UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No.
CONCRETE PUMPING HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) |
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(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changes since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | | ☒ |
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | |
| Emerging growth company | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of September 7, 2021, the registrant had
CONCRETE PUMPING HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED July 31, 2021
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| Part I. Financial Information |
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Consolidated Statements of Operations and Comprehensive Income |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Part II. Other Information |
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| Signatures | 49 | ||
PART I
ITEM 1. Unaudited Consolidated Financial Statements
Concrete Pumping Holdings, Inc.
Consolidated Balance Sheets
| (Unaudited) | ||||||||
| July 31, | October 31, | |||||||
| (in thousands except per share amounts) | 2021 | 2020 | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Trade receivables, net | ||||||||
| Inventory | ||||||||
| Income taxes receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other non-current assets | ||||||||
| Deferred financing costs | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities: | ||||||||
| Revolving loan | $ | $ | ||||||
| Term loans, current portion | ||||||||
| Current portion of capital lease obligations | ||||||||
| Accounts payable | ||||||||
| Accrued payroll and payroll expenses | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Income taxes payable | ||||||||
| Total current liabilities | ||||||||
| Long term debt, net of discount for deferred financing costs | ||||||||
| Capital lease obligations, less current portion | ||||||||
| Deferred income taxes | ||||||||
| Warrant liability | ||||||||
| Total liabilities | ||||||||
| Zero-dividend convertible perpetual preferred stock, $0.0001 par value, 2,450,980 shares issued and outstanding as of July 31, 2021 and October 31, 2020 | ||||||||
| Stockholders' equity | ||||||||
| Common stock, $0.0001 par value, 500,000,000 shares authorized, 56,567,186 and 56,463,992 issued and outstanding as of July 31, 2021 and October 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements
Concrete Pumping Holdings, Inc.
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| (in thousands, except share and per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of operations | ||||||||||||||||
| Gross profit | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Goodwill and intangibles impairment | ||||||||||||||||
| Transaction costs | ||||||||||||||||
| Income (loss) from operations | ( | ) | ||||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of debt | ( | ) | ||||||||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
| Other income, net | ||||||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Less accretion of liquidation preference on preferred stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) available to common shareholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Net income (loss) per common share | ||||||||||||||||
| Basic | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Diluted | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements
Concrete Pumping Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||
| Total comprehensive income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements
Concrete Pumping Holdings, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
| (in thousands) | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Income (loss) | Accumulated Deficit | Total | ||||||||||||||||||
| Balance at October 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Shares issued upon exercise of stock options, net of shares used for tax withholding | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||
| Balance at January 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at April 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||
| Balance at July 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||
| (in thousands) | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Income (loss) | Accumulated Deficit | Total | ||||||||||||||||||
| Balance at October 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Shares issued upon exercise of stock options, net of shares used for tax withholding | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||
| Balance at January 31, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||
| Balance at April 30, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||
| Balance at July 31, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements
Concrete Pumping Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended July 31, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Goodwill and intangibles impairment | ||||||||
| Depreciation | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Amortization of deferred financing costs | ||||||||
| Amortization of intangible assets | ||||||||
| Stock-based compensation expense | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Loss on extinguishment of debt | ||||||||
| Net gain on the sale of property, plant and equipment | ( | ) | ( | ) | ||||
| Payment of contingent consideration in excess of amounts established in purchase accounting | ( | ) | ||||||
| Net changes in operating assets and liabilities: | ||||||||
| Trade receivables, net | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Income taxes payable, net | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued payroll, accrued expenses and other current liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property, plant and equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds on long term debt | ||||||||
| Payments on long term debt | ( | ) | ( | ) | ||||
| Proceeds on revolving loan | ||||||||
| Payments on revolving loan | ( | ) | ( | ) | ||||
| Payment of debt issuance costs | ( | ) | ||||||
| Payments on capital lease obligations | ( | ) | ( | ) | ||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||
| Payment of contingent consideration established in purchase accounting | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of foreign currency exchange rate on cash | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents: | ||||||||
| Beginning of period | ||||||||
| End of period | $ | $ | ||||||
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements
Concrete Pumping Holdings, Inc.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
| Nine Months Ended July 31, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Equipment purchases included in accrued expenses and accounts payable | $ | $ | ||||||
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements
Note 1. Organization and Description of Business
Organization
Concrete Pumping Holdings, Inc. (the “Company” or “Successor”) is a Delaware corporation headquartered in Thornton (near Denver), Colorado. The Consolidated Financial Statements include the accounts of Concrete Pumping Holdings, Inc. and its wholly owned subsidiaries including Brundage-Bone Concrete Pumping, Inc. (“Brundage-Bone”), Capital Pumping (“Capital”), Camfaud Group Limited (“Camfaud”), and Eco-Pan, Inc. (“Eco-Pan”).
