in general and administrative ("G&A") expenses, (3) a $15.5 million loss on extinguishment of debt recorded in fiscal 2021 (with no related charge in fiscal 2022), (4) a $9.9 million loss from the revaluation of warrant liabilities during fiscal 2021 compared to a $9.9 million revaluation gain in fiscal 2022, driving a net $19.8 million improvement year-over-year, and (5) $2.9 million in higher income tax expense in fiscal 2021 when compared to fiscal 2022.
Total Assets
|
|
October 31, |
|
|
October 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
Total Assets |
|
|
|
|
|
|
|
|
U.S. Concrete Pumping |
|
$ |
693,048 |
|
|
$ |
591,820 |
|
U.K. Operations |
|
|
103,255 |
|
|
|
109,631 |
|
U.S. Concrete Waste Management Services |
|
|
157,370 |
|
|
|
145,199 |
|
Corporate |
|
|
27,834 |
|
|
|
26,648 |
|
Intersegment |
|
|
(94,018 |
) |
|
|
(80,633 |
) |
|
|
$ |
887,489 |
|
|
$ |
792,665 |
|
Total assets increased from $792.7 million as of October 31, 2021 to $887.5 million as of October 31, 2022. 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 asset acquisitions / business combinations during the first and fourth quarters of fiscal 2022.
Revenue
|
|
Year Ended October 31, |
|
|
Change |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
|
$ |
|
|
% |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Concrete Pumping |
|
$ |
296,506 |
|
|
$ |
229,475 |
|
|
$ |
67,031 |
|
|
|
29.2 |
% |
U.K. Operations |
|
|
54,926 |
|
|
|
48,098 |
|
|
|
6,828 |
|
|
|
14.2 |
% |
U.S. Concrete Waste Management Services |
|
|
50,191 |
|
|
|
38,591 |
|
|
|
11,600 |
|
|
|
30.1 |
% |
Corporate |
|
|
2,500 |
|
|
|
2,500 |
|
|
|
- |
|
|
|
0.0 |
% |
Intersegment |
|
|
(2,831 |
) |
|
|
(2,856 |
) |
|
|
25 |
|
|
|
-0.9 |
% |
Total revenue |
|
$ |
401,292 |
|
|
$ |
315,808 |
|
|
$ |
85,484 |
|
|
|
27.1 |
% |
U.S. Concrete Pumping
Revenue for our U.S. Concrete Pumping segment increased by 29.2%, or $67.0 million, from $229.5 million in the twelve-months ended October 31, 2021 to $296.5 million for fiscal 2022. Revenue attributable to our acquisitions of Hi-Tech (full year in fiscal 2022 vs partial year in fiscal 2021), Pioneer and Coastal, was $32.7 million for fiscal 2022. The remaining improvement in revenue was attributable to robust organic improvements in most of our other markets as a result of higher volumes and rate per hour increases.
U.K. Operations
Revenue for our U.K. Operations segment increased by 14.2%, or $6.8 million, from $48.1 million in the twelve-months ended October 31, 2021 to $54.9 million for fiscal 2022. Excluding the impact from foreign currency translation, revenue was up 24.7% year-over-year. The increase in revenue was primarily attributable to rate per job increases across the U.K. region, in addition to the continued recovery from COVID-19, which started in the fiscal 2021 first quarter.
U.S. Concrete Waste Management Services
Revenue for the U.S. Concrete Waste Management Services segment improved by 30.1%, or $11.6 million, from $38.6 million in the twelve-months ended October 31, 2021 to $50.2 million for fiscal 2022. The increase in revenue was primarily due to organic growth, pricing improvements and continued recovery from the impacts of the pandemic.
Corporate
There was no change in revenue for our Corporate segment for the periods presented. Any year-over-year changes for our Corporate segment were primarily related to the intercompany leasing of real estate to certain of our U.S Concrete Pumping branches. These revenues are eliminated in consolidation through the Intersegment line item.
Gross Margin
Our industry has experienced significant inflation in our input costs, particularly in labor and fuel in both the U.S. and the U.K. To help maintain profitability in the face of these challenges, we have increased pricing in line with the rise in our actual costs. However, given the speed of recent input cost increases, there has been a lag between the time of our selling price increases and any resulting revenue. In addition, there is a mathematical dilution effect in margin percentage as we only seek to pass on the actual cost increases to our customers. As a result of these factors, our gross margin for the twelve-months ended October 31, 2022 was 40.8% compared to 43.6% in the previous twelve-months ended October 31, 2021.
General and Administrative Expenses
G&A expenses for the twelve-months ended October 31, 2022 were $113.2 million, an increase of $13.8 million from $99.4 million in the twelve-months ended October 31, 2021. The increase in G&A expenses was primarily due to (1) higher health insurance and labor costs of approximately $11.1 million primarily due to additional personnel that joined the Company as a result of recent acquisitions, (2) higher other G&A-related expenses of $8.6 million, which primarily is from higher automotive, travel, office and rent expense due to recent acquisitions and (3) an additional $2.5 million related to fluctuations in the GBP. This was offset slightly by lower amortization of intangible assets expense of $4.6 million and lower stock-based compensation expense of $1.6 million. G&A expenses as a percent of revenue were 28.2% for fiscal 2022 compared to 31.5% for the same period a year ago.
Excluding amortization of intangible assets of $22.5 million, depreciation expense of $2.3 million and stock-based compensation expense of $5.0 million, G&A expenses were $83.4 million for the fiscal year 2022 (20.8% of revenue), up $19.8 million from $63.6 million for fiscal 2021 (20.1% of revenue). The increase in G&A expenses was primarily due to (1) higher health insurance and labor costs of approximately $11.1 million primarily due to additional personnel that joined the Company as a result of recent acquisitions, (2) higher other G&A-related expenses of $8.6 million, which primarily is from higher automotive, travel, office and rent expense due to recent acquisitions and (3) an additional $2.5 million related to fluctuations in the GBP.
Change in Fair Value of Warrant Liabilities
During the years ended October 31, 2022 and 2021 we recognized a $9.9 million gain and a $9.9 million expense, respectively, on the fair value remeasurement of our liability-classified warrants. The decrease seen in the fair value remeasurement of the public warrants from October 31, 2021 to October 31, 2022 is due to a decline in the Company's share price year-over-year.
Transaction Costs & Debt Extinguishment Costs
Transaction costs include expenses for legal, accounting, and other professionals that were engaged in connection with an acquisition. Transaction costs in each of the twelve months ended October 31, 2022 and 2021 were $0.3 million.
On January 28, 2021, we (1) closed on our private offering of $375.0 million in aggregate principal amount of senior secured second lien notes due 2026, (2) amended and restated our existing ABL Facility to provide up to $125.0 million (previously $60.0 million) of commitments and (3) repaid all outstanding indebtedness under our then-existing term loan agreement, dated December 6, 2018. The $15.5 million in debt extinguishment costs incurred relate to the write-off of all unamortized deferred debt issuance costs that were related to the fully paid term loan.
Interest Expense, Net
Interest expense, net for the year ended October 31, 2022 was $25.9 million, up $0.7 million from the same period from a year ago.
Income Tax (Benefit) Provision
For the twelve-months ended October 31, 2022, the Company recorded an income tax expense of $5.5 million on a pretax income of $34.2 million. Our income tax provision was mostly impacted by the following factors during fiscal 2022:
|
(1) |
of the $9.9 million of income that was recorded related to the revaluation of warrant liabilities, no amount was deductible for tax purposes; and |
|
(2) |
a $0.8 million deferred tax benefit from undistributed foreign earnings. |
For the twelve-months ended October 31, 2021, the Company recorded an income tax benefit 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. |
Adjusted EBITDA1 and Net Income (Loss)
|
|
Net Income (Loss) |
|
|
Adjusted EBITDA |
|
|
|
Year Ended October 31, |
|
|
Year Ended October 31, |
|
|
Change |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
$ |
|
|
% |
|
U.S. Concrete Pumping |
|
$ |
6,541 |
|
|
$ |
(10,959 |
) |
|
$ |
77,523 |
|
|
$ |
68,091 |
|
|
$ |
9,432 |
|
|
|
13.9 |
% |
U.K. Operations |
|
|
2,080 |
|
|
|
(1,028 |
) |
|
|
15,717 |
|
|
|
15,339 |
|
|
|
378 |
|
|
|
2.5 |
% |
U.S. Concrete Waste Management Services |
|
|
8,898 |
|
|
|
5,500 |
|
|
|
22,838 |
|
|
|
18,411 |
|
|
|
4,427 |
|
|
|
24.0 |
% |
Corporate |
|
|
11,157 |
|
|
|
(8,586 |
) |
|
|
2,499 |
|
|
|
2,501 |
|
|
|
(2 |
) |
|
|
-0.1 |
% |
Total |
|
$ |
28,676 |
|
|
$ |
(15,073 |
) |
|
$ |
118,577 |
|
|
$ |
104,342 |
|
|
$ |
14,235 |
|
|
|
13.6 |
% |
1 Please see “Non-GAAP Measures (EBITDA and Adjusted EBITDA)” below for reconciliation of Net Income (Loss) to EBITDA to Adjusted EBITDA.
U.S. Concrete Pumping
Net income for our U.S. Concrete Pumping segment was $6.5 million for the twelve-months ended October 31, 2022, up from a net loss of $11.0 million for the twelve-months ended October 31, 2021. Adjusted EBITDA for our U.S. Concrete Pumping segment was $77.5 million for the twelve-months ended October 31, 2022, up 13.9% from $68.1 million for the twelve-months ended October 31, 2021. The year-over-year increase was primarily attributable to the year-over-year increase in revenue that was partially offset by higher costs due to inflation that drove a decline in our gross margins as discussed previously.
U.K. Operations
Net income for our U.K. Operations segment was $2.1 million for the twelve-months ended October 31, 2022, up from a net loss of $1.0 million for the twelve-months ended October 31, 2021. Adjusted EBITDA for our U.K. Operations segment was $15.7 million for the twelve-months ended October 31, 2022, up 2.5% from $15.3 million for the twelve-months ended October 31, 2021. The year-over-year increase was primarily attributable to the year-over-year improvement in revenue that was partially offset by inflationary pressures on gross margins.
U.S. Concrete Waste Management Services
Net income for our U.S. Concrete Waste Management Services segment was $8.9 million for the twelve-months ended October 31, 2022, up from net income of $5.5 million for the twelve-months ended October 31, 2021. Adjusted EBITDA for our U.S. Concrete Waste Management Services segment was $22.8 million for the twelve-months ended October 31, 2022, up 24.0% from $18.4 million for the twelve-months ended October 31, 2021. The increase was primarily attributable to the year-over-year change in revenue that was partially offset by inflationary pressures on gross margins.
Corporate
There was no change in Adjusted EBITDA for our Corporate segment for the periods presented.
Liquidity and Capital Resources
Overview
Our capital structure is primarily a combination of (1) permanent financing, represented by stockholders’ equity; (2) zero-dividend convertible perpetual preferred stock; (3) long-term financing represented by our Senior Notes and (4) short-term financing under our ABL Facility. Our primary sources of liquidity are cash generated from operations, available cash and cash equivalents and access to our revolving credit facility under our ABL Facility, which provides for aggregate borrowings of up to $160.0 million, subject to a borrowing base limitation. We use our liquidity and capital resources to: (1) finance working capital requirements; (2) service our indebtedness; (3) purchase property, plant and equipment; and (4) finance strategic acquisitions, such as the acquisition of Capital, Pioneer, Coastal and others. As of October 31, 2022, we had $7.5 million of cash and cash equivalents and $103.7 million of available borrowing capacity under the ABL Facility, providing total available liquidity of $111.2 million.
We may from time to time seek to retire or pay down borrowings on the outstanding balance of our ABL Facility or Senior Notes using cash on hand. Such repayments, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
We believe our existing cash and cash equivalent balances, cash flow from operations, and borrowing capacity under our ABL Facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, potential acquisitions and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity could result in dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.
Material Cash Requirements
Our principal sources of liquidity have been from cash provided by operating activities, proceeds from the issuance of debt, and borrowings available under the ABL Facility. Our principal uses of cash historically have been to fund operating activities and working capital, purchases of property and equipment, strategic acquisitions, fund payments due under facility operating and finance leases, share repurchases and to meet debt service requirements.
The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. In response to changing economic conditions, we believe we have the flexibility to modify our capital expenditures by adjusting them (either up or down) to match our actual performance. Our capital expenditures for the years ended October 31, 2022 and 2021 were approximately $101.9 million and $62.8 million, respectively.
To service our debt, we require a significant amount of cash. Our ability to pay interest and principal on our indebtedness will depend upon our future operating performance and the availability of borrowings under the ABL Facility and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control. Based on our current level of operations and given the current state of the capital markets, we believe our cash flow from operations, available cash and available borrowings under the ABL Facility will be adequate to service our debt and meet our future liquidity needs for the foreseeable future. See “Senior Notes and ABL Facility” discussion below for more information.
Future Contractual Obligations
Our contractual obligations and commercial commitments principally include obligations associated with our outstanding indebtedness, interest payments, lease agreements and capital expenditures. We have no off-balance sheet arrangements. Our estimated future obligations as of October 31, 2022 include both current and long term obligations. We have a long-term obligation of $375.0 million related to our Senior Notes due January 2026 (excluding discount for deferred financing costs). Under our operating leases, we have short-term obligations for payments of $5.4 million and long-term obligations for payments of $25.8 million. We have current obligations related to finance leases of $0.1 million and a long-term obligation of $0.2 million. We have a current obligation for our ABL Facility of $52.1 million. Additionally, the Company was contractually committed for $17.0 million of capital expenditures for purchases of property and equipment and these are expected to be paid in the next twelve months.
Senior Notes and ABL Facility
On January 28, 2021, Brundage-Bone Concrete Pumping Holdings, Inc., a Delaware corporation (the “Issuer”) and a wholly-owned subsidiary of the Company (i) completed a private offering of $375.0 million in aggregate principal amount of its 6.000% senior secured second lien notes due 2026 (the "Senior Notes") issued pursuant to an indenture, among the Issuer, the Company, the other Guarantors (as defined below), Deutsche Bank Trust Company Americas, as trustee and as collateral agent (the "Indenture") and (ii) entered into an amended and restated ABL Facility (as subsequently amended, the "ABL Facility") by and among the Company, certain subsidiaries of the Company, Wells Fargo Bank, National Association, as agent, sole lead arranger and sole bookrunner 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 existing term loan agreement (see discussion below), dated December 6, 2018, and pay related fees and expenses. Summarized terms of these facilities are included below.
On July 29, 2022, the ABL Facility was amended to, among other changes, increase the maximum revolver borrowings available to be drawn thereunder from $125.0 million to $160.0 million and increase the letter of credit sublimit from $7.5 million to $10.5 million. The $35.0 million in incremental commitments was provided by JPMorgan Chase Bank, N.A. The ABL Facility also provides for an uncommitted accordion feature under which the ABL Borrowers can, subject to specified conditions, increase the ABL Facility by up to an additional $75.0 million.
Senior Notes
Summarized terms of the Senior Notes are as follows:
|
● |
Provides for an original aggregate principal amount of $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, 2022 was $375.0 million and as of that date, the Company was in compliance with all covenants under the Indenture.
ABL Facility
Summarized terms of the ABL Facility, as amended, are as follows:
|
● |
Borrowing availability in U.S. Dollars and GBP up to a maximum aggregate principal amount of $160.0 million and an uncommitted accordion feature under which the Company can increase the ABL Facility by up to an additional $75.0 million; |
|
● |
Borrowing capacity available for standby letters of credit of up to $10.5 million and for swing loan borrowings of up to $10.5 million. Any issuance of letters of credit or making of a swing loan will reduce the amount available under the ABL Facility; |
|
● |
All loans advanced will mature and be due and payable in full on January 28, 2026; |
|
● |
Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement; |
|
● |
Through September 30, 2021, borrowings in GBP bore interest at an adjusted LIBOR rate plus an applicable margin of 1.25%. After September 30, 2021, borrowings in GBP bear interest at the SONIA rate plus an applicable margin currently set at 2.0326%. The applicable margins for SONIA are subject to a step down of 0.25% based on excess availability levels; |
|
● |
Through June 29, 2022, borrowings in U.S. Dollars bore interest at either (1) an adjusted LIBOR rate plus an applicable margin of 2.25% or (2) a base rate plus an applicable margin of 1.25%. After June 29, 2022, borrowings in U.S. Dollars bear interest at (1) a base rate plus an applicable margin currently set at 1.0000% or (2) the SOFR rate plus an applicable margin currently set at 2.0000%. The applicable margins for U.S. Dollar loans are subject to a step down of 0.25% based on excess availability levels; |
|
● |
U.S. ABL Facility obligations are secured by a first-priority perfected security interest in substantially all the assets of the Issuer, together with Brundage-Bone Concrete Pumping, Inc., Eco-Pan, Inc., Capital Pumping LP (collectively, the "US ABL Borrowers") and each of the Company's wholly-owned domestic subsidiaries (the "US ABL Guarantors"), subject to certain exceptions; |
|
● |
U.K. ABL Facility obligations are secured by a first priority perfected security interest in substantially all assets of Camfaud Concrete Pumps Limited and Premier Concrete Pumping Limited, each of the Company's wholly-owned U.K. subsidiaries, and by each of the US ABL Borrowers and the US ABL Guarantors, subject to certain exceptions; and |
|
● |
The ABL Facility also includes (i) a springing financial covenant (fixed charges coverage ratio) based on excess availability levels that the Company must comply with on a quarterly basis during required compliance periods and (ii) certain non-financial covenants. |
The outstanding balance under the ABL Facility as of October 31, 2022 was $52.1 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 timely customer payments due to daily billings for most of our services.
Net cash provided by operating activities generally reflects the cash effects of transactions and other events used in the determination of net income or loss. Net cash provided by operating activities during the twelve-months ended October 31, 2022 was $76.7 million. The Company had net income of $28.7 million that included deferred income tax expense of $5.2 million, a gain on sale of assets of $2.8 million and significant non-cash charges, net totaling $60.4 million as follows: (1) depreciation expense of $34.9 million, (2) amortization of intangible assets of $22.5 million, (3) stock-based compensation expense of $5.0 million, (4) operating lease expense of $3.9 million, (5) foreign currency adjustments of $2.1 million, (6) amortization of deferred financing costs of $1.9 million and (7) a $9.9 million decrease in the fair value of warrant liabilities. In addition, we had cash inflows related to an increase of $8.9 million in accrued payroll, accrued expenses and other current liabilities. This change is primarily due to an increase in accrued insurance, the timing of accrued capital expenditures and other smaller items. These amounts were partially offset by outflows related to the following activity: (1) an increase of $15.3 million in trade receivables, primarily related to an increase in sales due to higher volumes and rate per hour increases, (2) a decrease of $3.7 million related to the change in operating lease liability due to implementation of ASC 842 and bifurcating out the operating lease payments, less the accreted interest, (3) a decrease of $3.0 million in accounts payable, primarily due to timing, (4) an increase of $0.9 million in inventory, (5) an increase of prepaid expenses and other current assets of $0.6 million, and (6) a decrease of $0.3 million in income taxes payable.
We used $124.1 million to fund investing activities during the twelve-months ended October 31, 2022. The Company used $101.9 million for the purchase of property, plant and equipment, $30.8 million to fund the acquisition of Coastal and $1.5 million for the purchase of intangible assets. These amounts were partially offset by $10.0 million in proceeds from the sale of property, plant and equipment.
Net cash provided by financing activities was $46.0 million for the twelve-months ended October 31, 2022. Financing activities during this period included $50.4 million in net proceeds under the Company’s ABL Facility, and $4.1 million in purchase of treasury stock, which included $2.7 million purchased under the June 2022 share repurchase program and $1.4 million that were purchased directly from employee's when their stock awards vested in order to cover their tax liability.
Net cash provided by operating activities during the twelve-months ended October 31, 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, primarily due to timing of payments, (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, primarily due to the timing of billings, and (2) an increase of prepaid expenses and other current assets of $1.8 million.
We used $56.6 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.
Non-GAAP Measures (EBITDA and Adjusted EBITDA)
We calculate EBITDA by taking GAAP net income and adding back interest expense, income taxes, depreciation and amortization. Adjusted EBITDA is calculated by taking EBITDA and adding back transaction expenses, loss on debt extinguishment, stock-based compensation, other income, net, goodwill and intangibles impairment and other adjustments. We believe these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends related to our financial condition and results of operations, and as a tool for investors to use in evaluating our ongoing operating results and trends and in comparing our financial measures with competitors who also present similar non-GAAP financial measures. In addition, these measures (1) are used in quarterly and annual financial reports prepared for management and our board of directors and (2) help management to determine incentive compensation. EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated under GAAP. These non-GAAP measures exclude certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently or may not calculate it at all, which limits the usefulness of EBITDA and Adjusted EBITDA as comparative measures. Transaction expenses represent expenses for legal, accounting, and other professionals that were engaged in the completion of various acquisitions. Transaction expenses can be volatile as they are primarily driven by the size of a specific acquisition. As such, we exclude these amounts from Adjusted EBITDA for comparability across periods. Other adjustments include reversal of intercompany allocations (in consolidation these net to zero), severance expenses, director fees, foreign currency gains or losses, expenses related to being a publicly-traded company and other non-recurring costs.
|
|
Year Ended October 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
Consolidated |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
28,676 |
|
|
$ |
(15,073 |
) |
Interest expense, net |
|
|
25,891 |
|
|
|
25,190 |
|
Income tax expense |
|
|
5,526 |
|
|
|
2,642 |
|
Depreciation and amortization |
|
|
57,462 |
|
|
|
55,906 |
|
EBITDA |
|
|
117,555 |
|
|
|
68,665 |
|
Transaction expenses |
|
|
318 |
|
|
|
312 |
|
Loss on debt extinguishment |
|
|
- |
|
|
|
15,510 |
|
Stock-based compensation |
|
|
5,034 |
|
|
|
6,591 |
|
Change in fair value of warrant liabilities |
|
|
(9,894 |
) |
|
|
9,894 |
|
Other income, net |
|
|
(88 |
) |
|
|
(117 |
) |
Other adjustments1 |
|
|
5,652 |
|
|
|
3,487 |
|
Adjusted EBITDA |
|
$ |
118,577 |
|
|
$ |
104,342 |
|
|
|
Year Ended October 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
U.S. Concrete Pumping |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
6,541 |
|
|
$ |
(10,959 |
) |
Interest expense, net |
|
|
22,968 |
|
|
|
22,031 |
|
Income tax expense (benefit) |
|
|
2,465 |
|
|
|
(956 |
) |
Depreciation and amortization |
|
|
40,304 |
|
|
|
37,381 |
|
EBITDA |
|
|
72,278 |
|
|
|
47,497 |
|
Transaction expenses |
|
|
318 |
|
|
|
312 |
|
Loss on debt extinguishment |
|
|
- |
|
|
|
15,510 |
|
Stock-based compensation |
|
|
5,034 |
|
|
|
6,591 |
|
Other income, net |
|
|
(49 |
) |
|
|
(42 |
) |
Other adjustments1 |
|
|
(58 |
) |
|
|
(1,777 |
) |
Adjusted EBITDA |
|
$ |
77,523 |
|
|
$ |
68,091 |
|
1 Other adjustments includes the adjustment for warrant liabilities revaluation, restructuring costs, director costs, public company expense, extraordinary expenses and gain/loss on currency transactions. Starting in the first quarter of fiscal 2023, we will modify the method in which adjusted EBITDA is calculated by no longer including an add-back for director costs (which were $2.0 million in 2022 and $2.4 million in 2021) or expenses related to being a publicly-traded company (which were $0.5 million in both 2022 and 2021).
|
|
Year Ended October 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
U.K. Operations |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,080 |
|
|
$ |
(1,028 |
) |
Interest expense, net |
|
|
2,923 |
|
|
|
3,159 |
|
Income tax expense (benefit) |
|
|
(130 |
) |
|
|
1,759 |
|
Depreciation and amortization |
|
|
7,709 |
|
|
|
8,238 |
|
EBITDA |
|
|
12,582 |
|
|
|
12,128 |
|
Transaction expenses |
|
|
- |
|
|
|
- |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
Other income, net |
|
|
(15 |
) |
|
|
(53 |
) |
Other adjustments |
|
|
3,150 |
|
|
|
3,264 |
|
Adjusted EBITDA |
|
$ |
15,717 |
|
|
$ |
15,339 |
|
|
|
Year Ended October 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
U.S. Concrete Waste Management Services |
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,898 |
|
|
$ |
5,500 |
|
Interest expense, net |
|
|
- |
|
|
|
- |
|
Income tax expense |
|
|
2,803 |
|
|
|
1,486 |
|
Depreciation and amortization |
|
|
8,601 |
|
|
|
9,447 |
|
EBITDA |
|
|
20,302 |
|
|
|
16,433 |
|
Transaction expenses |
|
|
- |
|
|
|
- |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
Other income, net |
|
|
(24 |
) |
|
|
(22 |
) |
Other adjustments |
|
|
2,560 |
|
|
|
2,000 |
|
Adjusted EBITDA |
|
$ |
22,838 |
|
|
$ |
18,411 |
|
|
|
Year Ended October 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
Corporate |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
11,157 |
|
|
$ |
(8,586 |
) |
Interest expense, net |
|
|
- |
|
|
|
- |
|
Income tax expense |
|
|
388 |
|
|
|
353 |
|
Depreciation and amortization |
|
|
848 |
|
|
|
840 |
|
EBITDA |
|
|
12,393 |
|
|
|
(7,393 |
) |
Transaction expenses |
|
|
- |
|
|
|
- |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
Change in fair value of warrant liabilities |
|
|
(9,894 |
) |
|
|
9,894 |
|
Other income, net |
|
|
- |
|
|
|
- |
|
Other adjustments |
|
|
- |
|
|
|
- |
|
Adjusted EBITDA |
|
$ |
2,499 |
|
|
$ |
2,501 |
|
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 Accounting Standards Codification ("ASC") Topic 350, Intangibles–Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment annually, generally as of August 31st, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step (generally referred to as a "step 0" analysis) is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step (generally referred to as a "step 1" analysis) where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating fair value of individual reporting units and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions including those relating to the duration and severity of COVID-19. These assumptions and estimates include projected revenue, cash flow margins, capital expenditures, trade name royalty rates, discount rate, tax amortization benefit and other market factors outside of our control. The Company elects to perform a qualitative assessment for the other quarterly reporting periods throughout the fiscal year.
When we perform any goodwill impairment test, the estimated fair value of our reporting units are determined using an income approach that utilizes a discounted cash flow (“DCF”) model and a market approach that utilizes the guideline public company method (“GPC”), both of which are weighted for each reporting unit and are discussed below in further detail. In accordance with ASC Topic 820, Fair Value Measurement ("ASC 820"), we evaluated the methods for reasonableness and reliability and assigned weightings accordingly. A mathematical weighting is not prescribed by ASC 820, rather it requires judgement. As such, each of the valuation methods were weighted by accounting for the relative merits of each method and considered, among other things, the reliability of the valuation methods and the inputs used in the methods. In addition, in order to assess the reasonableness of the fair value of our reporting units as calculated under both approaches, we also compare the Company’s total fair value to its market capitalization and calculate an implied control premium (the excess sum of the reporting unit’s fair value over its market capitalization). We evaluate the implied control premium by comparing it to control premiums of recent comparable market transactions, as applicable.
Under the income approach, the DCF model is based on expected future after-tax operating cash flows of the reporting unit, discounted to a present value using a risk-adjusted discount rate. Estimates of future cash flows require management to make significant assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amount and timing of cash flows and the probability of achieving the estimated cash flows, (ii) the probability of regulatory approvals, and (iii) future economic conditions, including the extent and duration of the COVID-19 pandemic, all of which may differ from actual future cash flows. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rate, which is intended to reflect the risks inherent in future cash flow projections, used in the DCF model, is based on estimates of the weighted average cost of capital (“WACC”) of market participants relative to our reporting unit. Financial and credit market volatility can directly impact certain inputs and assumptions used to develop the WACC. Any changes in these assumptions may affect our fair value estimate and the result of an impairment test. The discount rates and other inputs and assumptions are consistent with those that a market participant would use.
The GPC method provides an estimate of value using multiples derived from the stock prices of publicly traded companies. This method requires a selection of comparable publicly-traded companies on major exchanges and involves a certain degree of judgment, as no two companies are entirely alike. These companies should be engaged in the same or a similar line of business as the reporting units be evaluated. Once comparable companies are selected, the application of the GPC method includes (i) analysis of the guideline public companies' financial and operating performance, growth, intangible asset's value, size, leverage, and risk relative to the respective reporting unit, (ii) calculation of valuation multiples for the selected guideline companies, and (iii) application of the valuation multiples to each reporting unit's selected operating metrics to arrive at an indication of value. Market multiples for the selected guideline public companies are developed by dividing the business enterprise value of each guideline public company by a measure of its financial performance (e.g., earnings). The business enterprise value is calculated taking the market value of equity (share price times fully-diluted shares outstanding) plus total interest bearing debt net of cash, preferred stock and minority interest. The market value of equity is based upon the stock price of equity as of the valuation date, and the debt figures are taken from the most recently available financial statements as of the valuation date. In selecting appropriate multiples to apply to each reporting unit, we perform a comparative analysis between the reporting units and the guideline public companies. In making a selection, we consider the revenue growth, profitability and the size of the reporting unit compared to the guideline public companies, and the overall EBITDA multiples implied from the transaction price. In addition, we consider a control premium for purposes of estimating the fair value of our reporting units as we believe that a market participant buyer would be required to pay a premium for control of our business. The control premium utilized is based on control premiums observed in recent comparable market transactions.