On December 6, 2018 (the “Closing Date”), the Company, formerly known as Concrete Pumping Holdings Acquisition Corp., consummated a business combination transaction (the “Business Combination”) pursuant to which it acquired (i) the private operating company formerly called Concrete Pumping Holdings, Inc. (the "Predecessor") and (ii) the former special purpose acquisition company called Industrea Acquisition Corp (“Industrea”). In connection with the closing of the Business Combination, the Company changed its name to Concrete Pumping Holdings, Inc.
Nature of business
Brundage-Bone and Capital are concrete pumping service providers in the United States ("U.S.") and Camfaud is a concrete pumping service provider in the United Kingdom (“U.K.”). Their core business is the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Most often equipment returns to a “home base” nightly and neither company contracts to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately
Eco-Pan provides industrial cleanup and containment services, primarily to customers in the construction industry in the U.S. and the U.K. Eco-Pan uses containment pans specifically designed to hold waste products from concrete and other industrial cleanup operations. Eco-Pan has
Seasonality
The Company’s sales are historically seasonal, with lower revenue volumes typically in the first half of the fiscal year and higher revenue volumes in the second half of each fiscal year. Such seasonality also causes the Company’s working capital cash flow requirements to vary from the first half of the fiscal year to the second half of the fiscal year and primarily depends on the variability of weather patterns with the Company generally having lower sales volume during the winter and spring months.
Impacts of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has rapidly changed market and economic conditions globally and may continue to create significant uncertainty in the macroeconomic environment.
In addition, the COVID-19 pandemic drove a sustained decline in the Company's stock price and a deterioration in general economic conditions in the Company's fiscal 2020 second quarter, which qualified as a triggering event necessitating the evaluation of its goodwill and long-lived assets for indicators of impairment. As a result of the evaluation, the Company conducted a quantitative interim impairment test as of April 30, 2020 resulting in non-cash impairment charges of $
Despite recent progress in administration of vaccines, both the outbreak, the recent impact from the Delta variant and the containment and mitigation measures have had and are likely to continue to have a serious adverse impact on the global economy, the severity and duration of which are uncertain. It is likely that government stabilization efforts will only partially mitigate the consequences to the economy. To date, the COVID-19 pandemic has negatively impacted revenue volumes primarily in the U.K. and certain markets in the U.S. This impact was most heavily pronounced in the second and third quarters of fiscal 2020. Beginning in the fourth quarter of fiscal 2020, revenue volumes began showing signs of improvement, and as of the third quarter of fiscal 2021, they have returned back to pre-pandemic levels for most of our markets in the United States and near pre-pandemic levels in the United Kingdom; however, the impact from COVID-19 remains an issue in certain markets. The full extent to which the COVID-19 pandemic will impact the Company’s business, financial condition, and results of operations in the future is highly uncertain and will be affected by a number of factors. These include the duration and extent of the pandemic; the duration and extent of imposed or recommended containment and mitigation measures; the extent, duration, and effective execution of government stabilization and recovery efforts, including those from the successful distribution of an effective vaccine; the impact of the pandemic on economic activity, including on construction projects and the Company’s customers’ demand for its services; the Company’s ability to effectively operate, including as a result of travel restrictions and mandatory business and facility closures; the ability of the Company’s customers to pay for services rendered; any further closures of the Company’s and the Company’s customers’ offices and facilities; and any additional project delays or shutdowns. Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements. Any of these events may have a material adverse effect on the Company’s business, financial condition, and/or results of operations, including further impairment to our goodwill and intangible assets. The Company will continue to evaluate the effect of COVID-19 on its business.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying Unaudited Consolidated Financial Statements have been prepared, without audit, in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the SEC. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. 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 July 31, 2021 and for all periods presented. All intercompany balances and transactions have been eliminated in consolidation.