The Company elected to have a step one impairment analysis performed as of August 31, 2022 on the Company’s U.S. Concrete Pumping, U.S. Concrete Waste Management Services, and U.K. Operations reporting units. Management’s projections used to estimate the undiscounted cash flows included modest annual increases to revenue volumes and rates, cash flow margins that are consistent with recently achieved actual amounts, terminal growth rates of 3.0% and discount rates ranging from 10.0% to 11.3%.
As a result of the goodwill impairment analysis, the fair values of its U.S. Concrete Waste Management Services and U.K. Operations reporting units substantially exceeded their carrying values by 82% and 32%, respectively.
For the U.S. Concrete Pumping reporting unit, which had goodwill of $147.5 million, the fair value was approximately 7% greater than its carrying value. Changes in any of the significant assumptions used could materially affect the expected cash flows and such impacts could result in a potentially material non-cash impairment charge. The most sensitive assumption is the discount rate and a 50 basis point increase in the discount rate would not have resulted in any of the reporting units’ carrying values exceeding their fair values.
Business combinations and asset acquisitions
The Company applies the principles provided in ASC 805, Business Combinations ("ASC 805"), to determine whether a transaction involves an asset or a business.
If it is determined an acquisition is a business combination, tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized to the extent the fair value of the consideration transferred exceeds the fair value of the net assets acquired. Transaction costs for business combinations are expensed as incurred in accordance with ASC 805.
If it is determined an acquisition is an asset acquisition, the purchase consideration (which will include certain transaction costs) is allocated first to indefinite lived intangible assets (if applicable) based on their fair values with the remaining balance of purchase consideration being allocated to the acquired assets and liabilities based on their relative fair values.
The application of acquisition accounting requires the Company to make fair value determinations as of the valuation date. In making these determinations, the Company is required to make estimates and assumptions that affect the recorded amounts, including, but not limited to, expected future cash flows, market comparable and discount rates, replacement costs of property and equipment and the amounts to be recovered in future periods from acquired deferred tax assets. To assist the Company in making these fair value determinations, the Company may engage third-party valuation specialists or internal specialists who generally assist the Company in the fair value determination of identifiable assets such as customer relationships, property and equipment and any other significant asset or liabilities. The Company’s estimates in this area impact, among other items, the amount of depreciation and amortization and income tax expense or benefit that we report. The Company’s estimates of fair value are based upon assumptions that the Company believes to be reasonable, but which are inherently uncertain.
Recently Issued Accounting Standards
For a detailed description of recently adopted and new accounting pronouncements refer to Note 3 to the Company’s audited financial statements included elsewhere in this Annual Report.
Item 8. Consolidated Financial Statements
TABLE OF CONTENTS
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, 2022 and 2021, 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 “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 31, 2022 and 2021, 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.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of October 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated January 31, 2023 expressed an adverse opinion thereon.
Change in Accounting Principle
As discussed in Notes 1 and 9 to the consolidated financial statements, the Company has changed its method of accounting for leases in fiscal 2022 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the 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.
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment
As described in Notes 1 and 8 to the consolidated financial statements, goodwill totaled $220.2 million as of October 31, 2022. 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. 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. As a result of the goodwill impairment analysis, no impairment charge was recorded.
We identified the goodwill impairment assessment of a certain reporting unit as a critical audit matter. The valuation methodologies used to value the reporting unit included the discounted cash flow method (income approach) and the guideline public company method (market approach). The fair value estimate of the reporting unit is sensitive to significant assumptions, including projected revenue growth, discount rate and operating margin, all of which are affected by expectations about future market or economic conditions, industry, and company-specific factors. Auditing these elements involved complex auditor judgment due to the significant management judgments and estimates used in determining the fair value of goodwill for the reporting unit and the use of specialized skills to perform the necessary audit procedures.
The primary procedures we performed to address this critical audit matter included:
| ● | Evaluating the appropriateness of the methodologies and assumptions used by management in determining the fair value of the reporting unit, including: |
| ● | With respect to the market approach, assessing the appropriateness of the approach and evaluating the reasonableness of the guideline companies selected for the reporting unit. |
| ● | With respect to the income approach, assessing the appropriateness of the discounted cash flow methodology and evaluating the reasonableness of the assumptions by (i) evaluating the reasonableness of projected revenues and operating costs against recent performance and guideline public companies in the same industry, (ii) evaluating the general economic, industry and market conditions, (iii) testing the completeness, accuracy, and relevance of underlying data used in the models, and (iv) performing sensitivity analyses of the individual reporting unit’s cash flow projections. |
| ● | Utilizing personnel with specialized knowledge and skills in business valuation to assist in assessing the appropriateness and relative weighting of the income and market approaches and evaluate the reasonableness of certain significant assumptions included in the fair value estimates. |
Business Combinations and Asset Acquisitions - Fair Value of Acquired Equipment
As described in Notes 1 and 4 to the consolidated financial statements, the Company completed four acquisitions that were accounted for as asset acquisitions (one in the first quarter for $20.2 million and three in the second quarter for $11.4 million) and one acquisition that was accounted for as a business combination (in the fourth quarter for $30.8 million) in fiscal 2022. In connection with these acquisitions, the Company is required to estimate the fair value of assets acquired (and liabilities assumed, when applicable).
We identified the estimation of the fair value of concrete pumping equipment acquired in certain transactions as a critical audit matter because of significant estimates and assumptions the Company makes, and industry specialization needed to calculate its fair value for purposes of recording the acquisition. This required the use of personnel with specialized knowledge and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the significant underlying assumptions used in the fair value model, including physical deterioration of the assets and future operational obsolescence.
The primary procedures we performed to address this critical audit matter included:
| ● | Testing the completeness and accuracy of the underlying data supporting the determination of the various inputs, and testing the clerical accuracy. |
| ● | Utilizing personnel with specialized knowledge and skills in valuation of capital assets to assess the reasonableness of the fair value of the acquired concrete pumping equipment by: |
| ● | Comparing the significant assumptions to third-party industry market prices for concrete pumping equipment with similar characteristics. |
| ● | Independently measuring the fair value of the concrete pumping equipment by performing a cost approach sensitivity analysis and/or market approach sensitivity analysis and comparing that to the fair value determined by the Company, which included estimating the fair value by (i) determining the current cost of new subject assets and deducting the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence and (ii) measuring the loss in value from all forms of valued depreciable assets, assuming appropriate adjustments are made for comparable market subjects in a market approach. |
/s/ BDO USA, LLP
We have served as the Company's auditor since 2018.
Dallas, Texas
January 31, 2023
Concrete Pumping Holdings, Inc.
Consolidated Balance Sheets
| | October 31, | | | October 31, | |
(in thousands except per share amounts) | | 2022 | | | 2021 | |
| | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 7,482 | | | $ | 9,298 | |
Trade receivables, net | | | 62,882 | | | | 49,034 | |
Inventory, net | | | 5,532 | | | | 4,902 | |
Income taxes receivable | | | 485 | | | | 275 | |
Prepaid expenses and other current assets | | | 5,175 | | | | 4,110 | |
Total current assets | | | 81,556 | | | | 67,619 | |
| | | | | | | | |
Property, plant and equipment, net | | | 419,377 | | | | 337,771 | |
Intangible assets, net | | | 137,754 | | | | 158,539 | |
Goodwill | | | 220,245 | | | | 224,700 | |
Right-of-use operating lease assets | | | 24,833 | | | | - | |
Other non-current assets | | | 2,026 | | | | 2,168 | |
Deferred financing costs | | | 1,698 | | | | 1,868 | |
Total assets | | $ | 887,489 | | | $ | 792,665 | |
| | | | | | | | |
| | | | | | | | |
Current liabilities: | | | | | | | | |
Revolving loan | | $ | 52,133 | | | $ | 990 | |
Operating lease obligations, current portion | | | 4,001 | | | | - | |
Finance lease obligations, current portion | | | 109 | | | | 103 | |
Accounts payable | | | 8,362 | | | | 10,706 | |
Accrued payroll and payroll expenses | | | 13,341 | | | | 12,226 | |
Accrued expenses and other current liabilities | | | 32,156 | | | | 23,940 | |
Income taxes payable | | | 178 | | | | 274 | |
Total current liabilities | | | 110,280 | | | | 48,239 | |
| | | | | | | | |
Long term debt, net of discount for deferred financing costs | | | 370,476 | | | | 369,084 | |
Operating lease obligations, non-current | | | 20,984 | | | | - | |
Finance lease obligations, non-current | | | 169 | | | | 278 | |
Deferred income taxes | | | 74,223 | | | | 70,566 | |
Warrant liability | | | 7,030 | | | | 16,923 | |
Total liabilities | | | 583,162 | | | | 505,090 | |
| | | | | | | | |
Commitments and contingencies (Note 14) | | | | | | | | |
| | | | | | | | |
Zero-dividend convertible perpetual preferred stock, $0.0001 par value, 2,450,980 shares issued and outstanding as of October 31, 2022 and October 31, 2021 | | | 25,000 | | | | 25,000 | |
| | | | | | | | |
Stockholders' equity | | | | | | | | |
Common stock, $0.0001 par value, 500,000,000 shares authorized, 56,226,191 and 56,564,642 issued and outstanding as of October 31, 2022 and October 31, 2021, respectively | | | 6 | | | | 6 | |
Additional paid-in capital | | | 379,395 | | | | 374,272 | |
Treasury stock | | | (4,609 | ) | | | (461 | ) |
Accumulated other comprehensive income (loss) | | | (9,228 | ) | | | 3,671 | |
Accumulated deficit | | | (86,237 | ) | | | (114,913 | ) |
Total stockholders' equity | | | 279,327 | | | | 262,575 | |
| | | | | | | | |
Total liabilities and stockholders' equity | | $ | 887,489 | | | $ | 792,665 | |
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) |
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
401,292 |
|
|
$ |
315,808 |
|
|
|
|
|
|
|
|
|
|
Cost of operations |
|
|
237,682 |
|
|
|
178,081 |
|
Gross profit |
|
|
163,610 |
|
|
|
137,727 |
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
113,181 |
|
|
|
99,369 |
|
Transaction costs |
|
|
318 |
|
|
|
312 |
|
Income from operations |
|
|
50,111 |
|
|
|
38,046 |
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(25,891 |
) |
|
|
(25,190 |
) |
Loss on extinguishment of debt |
|
|
- |
|
|
|
(15,510 |
) |
Change in fair value of warrant liabilities |
|
|
9,894 |
|
|
|
(9,894 |
) |
Other income, net |
|
|
88 |
|
|
|
117 |
|
Total other expense |
|
|
(15,909 |
) |
|
|
(50,477 |
) |
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
34,202 |
|
|
|
(12,431 |
) |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
5,526 |
|
|
|
2,642 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
28,676 |
|
|
|
(15,073 |
) |
|
|
|
|
|
|
|
|
|
Less accretion of liquidation preference on preferred stock |
|
|
(1,750 |
) |
|
|
(1,750 |
) |
|
|
|
|
|
|
|
|
|
Income (loss) available to common shareholders |
|
$ |
26,926 |
|
|
$ |
(16,823 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
53,914,311 |
|
|
|
53,413,594 |
|
Diluted |
|
|
54,851,308 |
|
|
|
53,413,594 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.48 |
|
|
$ |
(0.31 |
) |
Diluted |
|
$ |
0.47 |
|
|
$ |
(0.31 |
) |
See accompanying notes to consolidated financial statements.
Concrete Pumping Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
|
|
Year Ended October 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
28,676 |
|
|
$ |
(15,073 |
) |
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(12,899 |
) |
|
|
4,277 |
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
15,777 |
|
|
$ |
(10,796 |
) |
See accompanying notes to consolidated financial statements.
Concrete Pumping Holdings, Inc.
Consolidated Statements of Changes in Stockholders' Equity
October 31, 2020 through October 31, 2022
|
|
Common Stock |
|
|
Additional Paid-In |
|
|
Treasury |
|
|
Accumulated Other Comprehensive |
|
|
Accumulated |
|
|
|
|
|
(in thousands) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Income (loss) |
|
|
Deficit |
|
|
Total |
|
Balance at October 31, 2020 |
|
|
56,463,992 |
|
|
$ |
6 |
|
|
$ |
367,681 |
|
|
$ |
(131 |
) |
|
$ |
(606 |
) |
|
$ |
(99,840 |
) |
|
$ |
267,110 |
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
6,591 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,591 |
|
Forfeiture of restricted stock |
|
|
(22,564 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under stock-based program, net of treasury shares purchased for tax withholding |
|
|
123,214 |
|
|
|
- |
|
|
|
- |
|
|
|
(330 |
) |
|
|
- |
|
|
|
- |
|
|
|
(330 |
) |
Treasury shares purchased under share repurchase program |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15,073 |
) |
|
|
(15,073 |
) |
Foreign currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,277 |
|
|
|
- |
|
|
|
4,277 |
|
Balance at October 31, 2021 |
|
|
56,564,642 |
|
|
$ |
6 |
|
|
$ |
374,272 |
|
|
$ |
(461 |
) |
|
$ |
3,671 |
|
|
$ |
(114,913 |
) |
|
$ |
262,575 |
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
5,034 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,034 |
|
Forfeiture of restricted stock |
|
|
(84,082 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Shares issued under stock-based program, net of treasury shares purchased for tax withholding |
|
|
160,697 |
|
|
|
- |
|
|
|
89 |
|
|
|
(1,459 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,370 |
) |
Treasury shares purchased under share repurchase program |
|
|
(415,066 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,689 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,689 |
) |
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28,676 |
|
|
|
28,676 |
|
Foreign currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12,899 |
) |
|
|
- |
|
|
|
(12,899 |
) |
Balance at October 31, 2022 |
|
|
56,226,191 |
|
|
$ |
6 |
|
|
$ |
379,395 |
|
|
$ |
(4,609 |
) |
|
$ |
(9,228 |
) |
|
$ |
(86,237 |
) |
|
$ |
279,327 |
|
See accompanying notes to consolidated financial statements.
Concrete Pumping Holdings, Inc.
Consolidated Statements of Cash Flows
|
|
For the Year Ended October 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
Net income (loss) |
|
$ |
28,676 |
|
|
$ |
(15,073 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Non-cash operating lease expense |
|
|
3,913 |
|
|
|
- |
|
Right-of-use asset amortization for finance lease |
|
|
22 |
|
|
|
- |
|
Foreign currency adjustments |
|
|
2,091 |
|
|
|
- |
|
Depreciation |
|
|
34,912 |
|
|
|
28,795 |
|
Deferred income taxes |
|
|
5,205 |
|
|
|
2,547 |
|
Amortization of deferred financing costs |
|
|
1,852 |
|
|
|
2,335 |
|
Amortization of intangible assets |
|
|
22,528 |
|
|
|
27,111 |
|
Stock-based compensation expense |
|
|
5,034 |
|
|
|
6,591 |
|
Change in fair value of warrant liabilities |
|
|
(9,894 |
) |
|
|
9,894 |
|
Loss on extinguishment of debt |
|
|
- |
|
|
|
15,510 |
|
Net gain on the sale of property, plant and equipment |
|
|
(2,759 |
) |
|
|
(1,178 |
) |
Net changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade receivables, net |
|
|
(15,310 |
) |
|
|
(4,172 |
) |
Inventory |
|
|
(870 |
) |
|
|
(200 |
) |
Prepaid expenses and other assets |
|
|
(550 |
) |
|
|
(1,771 |
) |
Operating lease liability |
|
|
(3,728 |
) |
|
|
- |
|
Income taxes payable, net |
|
|
(324 |
) |
|
|
497 |
|
Accounts payable |
|
|
(3,039 |
) |
|
|
3,972 |
|
Accrued payroll, accrued expenses and other liabilities |
|
|
8,936 |
|
|
|
977 |
|
Net cash provided by operating activities |
|
|
76,695 |
|
|
|
75,835 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(101,932 |
) |
|
|
(62,792 |
) |
Proceeds from sale of property, plant and equipment |
|
|
10,023 |
|
|
|
6,977 |
|
Purchases of intangible assets |
|
|
(1,450) |
|
|
|
(750) |
|
Acquisition of net assets - Coastal acquisition |
|
|
(30,762 |
) |
|
|
- |
|
Net cash used in investing activities |
|
|
(124,121 |
) |
|
|
(56,565 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds on long term debt |
|
|
- |
|
|
|
375,000 |
|
Payments on long term debt |
|
|
- |
|
|
|
(381,206 |
) |
Proceeds on revolving loan |
|
|
377,375 |
|
|
|
280,034 |
|
Payments on revolving loan |
|
|
(326,945 |
) |
|
|
(280,891 |
) |
Payment of debt issuance costs |
|
|
(290 |
) |
|
|
(8,464 |
) |
Payments on finance lease obligations |
|
|
(103 |
) |
|
|
(97 |
) |
Purchase of treasury stock |
|
|
(4,148 |
) |
|
|
(330 |
) |
Proceeds on exercise of options |
|
|
89 |
|
|
|
- |
|
Net cash provided by (used in) financing activities |
|
|
45,978 |
|
|
|
(15,954 |
) |
Effect of foreign currency exchange rate on cash |
|
|
(368 |
) |
|
|
(754 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
(1,816 |
) |
|
|
2,562 |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
9,298 |
|
|
|
6,736 |
|
End of period |
|
$ |
7,482 |
|
|
$ |
9,298 |
|
See accompanying notes to consolidated financial statements.
Concrete Pumping Holdings, Inc.
Consolidated Statements of Cash Flows (Continued)
|
|
Year Ended October 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
23,682 |
|
|
$ |
17,371 |
|
Cash paid for income taxes |
|
$ |
408 |
|
|
$ |
994 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Equipment purchases included in accrued expenses and accounts payable |
|
$ |
8,882 |
|
|
$ |
7,135 |
|
Operating lease right-of-use assets recorded upon adoption of ASC 842 |
|
$ |
18,625 |
|
|
$ |
- |
|
Operating lease liabilities recorded upon adoption of ASC 842 |
|
$ |
18,593 |
|
|
$ |
- |
|
Operating lease assets obtained in exchange for new operating lease liabilities |
|
$ |
10,089 |
|
|
$ |
- |
|
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”).
Nature of business
Brundage-Bone and Capital are concrete pumping service providers in the United States ("U.S.") and Camfaud is a concrete pumping service provider in the United Kingdom (“U.K.”). Their core business is the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Most often equipment returns to a “home base” nightly and these service providers do not contract to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately 100 branch locations across 20 states, with its corporate headquarters in Denver, Colorado. Camfaud has approximately 30 branch locations throughout the U.K., with its corporate headquarters in Epping (near London), England.
Eco-Pan provides industrial cleanup and containment services, primarily to customers in the construction industry. Eco-Pan uses containment pans specifically designed to hold waste products from concrete and other industrial cleanup operations. Eco-Pan has 18 operating locations across the U.S. with its corporate headquarters in Denver, Colorado. In addition, we have concrete waste management operations under our Eco-Pan brand name in the U.K. and currently operate from a shared Camfaud location.
Seasonality
The Company’s sales are historically seasonal, with lower revenue in the first quarter and higher revenue in the fourth quarter of each year. Such seasonality also causes the Company’s working capital cash flow requirements to vary from quarter to quarter and primarily depends on the variability of weather patterns with the Company generally having lower sales volume during the winter and spring months.
Impacts of Macroeconomic Factors and COVID-19 Recovery
Global economic challenges including the impact of the COVID-19 pandemic and the war in Ukraine have contributed to rising inflation, significant increases in fuel costs, supply-chain disruptions, and adverse labor market conditions. For example, the war in Ukraine has had a global impact on the supply and price of fuel and has contributed to increased inflation around the world. While the Company has increased the rates per hour we charge for our services when possible to make up for our increased costs, rising fuel prices had a material impact on our results of operations for the twelve months ended October 31, 2022. The impact from fuel price increases has reduced our gross profit by approximately $10.1 million and our gross margin by approximately 2.5% since October 31, 2021. In regard to the impacts from COVID-19, the Company’s revenue volumes during fiscal 2022 have largely recovered in most of our markets; however, the lingering impact from COVID-19 remains an issue and has contributed to a tight labor market that has impacted our operations in certain markets.
With respect to our financial condition, impairments may be recorded as a result of adverse challenges related to the macroeconomic factors described above. While no impairments were recorded during the fiscal years ended October 31, 2022 and 2021, the Company will continue to evaluate its goodwill and intangible assets in future quarters.
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, 2022 and for all periods presented.
Principles of consolidation
The Consolidated Financial Statements include all amounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates include the liability for incurred but unreported claims under various partially self-insured polices, goodwill and intangible impairment analysis, valuation of share-based compensation, accounting for business combinations and estimates used in calculating the right-of-use asset and lease liability. Estimates and judgements for leases include, but are not limited to, estimates for the incremental borrowing rate ("IBR"), determination if a contract contains a lease and the allocation of the contract consideration between lease and nonlease components. Actual results may differ from those estimates, and such differences may be material to the Company’s consolidated financial statements.
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, there was a $0.2 million allowance for obsolete and slow-moving inventory as of October 31, 2022. No such allowance was required as of October 31, 2021.
Fair Value Measurements
The Financial Accounting Standard Board's (the "FASB") 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 or senior notes 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 sheets. Debt issuance costs related to revolving credit facilities are capitalized and reflected as an asset in deferred financing costs in the accompanying consolidated balance sheets. Amortization of debt issuance costs are recorded in interest expense.
Goodwill
In accordance with Accounting Standards Codification ("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 (generally referred to as a "step 0" analysis) is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step (generally referred to as a "step 1" analysis) where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit.
The Company elected to perform a step one impairment analysis as of August 31, 2022. Based on the results of this analysis the fair values of the Company's reporting units were in excess of their carrying values and as such, no impairments were identified.
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. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining term of the lease, whichever is shorter. All other 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 | |
Finance lease assets—buildings | | | 40 | |
Furniture and office equipment | | | 2 to 7 | |
Machinery and equipment | | | 3 to 25 | |
Transportation equipment | | | 3 to 7 | |
Finance lease assets are amortized over the estimated useful life of the asset (see Note 9).
Intangible assets
Intangible assets are recorded at cost or their estimated fair value (when acquired through a business combination or asset acquisition) 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. The Company elected to perform a step 1 impairment test on its indefinite-lived trade names as of August 31, 2022. 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, 2022.
Derivatives
The Company has public warrants outstanding and due to certain provisions in the warrant agreement, coupled with the Company's capital structure, which includes preferred stock with voting rights, the public warrants do not meet the criteria to be classified in stockholders’ equity and instead meet the definition of a liability-classified derivative under ASC Topic 815, Derivatives and Hedging ("ASC 815"). As such, the Company recognizes these warrants within long-term liabilities on the consolidated balance sheet at fair value, with subsequent changes in fair value recognized in the consolidated statements of operations at each reporting date. See further discussion of the warrants fair value in Note 5.
Revenue recognition
The Company generates revenues primarily from (1) concrete pumping services in both the U.S. and U.K and (2) the Company’s concrete waste services business, both of which are discussed below. In addition, the Company generates an immaterial amount of revenue from the sales of replacement parts to customers. The Company’s delivery terms for replacement part sales are FOB shipping point.
The Company adopted ASC 606, Revenue Recognition ("ASC 606") on October 31, 2021, effective as of November 1, 2020, using the modified retrospective method. Revenue for the reporting periods ending before November 1, 2021 is presented under ASC 606. The Company adopted ASU 2016-02, Leases (“ASC 842”) on October 31, 2022, effective as of November 1, 2021, using the modified retrospective method. Revenue for the reporting periods ending after October 31, 2021 is presented under ASC 606 or ASC 842. With the exception of the daily pan rental fee for the Company's concrete waste services business, which is accounted for in accordance with ASC 842, all other revenue for the Company is recorded in accordance with ASC 606 (see discussion below for each revenue stream).
Revenue from contracts with customers (ASC 606)
Concrete Pumping Services
The vast majority of the Company's 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 be worked or cubic yards to be pumped.
Revenue from contracts with customers (ASC 606) & Lease revenue (ASC 842)
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. Almost all contracts include two prices: (1) A fixed price that includes (a) the pickup and disposal of the waste material and (b) a specified number of days the customer can use the pan and (2) a daily rental price if the customer keeps the pan for a time period in excess of days permitted in the fixed price. 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 or an expected cost plus margin approach. The Company recognizes lease revenue monthly for the daily usage fees pursuant to ASC 842 and recognizes the revenue attributable to the disposal services when the disposal is completed pursuant to ASC 606. 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.
The Company recognizes revenue from pan rentals in the period earned, regardless of the timing of billing to customers. A pan rental contract is fixed in nature, but the total includes a fixed amount for the pan rental and a services component. The performance obligation for the service component of the pan rental is satisfied at the time of the pan rental pickup, which is when the Company will recognize the services component revenue under ASC 606. The pan rental contract is generally rented for short periods of time (less than a year). The pan rental is disclosed under ASC 842 revenue and the services component is disclosed under ASC 606 revenue.
Leases as Lessor
Our Eco-Pan pan business involves contracts with customers whereby we are a lessor for the rental component of the contract and therefore, such rental components of the contract are subject to ASC 842. We account for such rental contracts as operating leases. We recognize revenue from pan rentals in the period earned, regardless of the timing of billing to customers. The lease component of the revenue is disaggregated by a base price that is based on the number of contractual days and a variable component that is based on days in excess of the number of contractual days. See further discussion above under "Revenue recognition".
The table below summarizes our revenues as presented in our consolidated statements of operations for the years ended October 31, 2021 and 2022 by revenue type and by the applicable accounting standard:
| | Year Ended | |
(amounts in thousands) | | October 31, 2022 | |
Service revenue – ASC 606 | | $ | 25,564 | |
Lease fixed revenue – ASC 842 | | | 15,015 | |
Lease variable revenue – ASC 842 | | | 9,612 | |
Total revenues | | $ | 50,191 | |
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 that 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.
Trade receivables and contract assets and liabilities
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 $0.9 million and $0.7 million as of October 31, 2022 and 2021, respectively. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.
The Company does not have contract liabilities associated with contracts with customers. The Company’s contract assets and impairment losses associated therewith are not significant. Contracts with customers do not result in amounts billed to customers in excess of recognizable revenue.
Performance obligations
The Company’s ASC 606 revenue is recognized primarily over time. Accordingly, in any particular period, we do not generally recognize a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous periods.
Contract costs
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, 2022 and 2021 is presented in Note 19.
Leases
General
The Company adopted ASC 842 as of November 1, 2021 using the transition alternative to the modified retrospective approach. Therefore, the Company has not restated comparative period financial information for the effects of ASC 842, and will not make the new required lease disclosures for comparative periods beginning before November 1, 2021. The Company’s financial position for reporting periods beginning on or after November 1, 2021 is presented under the new accounting guidance, while prior period amounts have not been adjusted and continue to be reported in accordance with previous guidance.
Leases as Lessee
The Company primarily leases various office and land facilities, vehicles and general office equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The Company determines if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease in accordance with GAAP, based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and we have the right to control the asset for a period of time in exchange for consideration. Lease arrangements can take several forms. Some arrangements are clearly within the scope of lease accounting, such as a real estate contract that provides an explicit contractual right to use a building for a specified period of time in exchange for consideration. However, the right to use an asset can also be conveyed through arrangements that are not leases in form, such as leases embedded within service and supply contracts. We analyze all arrangements with potential embedded leases to determine if an identified asset is present, if substantive substitution rights are present, and if the arrangement provides the customer control of the asset. Right-of-use ("ROU") assets are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining expected future lease payments (see discussion below), which are discounted using the Company’s incremental borrowing rates as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used are based on the Company’s Senior Notes rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. The incremental borrowing rates are applied to each lease based upon the length of the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.
Many of the Company’s lease arrangements contain multiple lease components (including fixed payments, such as rent, real estate taxes and insurance costs) and non-lease components (including common-area maintenance ("CAM") costs). The Company has elected to not separate the lease and non-lease components for leases as lessee. All leases that contain CAM or pass-through components that are variable payments and are billed separate from the base payment for the lease are expensed as variable lease expense in the period in which the obligation of these payments was incurred. Other leases that have a component of the base payment that is known to include CAM or other pass-through charges will be not be separated and therefore are included in the analysis of the lease liability. Any true-ups or variable payments billed will be expensed as variable lease expense when incurred.
Expected Future Lease payments - The Company’s lease agreements contain a contractual minimum number of fixed lease payments, and many contain renewal options. However, the Company does not recognize ROU assets or lease liabilities for renewal periods unless at inception or when a triggering event occurs, it is determined that it is reasonably certain the lease will be renewed. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Some of the Company’s lease agreements are on a month-to-month basis and the Company does not recognize ROU assets or lease liabilities until it is determined that it is reasonably certain the Company will have rights to the asset greater than 12 months. Based on this, the expected future lease payments that are discounted to arrive at the initial lease liability are reflective of (1) contractual minimum number of fixed lease payments plus (2) the contractually permitted renewals that are reasonably certain to be elected. Quarterly, the Company reviews the month-to-month agreements and agreements with renewal terms where it was previously determined the renewal was not reasonably certain.