Principles of consolidation
The Consolidated Financial Statements include all accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated.
Restatement and Revision of Prior Period Financial Statements
As described in additional detail in the Explanatory Note to our Annual Report on Form 10-K/A for the year ended October 31, 2020, filed on June 11, 2021, the SEC released a public statement on April 12, 2021 (the “SEC Statement”) informing market participants that warrants issued by special purpose acquisition companies (“SPACs”) may require classification as a liability of the entity measured at fair value, with changes in fair value each period reported in earnings.
The Company previously classified its publicly traded warrants (the “public warrants”) and private placement warrants (the “private warrants”) (collectively the “Warrants”), which were issued in August of 2017, as equity. Following consideration of the guidance in the SEC Statement, the Company concluded that its Warrants should have been classified as liabilities and measured at fair value, with changes in fair value each period reported in earnings. As such, the Company previously restated its (1) consolidated financial statements as of October 31, 2019 and for the Successor period from December 6, 2018 through October 31, 2019 and (2) unaudited consolidated interim financial statements for the periods ended July 31, 2019, April 30, 2019, and January 31, 2019. Also, while not material, the Company previously revised its (1) consolidated financial statements as of and for the fiscal year ended October 31, 2020 and (2) unaudited consolidated interim financial statements for the periods ended July 31, 2020, April 30, 2020, and January 31, 2020 to correct the accounting for its Warrants.
The unaudited consolidated financial statements for the three and nine month periods ended July 31, 2020 included in this Quarterly Report on Form 10-Q reflect the impacts of such revisions. The revisions had no impact on the Company’s net revenue, operating income, cash and cash equivalents, or cash flows from operating, investing and financing activities.
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 accrued sales and use taxes, the liability for incurred but unreported claims under various partially self-insured polices, allowance for doubtful accounts, goodwill impairment analysis, valuation of share-based compensation and accounting for business combinations. Actual results may differ from those estimates, and such differences may be material to the Company’s consolidated financial statements.
Trade receivables
Trade receivables are carried at the original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts. Generally, the Company does not require collateral for their accounts receivable; however, the Company may file statutory liens or take other appropriate legal action when necessary on construction projects in which collection problems arise. A trade receivable is typically considered to be past due if any portion of the receivable balance is outstanding for more than 30 days. The Company does not charge interest on past-due trade receivables.
Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. The allowance for doubtful accounts was $
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,
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 in deferred financing in the accompanying consolidated balance sheets.
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 is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit. As of July 31, 2021, no indicators of impairment have been 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. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives:
| In Years | ||||
| Buildings and improvements | ||||
| Capital lease assets—buildings | ||||
| Furniture and office equipment | ||||
| Machinery and equipment | ||||
| Transportation equipment | ||||
Intangible assets
Intangible assets are recorded at cost or their estimated fair value (when acquired through a business combination) less accumulated amortization (if finite-lived).
Intangible assets with finite lives, except for customer relationships, are amortized on a straight-line basis over their estimated useful lives. Customer relationships are amortized on an accelerated basis over their estimated useful lives. Intangible assets with indefinite lives are not amortized but are subject to annual reviews for impairment.
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.
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.
Revenue recognition
The Company generates revenues primarily from concrete pumping services in both the U.S. and U.K. Additionally, revenue is generated from the Company’s waste management business which consists of service fees charged to customers for the delivery of its pans and containers and the disposal of the concrete waste material.
The Company recognizes revenue from these businesses when all of the following criteria are met: (a) persuasive evidence of an arrangement exists, (b) the service has been performed or delivery has occurred, (c) the price is fixed or determinable, and (d) collectability is reasonably assured. The Company’s delivery terms for replacement part sales are FOB shipping point.
The Company imposes and collects sales taxes concurrent with its revenue-producing transactions with customers and remits those taxes to the various governmental authorities as prescribed by the taxing jurisdictions in which it operates. The Company presents such taxes in its consolidated statement of operations on a net basis.
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 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. The Company accounts for forfeitures as they occur in accordance with ASU No. 2016-09, Compensation—Stock Compensation (ASC 718): Improvements to Employee Share-Based Payment Accounting.