These leases, with few exceptions, provide for escalations that are fixed escalation clauses (such as fixed-dollar or fixed-percentage increases) or inflation-based escalation clauses (such as those tied to the consumer price index). The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that are reasonably certain.
The Company, from time to time, will enter into subleases, but these are de minimis in nature. From the Company’s perspective, these items are not factored into the value of the ROU asset, but are disclosed as an offset to expense on the Consolidated Statement of Operations.
The adoption of the new standard resulted in the recording of operating ROU assets and operating lease liabilities of approximately $18.6 million as of November 1, 2021. Management has determined that the amounts reflected in earnings in the consolidated statements of operations for the year ended October 31, 2021 under ASC 840 are not materially different than that of the amounts in regards to ASC 842. All capital leases under ASC 840 as of October 31, 2021 were converted and disclosed as finance leases under ASC 842 as of November 1, 2021.
Practical Expedients Applied
The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things (i) allowed it to carry forward the historical lease classification; (ii) did not require reassessment whether any expired or existing contracts are or contain leases under the new definition of a lease; and (iii) did not require the Company to reassess whether previously capitalized initial direct costs for any existing leases would qualify for capitalization under ASC 842.
The Company has elected the short-term lease practical expedient, which excludes short-term leases from the scope of ASC 842. The Company will expense all short-term leases on a straight-line basis over the lease term.
The Company also elected the hindsight practical expedient regarding the likelihood of exercising a lessee purchase option or assessing any impairment of right-of-use assets for existing leases. For all leases as lessee, the Company has elected the expedient that allows the Company to not separate non-lease components from lease components, but instead account for each separate lease component and the non-lease components associated with that lease component as a single lease component. For leases as lessor, the Company cannot separate these components as the timing and patter of transfer of the lease and service components are not the same. The Company believes these elections will not have a material impact on the ROU asset and lease liability.
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 expenses 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 and transactions
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. Retained earnings are translated at historic rates. The resulting translation adjustments are recorded as a component of comprehensive income on the consolidated statements of comprehensive income and is the only component of accumulated other comprehensive income. The functional currency of our other subsidiaries is the United States Dollar.
Gains/(losses) from foreign currency transactions during the years ended October 31, 2022 and October 31, 2021 were $(2.1) million and $0.4 million, respectively, and were included in general and administrative expenses in the consolidated statements of operations.
Earnings per share
The Company calculates earnings per share in accordance with ASC 260, Earnings per Share ("ASC 260"). 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 ("ASC 805"), to determine whether a transaction involves an asset or a business.
If it is determined an acquisition is a business combination, tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized to the extent the fair value of the consideration transferred exceeds the fair value of the net assets acquired. Transaction costs for business combinations are expensed as incurred in accordance with ASC 805.
If it is determined an acquisition is an asset acquisition, the purchase consideration (which will include certain transaction costs) is allocated first to indefinite lived intangible assets (if applicable) based on their fair values with the remaining balance of purchase consideration being allocated to the acquired assets and liabilities based on their relative fair values.
Concentrations
As of October 31, 2022 there were three primary 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
Newly adopted accounting pronouncements
Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) - In March 2020, the FASB issued ASU 2020-04, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”). Specifically, to the extent the Company's debt agreements are modified to replace LIBOR with another interest rate index, ASU 2020-04 will permit the Company to account for the modification as a continuation of the existing contract without additional analysis. Companies may generally elect to apply the guidance for periods that include March 12, 2020 through December 31, 2022. Effective October 1, 2021, the Company transitioned all of its GBP borrowings from LIBOR to the Sterling Overnight Index Average ("SONIA") rate. Effective June 29, 2022, the Company transitioned all of its U.S. Dollar borrowings from LIBOR to the Secured Overnight Financing Rate ("SOFR"). See Note 10 for further discussion.
ASU 2016-02, Leases (“ASU 2016-02”) - In February 2016, the FASB issued ASU 2016-02, which is codified in ASC 842, Leases (“ASC 842”) and supersedes current lease guidance in ASC 840, Leases. ASC 842 requires a lessee to recognize a right-of-use asset 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 has adopted the guidance for the year ended October 31, 2022, with an effective date of adoption of November 1, 2021. See Note 9 for further discussion.
Recently issued accounting pronouncements not yet effective
ASU 2016-13, Financial Instruments Credit Losses (Topic 326) (“ASU 2016-13”) - In June 2016, the FASB issued ASU No. 2016-13, which, along with subsequently issued related ASUs, requires financial assets (or groups of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected, among other provisions. This ASU is effective for smaller reporting companies with fiscal years beginning after December 15, 2022, with early adoption permitted. The Company plans to adopt the guidance during the first quarter of the fiscal year ending October 31, 2024. The amendments of this ASU should be applied on a modified retrospective basis to all periods presented. The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements.
Note 4. Business Combinations and Asset Acquisitions
The Company completed one acquisition during the first quarter of fiscal 2022 (purchase consideration of $20.2 million), three acquisitions during the second quarter of fiscal 2022 (aggregate purchase consideration of $11.4 million), one acquisition during the fourth quarter of fiscal 2022 (purchase consideration of $30.8 million) and three acquisitions in fiscal 2021 (aggregate purchase consideration $20.6 million). All acquisitions either added complementary assets in markets in which the Company already operates or expanded the Company's footprint into adjacent markets. With the exception of the acquisition during the fourth quarter of fiscal 2022, all other transactions qualified as asset acquisitions. Except for the acquisition of Pioneer in the first quarter of fiscal 2022, Coastal in the fourth quarter of fiscal 2022 and Hi-Tech in fiscal 2021, these acquisitions were not individually significant to our results of operations. The consideration for the acquisitions in both fiscal 2022 and fiscal 2021 consisted of cash and was allocated to the acquired long-lived tangible and intangible assets.
August 2022 (Fiscal 2022) Coastal Acquisition
In August 2022, the Company acquired the property, equipment and intangible assets of Coastal Carolina Pumping, Inc. (“Coastal”) for total purchase consideration of $30.8 million, which was paid for using cash and the ABL Facility (defined below). This transaction expanded our operations in the Carolinas and Florida and qualified as a business combination under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition-date fair values. There was no goodwill recognized in this transaction.
The following table represents the final allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values with any measurement-period adjustments included:
Consideration paid: | | $ | 30,762 | |
| | | | |
Net assets acquired: | | | | |
Intangible assets | | $ | 2,500 | |
Property and equipment | | | 28,500 | |
Liabilities assumed | | | (238 | ) |
Total net assets acquired | | $ | 30,762 | |
All assets were valued using level 3 inputs. The equipment was valued using a market approach while the intangible assets were valued using an income approach based on management’s projections.
Identifiable intangible assets acquired consist of customer relationships of $1.7 million and non-compete agreements valued at $0.8 million. The customer relationships were valued using the multi-period excess earnings method. The non-competes were valued using a direct valuation of economic damages approach. The Company determined the useful life of both the customer relationships and non-compete agreements to be 5 years.
Concurrent with closing of the asset purchase agreement, the Company signed five leases directly with the seller. The leases were entered into at market rates and the Company recognized an ROU asset and liability of $6.5 million related to these leases.
November 2021 (Fiscal 2022) Pioneer Acquisition
In November 2021, the Company acquired the assets, no cash, of Pioneer Concrete Pumping Services (“Pioneer”) for total purchase consideration of $20.2 million, of which, $1.0 million was held back (the “Holdback”) to allow for a post-closing joint inspection of Pioneer’s fleet vehicles. The Holdback had not been paid out as of October 31, 2022. This transaction was treated as an asset acquisition. The Company allocated $19.1 million to the purchase of Pioneer's equipment. The remaining $1.1 million was allocated to a definite-lived assembled workforce intangible asset and a definite-lived customer relationships intangible asset. All assets were valued using level 3 inputs. The equipment was valued using a market approach while the intangible assets were valued using an income approach based on management’s projections. The intangible assets will be amortized over 3 to 5 years.
September 2021 (Fiscal 2021) Hi-Tech Acquisition
In September 2021, the Company acquired the assets, no cash, 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 a definite-lived assembled workforce intangible asset and a definite-lived customer relationships intangible asset. All assets were valued using level 3 inputs. The equipment was valued using a market approach while the intangible assets were valued using an income approach based on management’s projections. The intangible assets will be amortized over 3 to 5 years.
Transaction Costs
Transaction costs include expenses for legal, accounting, and other professionals that were engaged in connection with an asset acquisition or business combination. Transaction costs in each of the twelve months ended October 31, 2022 and 2021 were $0.3 million.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations for the Company and gives effect to the Coastal business combination discussed above as if they had occurred on November 1, 2020. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the Coastal business combinations had been completed on November 1, 2020, nor does it purport to project the results of operations of the combined company in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.
The unaudited pro forma financial information is as follows:
(in thousands) | | Year Ended October 31, 2022 | | | Year Ended October 31, 2021 | |
Revenue | | $ | 401,292 | | | $ | 315,808 | |
Pro forma revenue adjustments by Business Combination | | | | | | | | |
Coastal | | | 15,986 | | | | 18,556 | |
Total pro forma revenue | | $ | 417,278 | | | $ | 334,364 | |
| | Year Ended October 31, 2022 | | | Year Ended October 31, 2021 | |
Net (loss) income | | $ | 28,676 | | | $ | (15,073 | ) |
Pro forma net income adjustments by Business Combination | | | | | | | | |
Coastal | | | 1,087 | | | | 943 | |
Total pro forma net (loss) income | | $ | 29,763 | | | $ | (14,130 | ) |
Significant pro forma adjustments include:
| ● | Tangible and intangible assets are assumed to be recorded at their estimated fair values as of November 1, 2020 and are depreciated or amortized over their estimated useful lives; and |
| ● | The Company incurred approximately $30.0 million on the ABL Facility (defined below) in connection with the acquisition of Coastal. Interest expense has been adjusted as of November 1, 2020. |
Coastal’s contribution to the Company's fiscal 2022 revenue was $4.0 million and net (loss) income was $0.6 million.
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 asset-backed loan ("ABL") credit facility are deemed to be at fair value as the interest rates on these debt obligations are variable and consistent with prevailing rates. The fair value of the ABL credit facility is derived from Level 2 inputs. The carrying values of the Company's finance lease obligations represent fair value. The only transfer in financial instruments between the three levels of the fair value hierarchy during the years ended October 31, 2022 and 2021 was changing the warrants from Level 1 to Level 2.
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, 2022 and 2021 is presented in the table below based on the prevailing interest rates and trading activity of the Senior Notes.
| | October 31, | | | October 31, | |
| | 2022 | | | 2021 | |
(in thousands) | | Carrying Value | | | Fair Value | | | Carrying Value | | | Fair Value | |
Senior Notes | | $ | 375,000 | | | $ | 339,375 | | | $ | 375,000 | | | $ | 390,938 | |
Finance lease obligations | | $ | 278 | | | $ | 278 | | | $ | 381 | | | $ | 381 | |
Warrants
At October 31, 2022 and 2021, there were 13,017,677 and 13,017,777 public warrants and no private warrants outstanding, respectively. Each warrant entitles its holder to purchase one share of Class A common stock at an exercise price of $11.50 per share. The warrants expire on December 6, 2023, or earlier upon redemption or liquidation. The Company may call the outstanding public warrants for redemption at a price of $0.01 per warrant, if the last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third business day before the Company sends the notice of redemption to the warrant holders.
The Company accounts for the public warrants issued in connection with its IPO in accordance with ASC 815, under which certain provisions in the public warrant agreements do not meet the criteria for equity classification and therefore these warrants must be recorded as liabilities. The fair value of each public warrant is based on the public trading price of the warrant (Level 2 fair value measurement). Gains and losses related to the warrants are reflected in the change in fair value of warrant liabilities in the consolidated statements of operations, see Note 2 for further discussion.
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, 2022 and 2021 are comprised of the following:
| | October 31, | | | October 31, | |
(in thousands) | | 2022 | | | 2021 | |
Prepaid insurance | | $ | 1,550 | | | $ | 949 | |
Prepaid licenses and deposits | | | 751 | | | | 360 | |
Prepaid rent | | | 402 | | | | 331 | |
Other current assets and prepaids | | | 2,472 | | | | 2,470 | |
Total prepaid expenses and other current assets | | $ | 5,175 | | | $ | 4,110 | |
Note 7. Property, Plant and Equipment
The significant components of property, plant and equipment at October 31, 2022 and 2021 are comprised of the following:
| | October 31, | | | October 31, | |
(in thousands) | | 2022 | | | 2021 | |
Land, building and improvements | | $ | 28,528 | | | $ | 27,062 | |
Finance leases—land and buildings | | | 828 | | | | 828 | |
Machinery and equipment | | | 478,162 | | | | 374,034 | |
Transportation equipment | | | 7,133 | | | | 2,935 | |
Furniture and office equipment | | | 3,870 | | | | 2,880 | |
Property, plant and equipment, gross | | | 518,521 | | | | 407,739 | |
Less accumulated depreciation | | | (99,144 | ) | | | (69,968 | ) |
Property, plant and equipment, net | | $ | 419,377 | | | $ | 337,771 | |
Depreciation expense for the years ended October 31, 2022 and 2021 was $34.9 million and $28.8 million, respectively. Depreciation expense related to revenue producing machinery and equipment was $32.6 million and $26.8 million, respectively, for the years ended October 31, 2022 and 2021 and was recorded in cost of operations in the consolidated statements of operations. Depreciation expense related to the Company's finance leases and furniture and fixtures was $2.3 million and $2.0 million, respectively, for the years ended October 31, 2022 and 2021 and was 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. The Company, with the assistance of a third party valuation specialist, performed a step 1 impairment test on its indefinite-lived trade names intangible assets and goodwill as of August 31, 2022.
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 names. As a result of the analysis, the Company identified that the fair value of its Brundage-Bone Concrete Pumping, Eco-Pan and Capital Pumping trade names exceeded their carrying values by approximately 61%, 49% and 127%, respectively, and their remaining values are $37.3 million, $7.7 million and $5.5 million as of October 31, 2022, 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, U.S. Concrete Waste Management Services and U.K. Operations reporting units were approximately 7%, 82% and 32% greater than their carrying values, respectively. As such, no impairment charge was recorded.
The following table summarizes the composition of intangible assets at October 31, 2022 and at October 31, 2021:
| | October 31, | |
| | 2022 | |
| | Weighted Average | | Gross | | | | | | | | | | | Foreign Currency | | | Net | |
| | Remaining Life | | Carrying | | | | | | | Accumulated | | | Translation | | | Carrying | |
(in thousands) | | (in years) | | Value | | | Impairment | | | Amortization | | | Adjustment | | | Amount | |
Customer relationship (1) | | 11.0 | | $ | 193,710 | | | $ | - | | | $ | (112,658 | ) | | $ | 1,416 | | | $ | 82,468 | |
Trade name (1) | | 6.1 | | | 4,836 | | | | - | | | | (2,127 | ) | | | 239 | | | | 2,948 | |
Trade names (indefinite life) (2) | | - | | | 55,500 | | | | (5,000 | ) | | | - | | | | - | | | | 50,500 | |
Assembled workforce (1) | | 2.1 | | | 1,450 | | | | - | | | | (444 | ) | | | - | | | | 1,006 | |
Noncompete agreements (1) | | 4.6 | | | 1,000 | | | | - | | | | (168 | ) | | | - | | | | 832 | |
Total intangibles | | | | $ | 256,496 | | | $ | (5,000 | ) | | $ | (115,397 | ) | | $ | 1,655 | | | $ | 137,754 | |
| (1) | Intangibles subject to amortization |
| (2) | Indefinite-lived intangible asset |
| | October 31, | |
| | 2021 | |
| | Weighted Average | | Gross | | | | | | | | | | | Foreign Currency | | | Net | |
| | Remaining Life | | Carrying | | | | | | | Accumulated | | | Translation | | | Carrying | |
(in thousands) | | (in years) | | Value | | | Impairment | | | Amortization | | | Adjustment | | | Amount | |
Customer relationship (1) | | 12.2 | | $ | 195,220 | | | $ | - | | | $ | (91,169 | ) | | $ | (539 | ) | | $ | 103,512 | |
Trade name (1) | | 7.1 | | | 5,748 | | | | - | | | | (1,598 | ) | | | (71 | ) | | $ | 4,079 | |
Trade names (indefinite life) (2) | | - | | | 55,500 | | | | (5,000 | ) | | | - | | | | - | | | $ | 50,500 | |
Assembled workforce (1) | | 3.0 | | | 350 | | | | - | | | | - | | | | - | | | $ | 350 | |
Noncompete agreements (1) | | 2.5 | | | 200 | | | | - | | | | (102 | ) | | | - | | | $ | 98 | |
Total intangibles | | | | $ | 257,018 | | | $ | (5,000 | ) | | $ | (92,869 | ) | | $ | (610 | ) | | $ | 158,539 | |
| (1) | Intangibles subject to amortization |
| (2) | Indefinite-lived intangible asset |
Amortization expense for the year ended October 31, 2022 was $22.5 million. Amortization expense for the year ended October 31, 2021 was $27.1 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) | | | | |
2023 | | $ | 18,559 | |
2024 | | | 14,708 | |
2025 | | | 11,458 | |
2026 | | | 9,308 | |
2027 | | | 7,605 | |
Thereafter | | | 25,616 | |
Total | | $ | 87,254 | |
The changes in the carrying value of goodwill by reportable segment for the twelve-month period ended October 31, 2022 are as follows:
(in thousands) | | U.S. Concrete Pumping | | | U.K. Operations | | | U.S. Concrete Waste Management Services | | | Total | |
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 | |
Foreign currency translation | | | - | | | | (4,455 | ) | | | - | | | $ | (4,455 | ) |
Balance at October 31, 2022 | | $ | 147,482 | | | $ | 23,630 | | | $ | 49,133 | | | $ | 220,245 | |
Note 9. Leases
Lease expense consisted of the following:
| Classification on the Consolidated Statements of Operations | | Year Ended October 31, | |
(in thousands) | | | 2022 | |
Operating lease expense | Cost of operations | | $ | 5,002 | |
Short-term and variable lease expense | Cost of operations | | | 975 | |
Finance lease expense: | | | | | |
Amortization of right-of-use assets | Cost of operations | | | 22 | |
Interest on lease liability | Interest expense, net | | | 13 | |
Total finance lease expense | | | $ | 35 | |
Sublease income | Cost of operations | | | (106 | ) |
Total lease expense | | $ | 5,906 | |
Supplemental consolidated balance sheet information and other information related to leases:
(in thousands) | | | October 31, | |
Leases | Classification on the Consolidated Balance Sheet | | 2022 | |
Assets: | | | | | |
Operating lease assets | Right-of-use operating lease assets | | $ | 24,833 | |
Finance lease assets | Property, plant and equipment, net | | | 702 | |
Total leased assets | | | 25,535 | |
Current liabilities: | | | | | |
Operating | Operating lease obligations, current portion | | $ | 4,001 | |
Finance | Finance lease obligations, current portion | | | 109 | |
Noncurrent liabilities: | | | | | |
Operating | Operating lease obligations, non-current | | | 20,984 | |
Finance | Finance lease obligations, non-current | | | 169 | |
Total leased liabilities | | $ | 25,263 | |
| | | | |
Weighted-average remaining lease term (years) | | | | | |
Operating leases | | | 6.9 | |
Finance leases | | | 2.6 | |
Weighted-average discount rate | | | | | |
Operating leases | | | 6.0 | % |
Finance leases | | | 3.7 | % |
Supplemental consolidated cash flow statement information related to leases:
| | Year Ended October 31, | |
(in thousands) | | 2022 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 4,798 | |
Operating cash flows from finance leases | | $ | 12 | |
Financing cash flows from finance leases | | $ | 103 | |
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease and finance lease liabilities recorded on the Company’s consolidated balance sheet as of October 31, 2022:
| | Future Payments | |
(in thousands) | | Operating Leases | | | Finance Leases | |
2023 | | $ | 5,386 | | | $ | 118 | |
2024 | | | 5,094 | | | | 120 | |
2025 | | | 4,400 | | | | 54 | |
2026 | | | 3,635 | | | | - | |
2027 | | | 3,311 | | | | - | |
Thereafter | | | 9,328 | | | | - | |
Total lease payments | | $ | 31,154 | | | $ | 292 | |
Less: Interest | | | (6,169 | ) | | | (14 | ) |
Total | | $ | 24,985 | | | $ | 278 | |
Less: Current portion | | | (4,001 | ) | | | (109 | ) |
Long-term portion | | $ | 20,984 | | | $ | 169 | |
As of October 31, 2022, we had no material operating or finance leases that had not yet commenced.
Comparative Information from 2021 Form 10-K
The Company adopted ASC 842 using the transition alternative to the modified retrospective approach as of the effective date November 1, 2021, without adjusting the comparative periods and therefore, as required by ASC 842, has included the below comparative information from Note 13 to the consolidated financial statements in its 2021 Form 10-K.
In accordance with ASC 840, the operating lease and capital lease payments included in the table below only include payments for future minimum lease commitments and do not include any renewal periods exercisable at the Company's option. The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease and finance lease liabilities recorded on the Company’s consolidated balance sheet as of October 31, 2021:
| | Future Payments | |
(in thousands) | | Operating Leases | | | Capital Leases | |
2022 | | $ | 3,514 | | | $ | 115 | |
2023 | | | 2,202 | | | | 118 | |
2024 | | | 1,396 | | | | 120 | |
2025 | | | 654 | | | | 61 | |
2026 | | | 491 | | | | - | |
Thereafter | | | 960 | | | | - | |
Total lease payments | | $ | 9,217 | | | $ | 414 | |
Less: Interest | | | - | | | | (33 | ) |
Total value of minimum lease payments | | $ | 9,217 | | | $ | 381 | |
Note 10. 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 (as subsequently amended, the "ABL Facility") by and among the Company, certain subsidiaries of the Company, Wells Fargo Bank, National Association, as agent, sole lead arranger and sole bookrunner, the other Lenders party thereto, which provided up to $125.0 million of asset-based revolving loan commitments to the Company and the other borrowers under the ABL Facility. The proceeds from the Senior Notes, along with certain borrowings under the ABL Facility, were used to repay all outstanding indebtedness under the Company’s then existing Term Loan Agreement (see discussion below), dated December 6, 2018, and pay related fees and expenses.
On July 29, 2022, the ABL Facility was amended to, among other changes, increase the maximum revolver borrowings available to be drawn thereunder from $125.0 million to $160.0 million and increase the letter of credit sublimit from $7.5 million to $10.5 million. The ABL Facility also provides for an uncommitted accordion feature under which the ABL borrowers can, subject to specified conditions, increase the ABL Facility by up to an additional $75.0 million. The $35.0 million in incremental commitments was provided by JPMorgan Chase Bank, N.A.
Summarized terms of these facilities are included below.
Senior Notes
Summarized terms of the Senior Notes are as follows:
| ● | Provides for an original aggregate principal amount of $375.0 million; |
| ● | The Senior Notes will mature and be due and payable in full on February 1, 2026; |
| ● | The Senior Notes bear interest at a rate of 6.000% per annum, payable on February 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 the Senior Notes as of October 31, 2022 was $375.0 million and as of that date, the Company was in compliance with all covenants under the Indenture.
ABL Facility
Summarized terms of the ABL Facility, as amended are as follows:
| ● | Borrowing availability in U.S. Dollars and GBP up to a maximum aggregate principal amount of $160.0 million and an uncommitted accordion feature under which the Company can increase the ABL Facility by up to an additional $75.0 million; |
| ● | Borrowing capacity available for standby letters of credit of up to $10.5 million and for swing loan borrowings of up to $10.5 million. Any issuance of letters of credit or making of a swing loan will reduce the amount available under the ABL Facility; |
| ● | All loans advanced will mature and be due and payable in full on January 28, 2026; |
| ● | Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement; |
| ● | Through September 30, 2021, borrowings in GBP bore interest at an adjusted LIBOR rate plus an applicable margin of 1.25%. After September 30, 2021, borrowings in GBP bear interest at the SONIA rate plus an applicable margin currently set at 2.0326%. The applicable margins for SONIA are subject to a step down of 0.25% based on excess availability levels; |
| ● | Through June 29, 2022, borrowings in U.S. Dollars bore interest at either (1) an adjusted LIBOR rate plus an applicable margin of 2.25% or (2) a base rate plus an applicable margin of 1.25%. After June 29, 2022, borrowings in U.S. Dollars bear interest at (1) a base rate plus an applicable margin currently set at 1.0000% or (2) the SOFR rate plus an applicable margin currently set at 2.0000%. The applicable margins for U.S. Dollar loans are subject to a step down of 0.25% based on excess availability levels; |
| ● | U.S. ABL Facility obligations are secured by a first-priority perfected security interest in substantially all the assets of the Issuer, together with Brundage-Bone Concrete Pumping, Inc., Eco-Pan, Inc., Capital Pumping LP (collectively, the "US ABL Borrowers") and each of the Company's wholly-owned domestic subsidiaries (the "US ABL Guarantors"), subject to certain exceptions; |
| ● | U.K. ABL Facility obligations are secured by a first priority perfected security interest in substantially all assets of Camfaud Concrete Pumps Limited and Premier Concrete Pumping Limited, each of the Company's wholly-owned U.K. subsidiaries, and by each of the US ABL Borrowers and the US ABL Guarantors, subject to certain exceptions; and |
| ● | The ABL Facility also includes (i) a springing financial covenant (fixed charges coverage ratio) based on excess availability levels that the Company must comply with on a quarterly basis during required compliance periods and (ii) certain non-financial covenants. |
The outstanding balance under the ABL Facility as of October 31, 2022 was $52.1 million and as of that date, the Company was in compliance with all debt covenants.
In addition, as of October 31, 2022, the Company had $1.1 million in credit line reserves and a letter of credit balance of $3.0 million.
As of October 31, 2022, we had $103.7 million of available borrowing capacity under the ABL Facility. Debt issuance costs related to revolving credit facilities are capitalized and reflected as an asset in deferred financing costs in the accompanying consolidated balance sheets. The Company had debt issuance costs related the revolving credit facilities of $1.7 million as of October 31, 2022.
At October 31, 2022 and 2021, the weighted average interest rate for borrowings under the ABL Facility was 4.4% and 3.8%, respectively.
Term Loan Agreement
Summarized terms of the Term Loan Agreement, which was repaid in full as of January 28, 2021, were as follows:
| ● | Provided 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 would have matured and been due and payable in full seven years after December 6, 2018, with principal amortization payments in an annual amount equal to 5.00% of the original principal amount; |
| ● | Borrowings under the Term Loan Agreement, bore 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; and |
| ● | The Term Loan Agreement was 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. |
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 related to this amendment. The Company capitalized an additional $0.3 million of debt issuance costs related to the July 29, 2022 ABL Facility amendment.
The table below is a summary of the composition of the Company’s debt balances at October 31, 2022 and 2021.