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.
Camfaud files income tax returns in the U.K. Camfaud’s national statutes are generally open for one year following the statutory filing period.
Foreign currency translation
The functional currency of Camfaud is the Pound Sterling (GBP). The assets and liabilities of the Company's foreign subsidiaries are translated into U.S. Dollars using the period end exchange rates for the periods presented, and the consolidated statements of operations are translated at the average exchange rate for the periods presented. The resulting translation adjustments are recorded as a component of comprehensive income on the consolidated statements of comprehensive income and accumulated in other comprehensive income. The functional currency of our other subsidiaries is the United States Dollar.
Earnings per share
The Company calculates earnings per share in accordance with ASC 260, Earnings per Share. The two-class method of computing earnings per share is required for entities that have participating securities. The two-class method is an earnings allocation formula that determines earnings per share for participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. For purposes of ASC 260, the two-class method is computed based on the following participating stock: (1) Common Stock and (2) Restricted Stock Awards.
Basic earnings (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the weighted average number of shares of Common Stock outstanding each period. Diluted earnings (loss) per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents which would arise from the exercise of stock options outstanding using the treasury stock method and the average market price per share during the period. Common stock equivalents are not included in the diluted earnings (loss) per share calculation when their effect is antidilutive.
An anti-dilutive impact is an increase in earnings per share or a reduction in net loss per share resulting from the conversion, exercise, or contingent issuance of certain securities.
Business combinations
The Company applies the principles provided in ASC 805, Business Combinations ("ASC 805"), when a business is acquired. Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any differences between the fair value of consideration transferred and the fair value of net assets acquired. Transaction costs for business combinations are expensed as incurred in accordance with ASC 805.
Concentrations
As of July 31, 2021 and October 31, 2020 there were
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
We have opted to take advantage of the extended transition period available to emerging growth companies pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) for new accounting standards.
Recently issued accounting pronouncements not yet effective
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606) (“ASU 2014-09”), which is a comprehensive new revenue recognition model.
Under ASU 2014-09 and the related clarifying ASUs, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. Following the issuance of ASU 2020-05 that deferred the effective date for certain companies, ASU 2014-09 is effective for emerging growth companies that have elected to use private company adoption dates in annual reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019 and is to be adopted using either a full retrospective or modified retrospective transition method. The Company expects to adopt the guidance under the modified retrospective approach during the fourth quarter of the fiscal year ending October 31, 2021. The Company is currently finalizing its assessment from the adoption of the new standard, including the review of revenue streams and related contracts, but does not expect a significant impact on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which is codified in ASC 842, Leases (“ASC 842”) and supersedes current lease guidance in ASC 840, Leases. ASC 842 requires a lessee to recognize a right-of-use asset and a corresponding lease liability for substantially all leases. The lease liability will be equal to the present value of the remaining lease payments while the right-of-use asset will be similarly calculated and then adjusted for initial direct costs. In addition, ASC 842 expands the disclosure requirements to increase the transparency and comparability of the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, Leases ASC 842: Targeted Improvements, which allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The new standard is effective for emerging growth companies that have elected to use private company adoption dates for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company plans to adopt the new standard effective for the year ending October 31, 2022. The Company is currently evaluating the impact of the pending adoption of the new standard on the consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), This ASU, along with subsequently issued related ASUs, requires financial assets (or groups of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected, among other provisions. This ASU is effective for emerging growth companies that have elected to use private company adoption dates with annual and interim periods beginning after December 15, 2022, with early adoption permitted. The Company plans to adopt the new standard effective for the year ending October 31, 2022. The amendments of this ASU should be applied on a modified retrospective basis to all periods presented. The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”). Specifically, to the extent the Company's debt agreements are modified to replace LIBOR with another interest rate index, ASU 2020-04 will permit the Company to account for the modification as a continuation of the existing contract without additional analysis. Companies may generally elect to apply the guidance for periods that include March 12, 2020 through December 31, 2022. The Company needs to modify its debt agreements that currently reference LIBOR in the near future to reflect a new interest rate index. As ASU 2020-04 permits a continuation of the existing contract without further detailed analysis, the Company does not expect any impact from adoption of this standard on its condensed consolidated financial statements. Furthermore, the Company does not expect the transition from LIBOR to have a material impact on its consolidated financial statements.