| | October 31, | | | October 31, | |
(in thousands) | | 2022 | | | 2021 | |
Revolving loan (short term) | | $ | 52,133 | | | $ | 990 | |
Senior Notes - all long term | | | 375,000 | | | | 375,000 | |
Total debt, gross | | | 427,133 | | | | 375,990 | |
Less: Unamortized deferred financing costs offsetting long term debt | | | (4,524 | ) | | | (5,916 | ) |
Total debt, net of unamortized deferred financing costs | | $ | 422,609 | | | $ | 370,074 | |
Future maturities of the Senior Notes for the fiscal years ending October 31 is as follows:
(in thousands) | | | | |
2023 | | $ | - | |
2024 | | | - | |
2025 | | | - | |
2026 | | | 375,000 | |
Total | | $ | 375,000 | |
Note 11. Accrued Payroll and Payroll Expenses
The following table summarizes accrued payroll and expenses at October 31, 2022 and 2021:
| | October 31, | | | October 31, | |
(in thousands) | | 2022 | | | 2021 | |
Accrued vacation | | $ | 2,705 | | | $ | 1,967 | |
Accrued payroll | | | 2,763 | | | | 1,727 | |
Accrued bonus | | | 4,835 | | | | 3,593 | |
Accrued employee-related taxes | | | 2,760 | | | | 4,606 | |
Other accrued | | | 278 | | | | 333 | |
Total accrued payroll and payroll expenses | | $ | 13,341 | | | $ | 12,226 | |
Note 12. Accrued Expenses and Other Current Liabilities
The following table summarizes accrued expenses and other current liabilities at October 31, 2022 and 2021:
| | October 31, | | | October 31, | |
(in thousands) | | 2022 | | | 2021 | |
Accrued insurance | | $ | 12,133 | | | $ | 7,473 | |
Accrued interest | | | 5,996 | | | | 5,627 | |
Accrued equipment purchases | | | 7,644 | | | | 4,955 | |
Accrued sales and use tax | | | 846 | | | | 690 | |
Accrued property taxes | | | 825 | | | | 917 | |
Accrued professional fees | | | 831 | | | | 1,134 | |
Other | | | 3,881 | | | | 3,144 | |
Total accrued expenses and other liabilities | | $ | 32,156 | | | $ | 23,940 | |
Note 13. Income Taxes
The sources of income before income taxes for the fiscal years ended October 31, 2022 and October 31, 2021 are as follows:
(in thousands) | | Year Ended October 31, 2022 | | | Year Ended October 31, 2021 | |
United States | | $ | 32,252 | | | $ | (13,162 | ) |
Foreign | | | 1,950 | | | | 731 | |
Total | | $ | 34,202 | | | $ | (12,431 | ) |
The components of the provision for income taxes for the fiscal years ended October 31, 2022 and October 31, 2021 are as follows:
(in thousands) | | Year Ended October 31, 2022 | | | Year Ended October 31, 2021 | |
Current tax provision (benefit): | | | | | | | | |
Federal | | $ | - | | | $ | - | |
Foreign | | | (113 | ) | | | (375 | ) |
State and local | | | 434 | | | | 470 | |
Total current tax provision | | | 321 | | | | 95 | |
| | | | | | | | |
Deferred tax provision (benefit): | | | | | | | | |
Federal | | $ | 4,575 | | | $ | 483 | |
Foreign | | | 70 | | | | 2,134 | |
State and local | | | 560 | | | | (70 | ) |
Total deferred tax benefit | | | 5,205 | | | | 2,547 | |
| | | | | | | | |
Net provision for income taxes | | $ | 5,526 | | | $ | 2,642 | |
For the fiscal years ended October 31, 2022 and October 31, 2021, 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, 2022 | | | Year Ended October 31, 2021 | |
Income tax expense/(benefit) per federal statutory rate of 21% for each period | | $ | 7,182 | | | $ | (2,611 | ) |
State income taxes, net of federal deduction | | | 898 | | | | 193 | |
Change in deferred tax rate | | | 81 | | | | (92 | ) |
Warrant fair value change | | | (2,078 | ) | | | 2,078 | |
Deferred tax on undistributed foreign earnings | | | (827 | ) | | | 505 | |
Impact of tax reform in the U.K. (see discussion below) | | | - | | | | 2,125 | |
Increase in valuation allowance | | | 71 | | | | - | |
Other | | | 199 | | | | 444 | |
Income tax provision | | $ | 5,526 | | | $ | 2,642 | |
The tax effects of the temporary differences giving rise to the Company’s net deferred tax liabilities for fiscal years ending October 31, 2022 and at October 31, 2021 are summarized as follows:
(in thousands) | | Year Ended October 31, 2022 | | | Year Ended October 31, 2021 | |
Deferred tax assets: | | | | | | | | |
Accrued insurance reserve | | $ | 2,385 | | | $ | 1,329 | |
Accrued sales and use tax | | | 75 | | | | 75 | |
Accrued bonuses and vacation | | | 1,737 | | | | 1,276 | |
Accrued payroll tax | | | 445 | | | | 675 | |
Foreign tax credit carryforward | | | 80 | | | | 80 | |
State tax credit carryforward | | | 38 | | | | 50 | |
Interest expense carryforward | | | 576 | | | | 649 | |
Stock-based compensation | | | 3,105 | | | | 3,608 | |
Prepaid expenses | | | (172 | ) | | | - | |
Operating lease liability | | | 6,315 | | | | - | |
Other | | | 400 | | | | 364 | |
Net operating loss carryforward | | | 25,894 | | | | 17,771 | |
Total deferred tax assets | | $ | 40,878 | | | $ | 25,877 | |
Valuation allowance | | | (134 | ) | | | (63 | ) |
Net deferred tax assets | | $ | 40,744 | | | $ | 25,814 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Intangible assets | | | (17,758 | ) | | | (23,837 | ) |
Property and equipment | | | (90,998 | ) | | | (71,400 | ) |
Prepaid expenses | | | - | | | | (157 | ) |
Right-of-use operating lease asset | | | (6,211 | ) | | | - | |
Unremitted foreign earnings | | | - | | | | (986 | ) |
Total net deferred tax liabilities | | | (114,967 | ) | | | (96,380 | ) |
| | | | | | | | |
Net deferred tax liabilities | | $ | (74,223 | ) | | $ | (70,566 | ) |
As of October 31, 2022, the Company has the following tax carryforwards:
(in millions) | | Balance as of October 31, 2022 | | | Year that Carryforwards Begin to Expire | |
Federal net operating loss carryforwards | | $ | 105.5 | | | N/A – Carried forward indefinitely | |
State net operating loss carryforwards | | | 50.3 | | | | 2026 | |
Foreign net operating loss carryforwards | | | 11.9 | | | N/A – Carried forward indefinitely | |
Foreign tax carryforwards | | | 0.1 | | | | 2026 | |
State credit carryforwards | | | - | | | | 2023 | |
Interest expense carryforwards | | | 12.4 | | | N/A – Carried forward indefinitely | |
Total tax carryforwards | | $ | 180.2 | | | | | |
The Company does not consider that earnings from non-U.S. affiliates will be permanently reinvested. As such, 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 Company files income tax returns with the U.S., various state governments and the U.K. With few immaterial exceptions, the Company is no longer subject to U.S. federal, foreign and state income tax examinations by tax authorities for tax years before October 31, 2020.
Pursuant to Internal Revenue Code Section 382, annual use of the Company’s NOL carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has determined that no such change in ownership happened during the fiscal years ended October 31, 2022 or 2021.
The following table summarizes the changes in the Company's unrecognized tax benefits during the fiscal years ended October 31, 2022 and 2021. 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, 2022 | | | Year Ended October 31, 2021 | |
Balance, beginning of year | | $ | 1,452 | | | $ | 1,572 | |
Increase in current year position | | | - | | | | - | |
Increase in prior year position | | | - | | | | - | |
Decrease in prior year position | | | (119 | ) | | | (120 | ) |
Lapse in statute of limitations | | | - | | | | - | |
Balance, end of year | | $ | 1,333 | | | $ | 1,452 | |
As of October 31, 2022 and 2021, the company has recognized no interest or penalties.
On August 15, 2022, President Biden signed the Inflation Reduction Act into law. Management has reviewed the tax provisions of this legislation and has determined that there are no provisions that would have a material impact on the Company.
On May 24, 2021 the House of Commons in the U.K. enacted legislation, the Finance Act 2021, which increases the U.K. 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 in fiscal 2021 related to the remeasurement of certain deferred tax assets and liabilities that are expected to reverse after April 1, 2023.
Note 14. Commitments and Contingencies
Purchase Commitments
As of October 31, 2022, the Company was contractually committed for $17.0 million of capital expenditures for purchases of property and equipment. A majority of these obligations are expected to be satisfied in the next twelve months.
Insurance
For the fiscal years ended October 31, 2022 and October 31, 2021, the Company was partially insured for automobile, general and worker's compensation liability with the following deductibles (per occurrence):
| | Deductible | |
| | Fiscal 2022 | | Fiscal 2021 | |
General liability | | $ | 250,000 | | $ | 350,000 | |
Automobile | | $ | 250,000 | | $ | 250,000 | |
Workers' compensation | | $ | 250,000 | | $ | 250,000 | |
The Company has accrued $7.0 million and $4.5 million, as of October 31, 2022 and 2021, respectively, for estimated (1) losses reported and (2) claims incurred but not reported, which is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
The Company offers employee health benefits via a partially self-insured medical benefit plan. Participant claims exceeding certain limits are covered by a stop-loss insurance policy. As of October 31, 2022 and 2021, the Company had accrued $3.3 million and $1.6 million, respectively, for estimated health claims incurred but not reported based on historical claims amounts and average lag time. These accruals are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets. The Company contracts with a third-party administrator to process claims, remit benefits, etc. The third party administrator required the Company to maintain a bank account to facilitate the administration of claims. The account balance was $0.2 million, as of October 31, 2022, and is included in cash and cash equivalents in the accompanying consolidated balance sheet. The third party administrator did not require the Company to maintain a bank account to facilitate the administration of claims in fiscal 2021.
Litigation
The Company is currently involved in certain legal proceedings and other disputes with third parties that have arisen in the ordinary course of business. Management believes that the outcomes of these matters will not have a material impact on the Company’s financial statements and does not believe that any amounts need to be recorded for contingent liabilities in the Company’s consolidated balance sheet.
Letters of credit
The ABL Facility provides for up to $10.5 million of standby letters of credit. As of October 31, 2022, total outstanding letters of credit totaled $3.0 million, the vast majority of which had been committed to the Company’s general liability insurance provider.
Note 15. Stockholders’ Equity
The Company’s amended and restated certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock, par value $0.0001, and 10,000,000 shares of preferred stock, par value $0.0001. Immediately following December 6, 2018, there were:
| ● | 28,847,707 shares of common stock issued and outstanding; |
| ● | 34,100,000 warrants outstanding, each exercisable for one share of common stock at an exercise price of $11.50 per share; and |
| ● | 2,450,980 shares of zero-dividend convertible perpetual preferred stock (“Series A Preferred Stock”) outstanding, as further discussed below |
Grants of new restricted stock awards and exercises of stock options are issued out of outstanding and available common stock.
As discussed below, on April 29, 2019, 2,101,213 shares of common stock were issued in exchange for the Company's public warrants and 1,707,175 shares of common stock were issued in exchange for the Company's private warrants. As of October 31, 2022 and 2021, there were 13,017,677 and 13,017,777 public warrants outstanding, respectively.
On May 14, 2019, in order to finance a portion of the purchase price for the acquisition of Capital, the Company completed a public offering of 18,098,166 of its common stock at a price of $4.50 per share, receiving net proceeds of approximately $77.4 million, after deducting underwriting discounts, commissions, and other offering expenses. In connection with the offering, certain of the Company’s directors, officers and significant stockholders, and certain other related investors purchased an aggregate of 3,980,166 shares of its common stock from the underwriters at the public offering price of $4.50, representing approximately 25% of the total shares issued (without giving effect to the underwriters’ option to purchase additional shares).
The Company’s Series A Preferred Stock does not pay dividends and is convertible (effective June 6, 2019) into shares of the Company’s common stock at a 1:1 ratio (subject to customary adjustments). The Company has the right to elect to redeem all or a portion of the Series A Preferred Stock at its election after December 6, 2022 for cash at a redemption price equal to the amount of the principal investment ($25,000,000) plus an additional cumulative amount that will accrue at an annual rate of 7.0% thereon. As of October 31, 2022, the additional cumulative amount totaled $7.0 million which would be recognized when redemption is probable. The Series A Preferred Stock will rank senior in priority and will have a senior liquidation preference to the Common Stock. In addition, if the volume weighted average price of shares of the Company’s common stock equals or exceeds $13.00 for 30 consecutive days, then the Company will have the right to require the holder of the Series A Preferred Stock to convert its Series A Preferred Stock into Company common stock, at a ratio of 1:1 (subject to customary adjustments such as adjustments for anti-dilution events for instance stock splits or reverse stock split).
Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. The preferred stock contains a redemption feature contingent upon a change in control which is not solely within the control of the Company. As such, the preferred stock is presented outside of permanent equity.
Warrant Exchange
On April 1, 2019, the Company commenced an offer to each holder of its publicly traded warrants (the “public warrants”) and private placement warrants that were issued in connection with Industrea’s initial public offering on April 17, 2017 (the “private warrants”) to receive 0.2105 shares of common stock in exchange for each outstanding public warrant tendered and 0.1538 shares of common stock in exchange for each private warrant tendered pursuant to the offer (the “Offer” or “Warrant Exchange”).
On April 26, 2019, a total of 9,982,123 public warrants and 11,100,000 private warrants were tendered for exchange pursuant to the Offer. On April 29, 2019, 2,101,213 shares of common stock were issued in exchange for the tendered public warrants and 1,707,175 shares of common stock were issued in exchange for the tendered private warrants. A negligible amount of cash was paid for fractional shares. The fair value of common stock issued in exchange for the warrants, totaling $26.3 million, was recognized in additional paid in capital.
Share Repurchase Program
In June 2022, the Board of Directors approved a share repurchase program that authorizes the repurchase of up to $10.0 million of the Company’s Class A common stock through June 15, 2023. The repurchase program permits shares to be repurchased in the open market, by block purchase, in privately negotiated transactions, in one or more transactions from time to time, or pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the “Exchange Act”). The repurchase program may be suspended, terminated, extended or otherwise modified by the Board without notice at any time for any reason, including, without limitation, market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, capital and liquidity objectives, and other factors deemed appropriate by CPH’s management.
For the fiscal year ended October 31, 2022 the Company purchased an aggregate of 415,066 shares of our common stock for a total of $2.7 million resulting in an average price per share of $6.48. All repurchases were at market value.
Note 16. Stock-Based Compensation
Pursuant to the Concrete Pumping Holdings, Inc. 2018 Omnibus Incentive Plan, the Company granted stock-based awards to certain employees in the U.S. and U.K. 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 generally vest pursuant to one of the following four conditions:
| (1) | Time-based only – Awards vest in equal installments over a specified 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 1/3 annually 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 1/3 annually 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 1/3 annually over a three-year period. |
Included in the table below is a summary of the unvested awards outstanding at October 31, 2022, including the location, type of award, shares outstanding, unrecognized compensation expense, and the date through which the expense will be recognized. The total stock compensation expense recognized for restricted stock awards for the years ended October 31, 2022 and October 31, 2021 was $4.4 million and $5.8 million, respectively. The total stock compensation expense recognized for stock options for the years ended October 31, 2022 and October 31, 2021 was $0.6 million and $0.8 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 the first quarter of fiscal 2022, the Company granted 69,491 stock awards that have a market-based vesting condition. The assumptions used in the Monte Carlo Simulation for these grants 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%. No equity-based awards were granted during the remainder of fiscal 2022.
(in thousands, except shares outstanding and fair value amounts)
Location | | Type of Award | | Shares Unvested at October 31, 2022 | | | Weighted Average Fair Value | | | Unrecognized Compensation Expense at October 31, 2022 | | Date Expense Recognized Through (Straight-Line Basis) | |
U.S. | | Time Based Only | | | 630,465 | | | | 6.48 | | | $ | 1,867,799 | | 12/6/2023 | |
U.S. | | $6 Market/Time- Based | | | 100,462 | | | | 1.74 | | | | - | | 10/29/2020 | |
U.S. | | $6 Market/Time- Based | | | 186,786 | | | | 8.68 | | | | 175,812 | | 3/29/2023 | * |
U.S. | | $6 Market/Time- Based | | | 186,798 | | | | 8.68 | | | | 470,139 | | 3/29/2024 | * |
U.S. | | $8 Market/Time- Based | | | 100,462 | | | | 1.61 | | | | - | | 10/29/2020 | |
U.S. | | $8 Market/Time- Based | | | 186,786 | | | | 7.48 | | | | 276,524 | | 8/23/2023 | ** |
U.S. | | $8 Market/Time- Based | | | 186,798 | | | | 7.48 | | | | 484,641 | | 8/23/2024 | ** |
U.S. | | $10 Market/Time- Based | | | 150,706 | | | | 1.51 | | | | - | | 10/29/2020 | |
U.S. | | $10 Market/Time- Based | | | 184,169 | | | | 6.48 | | | | 174,175 | | 7/9/2023 | |
U.S. | | $10 Market/Time- Based | | | 184,165 | | | | 6.48 | | | | 362,699 | | 7/9/2024 | |
U.S. | | $10 Market/Time- Based | | | 184,181 | | | | 6.48 | | | | 495,377 | | 7/9/2025 | |
U.S. | | $13 Market/Time- Based | | | 433 | | | | 4.47 | | | | - | | 5/4/2022 | |
U.S. | | $13 Market/Time- Based | | | 433 | | | | 4.47 | | | | 208 | | 5/4/2023 | |
U.S. | | $13 Market/Time- Based | | | 434 | | | | 4.47 | | | | 561 | | 5/4/2024 | |
U.S. | | $16 Market/Time- Based | | | 433 | | | | 3.85 | | | | - | | 8/27/2022 | |
U.S. | | $16 Market/Time- Based | | | 433 | | | | 3.85 | | | | 309 | | 8/27/2023 | |
U.S. | | $16 Market/Time- Based | | | 434 | | | | 3.85 | | | | 563 | | 8/27/2024 | |
U.S. | | $19 Market/Time- Based | | | 433 | | | | 3.34 | | | | 169 | | 11/19/2022 | |
U.S. | | $19 Market/Time- Based | | | 433 | | | | 3.34 | | | | 402 | | 11/19/2023 | |
U.S. | | $19 Market/Time- Based | | | 434 | | | | 3.34 | | | | 572 | | 11/19/2024 | |
U.S. | | $10 Market/Time- Based | | | 4,635 | | | | 7.28 | | | | 5,866 | | 1/31/2023 | |
U.S. | | $10 Market/Time- Based | | | 4,635 | | | | 7.28 | | | | 17,248 | | 1/31/2024 | |
U.S. | | $10 Market/Time- Based | | | 4,634 | | | | 7.28 | | | | 22,033 | | 1/31/2025 | |
U.S. | | $10 Market/Time- Based | | | 17,954 | | | | 6.83 | | | | 52,060 | | 6/30/2023 | |
U.S. | | $10 Market/Time- Based | | | 17,961 | | | | 6.83 | | | | 79,594 | | 6/30/2024 | |
U.S. | | $10 Market/Time- Based | | | 17,963 | | | | 6.83 | | | | 91,649 | | 6/30/2025 | |
U.K. | | Time Based Only | | | 90,431 | | | | 6.38 | | | | 249,774 | | 12/6/2023 | |
U.K. | | $6 Market/Time- Based | | | 19,257 | | | | 5.23 | | | | - | | 10/29/2020 | |
U.K. | | $6 Market/Time- Based | | | 27,892 | | | | 8.36 | | | | 25,995 | | 3/29/2023 | * |
U.K. | | $6 Market/Time- Based | | | 27,901 | | | | 8.36 | | | | 69,279 | | 3/29/2024 | * |
U.K. | | $8 Market/Time- Based | | | 19,257 | | | | 1.61 | | | | - | | 10/29/2020 | |
U.K. | | $8 Market/Time- Based | | | 27,892 | | | | 7.20 | | | | 40,805 | | 8/23/2023 | ** |
U.K. | | $8 Market/Time- Based | | | 27,901 | | | | 7.20 | | | | 71,324 | | 8/23/2024 | ** |
U.K. | | $10 Market/Time- Based | | | 28,886 | | | | 1.51 | | | | - | | 10/29/2020 | |
U.K. | | $10 Market/Time- Based | | | 27,902 | | | | 6.24 | | | | 25,824 | | 7/9/2023 | |
U.K. | | $10 Market/Time- Based | | | 27,892 | | | | 6.24 | | | | 53,461 | | 7/9/2024 | |
U.K. | | $10 Market/Time- Based | | | 27,901 | | | | 6.24 | | | | 72,852 | | 7/9/2025 | |
U.K. | | $10 Market/Time- Based | | | 750 | | | | 6.83 | | | | 2,175 | | 6/30/2023 | |
U.K. | | $10 Market/Time- Based | | | 750 | | | | 6.83 | | | | 3,324 | | 6/30/2024 | |
U.K. | | $10 Market/Time- Based | | | 750 | | | | 6.83 | | | | 3,827 | | 6/30/2025 | |
Total | | | 2,708,822 | | | | | | | $ | 5,197,040 | | | |
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, 2022:
| | Options | | | Weighted average grant date fair value | | | Weighted average exercise price | |
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 | |
Granted | | | 4,500 | | | $ | 7.43 | | | $ | 0.01 | |
Forfeited | | | (1,586 | ) | | $ | 6.67 | | | $ | 0.01 | |
Exercised | | | (197,779 | ) | | $ | 6.70 | | | $ | 0.44 | |
Outstanding stock options, October 31, 2022 | | | 1,489,328 | | | $ | 6.42 | | | $ | 1.79 | |
The total intrinsic value of stock options exercised for the years ended October 31, 2022 and 2021 was $1.3 million and $0.9 million, respectively. The Company realized $0.2 million in tax benefits related to exercised stock options for both years ended October 31, 2022 and 2021.
The following table summarizes information about stock options outstanding at October 31, 2022:
| | | | 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 | | | | 378,298 | | | $ | 0.01 | | | | 6.9 | | | $ | 2,419 | | | | 22,936 | | | $ | 0.01 | | | | 7.1 | | | $ | 147 | |
$ | 0.87 | | | | 786,957 | | | $ | 0.87 | | | | 2.3 | | | | 4,356 | | | | 786,957 | | | $ | 0.87 | | | | 2.3 | | | $ | 4,356 | |
$ | 6.09 | | | | 324,073 | | | $ | 6.09 | | | | 3.4 | | | | - | | | | 324,073 | | | $ | 6.09 | | | | 3.4 | | | $ | 102 | |
Total | | | | 1,489,328 | | | $ | 1.79 | | | | 3.7 | | | $ | 6,775 | | | | 1,133,966 | | | $ | 2.34 | | | | 2.7 | | | $ | 4,605 | |
As of October 31, 2022, there was $0.6 million of total unrecognized compensation cost related to stock options that is expected to be realized as an expense by the Company over 1.4 weighted average years.
Restricted Stock Awards
The following table is a summary of Restricted Stock Awards activity for the years ended October 31, 2022 and October 31, 2021:
| | Units | | | Weighted average grant-date fair value | |
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 | |
Granted | | | 134,481 | | | | 7.43 | |
Vested | | | (768,330 | ) | | | 4.86 | |
Forfeited | | | (84,082 | ) | | | 5.81 | |
Unvested as of October 31, 2022 | | | 2,353,460 | | | | 5.14 | |
As of October 31, 2022, there was $4.6 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 1.4 weighted average years.
The Company realized $1.4 million and $0.7 million in tax benefits related to restricted stock award vestings for the years ended October 31, 2022 and October 31, 2021, respectively.
Note 17. 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, 2022, the Company had outstanding (1) 13.0 million warrants to purchase shares of common stock at an exercise price of $11.50, (2) 2.4 million outstanding unvested restricted stock awards, (3) 1.1 million outstanding unexercised incentive stock options, (4) 0.4 million outstanding unexercised non-qualified stock options, and (5) 2.5 million shares of Series A Preferred Stock, all of which could potentially be dilutive. The dilutive effect of the 13.0 million warrants and the 2.5 million shares of preferred stock were excluded from the calculation of the diluted net income per share for the year ended October 31, 2022 as its impact would have been anti-dilutive. For the fiscal year ended October 31, 2021, the Company realized a net loss and as such, the weighted-average dilutive impact of any shares was excluded from the calculation of diluted EPS because they were antidilutive.
The table below shows our basic and diluted EPS calculations for the fiscal year ended October 31, 2022 and October 31, 2021:
| | Year Ended October 31, | |
(in thousands, except share and per share amounts) | | 2022 | | | 2021 | |
Net income (loss) (numerator): | | | | | | | | |
Net income (loss) attributable to Concrete Pumping Holdings, Inc. | | $ | 28,676 | | | $ | (15,073 | ) |
Less: Accretion of liquidation preference on preferred stock | | | (1,750 | ) | | | (1,750 | ) |
Less: Undistributed earnings allocated to participating securities | | | (1,274 | ) | | | - | |
Net income (loss) attributable to common stockholders (numerator for basic earnings per share) | | $ | 25,652 | | | $ | (16,823 | ) |
Add back: Undistributed earning allocated to participating securities | | | 1,274 | | | | - | |
Add back: Accretion of liquidation preference on preferred stock | | | - | | | | - | |
Less: Undistributed earnings reallocated to participating securities | | | (1,254 | ) | | | - | |
Numerator for diluted earnings (loss) per share | | $ | 25,672 | | | $ | (16,823 | ) |
| | | | | | | | |
Weighted average shares (denominator): | | | | | | | | |
Weighted average shares - basic | | | 53,914,311 | | | | 53,413,594 | |
Weighted average shares - diluted | | | 54,851,308 | | | | 53,413,594 | |
| | | | | | | | |
Basic earnings (loss) per share | | $ | 0.48 | | | $ | (0.31 | ) |
Diluted earnings (loss) per share | | $ | 0.47 | | | $ | (0.31 | ) |
Note 18. 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 both years ended October 31, 2022 and 2021 were $0.9 million.
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 both years ended October 31, 2022 and 2021.
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, 2022 and 2021:
| | Year Ended October 31, | |
(in thousands) | | 2022 | | | 2021 | |
California | | $ | 407 | | | $ | 901 | |
Oregon | | | 291 | | | | 308 | |
Washington | | | 255 | | | | 279 | |
Total contributions | | $ | 953 | | | $ | 1,489 | |
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 and Washington were Green(greater than 80 percent funded) and for California, 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, 2021 and for the California multiemployer defined benefit pension plan is at July 1, 2021.
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 19. 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 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) | | 2022 | | | 2021 | |
Revenue | | | | | | | | |
U.S. Concrete Pumping | | $ | 296,506 | | | $ | 229,475 | |
U.K. Operations | | | 54,926 | | | | 48,098 | |
U.S. Concrete Waste Management Services | | | 50,191 | | | | 38,591 | |
Corporate | | | 2,500 | | | | 2,500 | |
Intersegment | | | (2,831 | ) | | | (2,856 | ) |
Total revenue | | $ | 401,292 | | | $ | 315,808 | |
| | | | | | | | |
Income (loss) before income taxes | | | | | | | | |
U.S. Concrete Pumping | | $ | 9,006 | | | $ | (11,915 | ) |
U.K. Operations | | | 1,950 | | | | 731 | |
U.S. Concrete Waste Management Services | | | 11,701 | | | | 6,986 | |
Corporate | | | 11,545 | | | | (8,233 | ) |
Total income (loss) before income taxes | | $ | 34,202 | | | $ | (12,431 | ) |
EBITDA | | | | | | | | |
U.S. Concrete Pumping | | $ | 72,278 | | | $ | 47,497 | |
U.K. Operations | | | 12,582 | | | | 12,128 | |
U.S. Concrete Waste Management Services | | | 20,302 | | | | 16,433 | |
Corporate | | | 12,393 | | | | (7,393 | ) |
Total EBITDA | | $ | 117,555 | | | $ | 68,665 | |
| | | | | | | | |
Consolidated EBITDA reconciliation | | | | | | | | |
Net income (loss) | | $ | 28,676 | | | $ | (15,073 | ) |
Interest expense, net | | | 25,891 | | | | 25,190 | |
Income tax expense | | | 5,526 | | | | 2,642 | |
Depreciation and amortization | | | 57,462 | | | | 55,906 | |
Total EBITDA | | $ | 117,555 | | | $ | 68,665 | |
Depreciation and amortization | | | | | | | | |
U.S. Concrete Pumping | | $ | 40,304 | | | $ | 37,381 | |
U.K. Operations | | | 7,709 | | | | 8,238 | |
U.S. Concrete Waste Management Services | | | 8,601 | | | | 9,447 | |
Corporate | | | 848 | | | | 840 | |
Total depreciation and amortization | | $ | 57,462 | | | $ | 55,906 | |
| | | | | | | | |
Interest expense, net | | | | | | | | |
U.S. Concrete Pumping | | $ | (22,968 | ) | | $ | (22,031 | ) |
U.K. Operations | | | (2,923 | ) | | | (3,159 | ) |
Total interest expense, net | | $ | (25,891 | ) | | $ | (25,190 | ) |
| | | | | | | | |
Transaction costs and debt extinguishment costs | | | | | | | | |
U.S. Concrete Pumping | | $ | 318 | | | $ | 15,822 | |
Total transaction costs including transaction-related debt extinguishment | | $ | 318 | | | $ | 15,822 | |
Total assets by segment for the periods presented are as follows:
| | October 31, | | | October 31, | |
(in thousands) | | 2022 | | | 2021 | |
Total assets | | | | | | | | |
U.S. Concrete Pumping | | $ | 693,048 | | | $ | 591,820 | |
U.K. Operations | | | 103,255 | | | | 109,631 | |
U.S. Concrete Waste Management Services | | | 157,370 | | | | 145,199 | |
Corporate | | | 27,834 | | | | 26,648 | |
Intersegment | | | (94,018 | ) | | | (80,633 | ) |
Total assets | | $ | 887,489 | | | $ | 792,665 | |
Total capital expenditures by segment for the periods presented are as follows:
| | October 31, | | | October 31, | |
(in thousands) | | 2022 | | | 2021 | |
Total capital expenditures | | | | | | | | |
U.S. Concrete Pumping | | $ | 78,453 | | | $ | 45,749 | |
U.K. Operations | | | 13,385 | | | | 11,656 | |
U.S. Concrete Waste Management Services | | | 10,077 | | | | 5,126 | |
Corporate | | | 18 | | | | 261 | |
Total capital expenditures | | $ | 101,932 | | | $ | 62,792 | |
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, 2022 and 2021 are as follows:
| | Year Ended October 31, | |
(in thousands) | | 2022 | | | 2021 | |
Revenue by geography | | | | | | | | |
U.S. | | $ | 346,366 | | | $ | 267,710 | |
U.K. | | | 54,926 | | | | 48,098 | |
Total revenue | | $ | 401,292 | | | $ | 315,808 | |
| | October 31, | | | October 31, | |
(in thousands) | | 2022 | | | 2021 | |
Long-lived tangible assets | | | | | | | | |
U.S. | | $ | 366,814 | | | $ | 285,307 | |
U.K. | | | 52,563 | | | | 52,464 | |
Total long lived assets | | $ | 419,377 | | | $ | 337,771 | |