Note 4. 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 due to the short-term maturity of these instruments. The Company’s outstanding obligations on its ABL credit facility are deemed to be at fair value as the interest rates on these debt obligations are variable and consistent with prevailing rates. The Company believes the carrying values of its capital lease obligations represent fair value.
Long-term debt instruments
The Company's long-term debt instruments are recorded at their carrying values in the consolidated balance sheet, which may differ from their respective fair values. The fair values of the long-term debt instruments are derived from Level 2 inputs. The fair value amount of the long-term debt instruments at July 31, 2021 and at October 31, 2020 is presented in the table below based on the prevailing interest rates and trading activity of the Term loans or Senior Notes.
| July 31, | October 31, | |||||||||||||||
| 2021 | 2020 | |||||||||||||||
| (in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
| Term loans | $ | $ | $ | $ | ||||||||||||
| Senior notes | $ | $ | $ | $ | ||||||||||||
| Capital lease obligations | $ | $ | $ | $ | ||||||||||||
Deferred consideration
In connection with the acquisition of Camfaud in November 2016, former Camfaud shareholders were eligible to receive earnout payments (“deferred consideration”) of up to $
Warrants
At both July 31, 2021 and October 31, 2020, there were
The Company accounts for the public warrants issued in connection with its IPO in accordance with ASC 815, under which certain provisions in the public warrant agreements do not meet the criteria for equity classification and therefore these warrants must be recorded as liabilities. The fair value of each public warrant is based on the public trading price of the warrant (Level 1 fair value measurement). Gains and losses related to the warrants are reflected in the change in fair value of warrant liabilities in the consolidated statements of operations.
All other non-financial assets
The Company's non-financial assets, which primarily consist of property and equipment, goodwill and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite lived intangibles), non-financial instruments are assessed for impairment and, if applicable, written down to and recorded at fair value.
Note 5. Prepaid Expenses and Other Current Assets
The significant components of prepaid expenses and other current assets at July 31, 2021 and at October 31, 2020 are comprised of the following:
| July 31, | October 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Prepaid insurance | $ | $ | ||||||
| Prepaid licenses and deposits | ||||||||
| Prepaid rent | ||||||||
| Other current assets and prepaids | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
Note 6. Property, Plant and Equipment
The significant components of property, plant and equipment at July 31, 2021 and at October 31, 2020 are comprised of the following:
| July 31, | October 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Land, building and improvements | $ | $ | ||||||
| Capital leases—land and buildings | ||||||||
| Machinery and equipment | ||||||||
| Transportation equipment | ||||||||
| Furniture and office equipment | ||||||||
| Property, plant and equipment, gross | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation expense for the three and nine month periods ended July 31, 2021 was $
Note 7. Goodwill and Intangible Assets
The Company recognized goodwill and certain intangible assets in connection with business combinations.
During the second quarter of fiscal 2020, the Company identified a triggering event resulting from a sustained decline in its stock price and deterioration in general economic conditions resulting from COVID-19. As a result, the Company, with the assistance of a third party valuation specialist, performed an interim impairment test on its indefinite-lived trade name intangible assets and goodwill as of April 30, 2020.
The valuation methodology used to value the trade-names was based on the relief-from-royalty method which is an income based measure that derives the value from total revenue growth projected and what percentage is attributable to the trade name. As a result of the analysis, the Company identified that the fair value of its Brundage-Bone Concrete Pumping trade name was approximately
The goodwill impairment test was performed on the Company’s U.S. Concrete Pumping, U.S. Concrete Waste Management Services, and U.K. Operations reporting units. The valuation methodologies used to value the reporting units included the discounted cash flow method (income approach) and the guideline public company method (market approach). As a result of the goodwill impairment analysis, the Company identified that the fair values of its U.S. Concrete Pumping and U.K. Operations reporting units were approximately
The factors leading to the impairment of the Company's goodwill and intangibles were primarily due to (1) lower anticipated future net revenues and earnings in its estimate of future cash flows resulting from COVID-19 and (2) a higher discount rate applied to future cash flows as a result of uncertainties of the overall economic impact from COVID-19. There is inherent uncertainty associated with key assumptions used by the Company in its impairment analyses including the duration of the economic downturn associated with COVID-19 and the recovery period.
There were no triggering events during the nine-month period ended July 31, 2021. The Company will continue to evaluate its goodwill and intangible assets in future quarters. Additional impairments may be recorded based on events and circumstances, including those related to COVID-19 discussed in Note 1.
The following table summarizes the composition of intangible assets at July 31, 2021 and at October 31, 2020:
| July 31, | October 31, | |||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||
| Gross | Foreign Currency | Net | Gross | Foreign Currency | Net | |||||||||||||||||||||||||||||||||||
| Carrying | Accumulated | Translation | Carrying | Carrying | Accumulated | Translation | Carrying | |||||||||||||||||||||||||||||||||
| (in thousands) | Value | Impairment | Amortization | Adjustment | Amount | Value | Impairment | Amortization | Adjustment | Amount | ||||||||||||||||||||||||||||||
| Customer relationship | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Trade name | ( | ) | ( | ) | ( | ) | ( | ) | $ | |||||||||||||||||||||||||||||||
| Trade name (indefinite life) | ( | ) | - | ( | ) | - | $ | |||||||||||||||||||||||||||||||||
| Non-compete agreements | ( | ) | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Total intangibles | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
Amortization expense for the three and nine month periods ended July 31, 2021 was $
| (in thousands) | ||||
| 2021 (excluding the period from November 1, 2020 to July 31, 2021) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total | $ |
The changes in the carrying value of goodwill by reportable segment for the quarter ended July 31, 2021 are as follows:
| (in thousands) | U.S. Concrete Pumping | U.K. Operations | U.S. Concrete Waste Management Services | Total | ||||||||||||
| Balance at October 31, 2020 | $ | $ | $ | $ | ||||||||||||
| Foreign currency translation | ||||||||||||||||
| Balance at July 31, 2021 | $ | $ | $ | $ | ||||||||||||
Note 8. 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 $
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 are borrowers and certain of the guarantors 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 July 31, 2021 was $
ABL Facility
A comparison of terms of the ABL Facility before and immediately after the amendment are as follows:
| Dated December 6, 2018 | As of January 28, 2021 | |
| Borrowing availability in U.S. Dollars and GBP up to a maximum of $ |
| Borrowing availability in U.S. Dollars and GBP up to a maximum of $ |
| Borrowing capacity available for standby letters of credit of up to $ |
| Same;
|
| All loans advanced will mature and be due and payable in full on December 6, 2023; |
| All loans advanced will mature and be due and payable in full on January 28, 2026; |
| Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement; |
| Same; |
| Borrowings in U.S. Dollars and GBP bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at |
| Borrowings in U.S. Dollars and GBP bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at |
| U.S. ABL Facility obligations will be secured by (i) a perfected first priority security interest in substantially all personal property of the Company and certain of its subsidiaries that are loan parties thereunder consisting of all accounts receivable, inventory, cash, intercompany notes, books and records, chattel paper, deposit, securities and operating accounts and all other working capital assets and all documents, instruments and general intangibles related to the foregoing (the “U.S. ABL Priority Collateral”) and (ii) a perfected second priority security interest in substantially all Term Loan Agreement priority collateral, in each case subject to customary exceptions and limitations; |
| US ABL Facility obligations will be secured by a first-priority perfected security interest in substantially all the assets of the Issuer, together with Brundage-Bone Concrete Pumping, Inc., Eco-Pan, Inc., Capital Pumping LP (collectively, the "US ABL Borrowers") and each of the Company's wholly-owned domestic subsidiaries (the "US ABL Guarantors"), subject to certain exceptions; |
| U.K. ABL Facility obligations will be secured by (i) a perfected first-priority security interest in (A) the U.S. ABL Priority Collateral, (B) all of the stock (or other ownership interests) in, and held by, the U.K. borrower subsidiaries of the Company, and (C) all of the current and future assets and property of the U.K subsidiaries of the Company that are loan parties thereunder, including a first-ranking floating charge over all current and future assets and property of each U.K. subsidiary of the Company that is a loan party thereunder; and (ii) a perfected, second-priority security interest in substantially all Term Loan Agreement priority collateral, in each case subject to customary exceptions and limitations; and |
| UK ABL Facility obligations will be secured by a first priority perfected security interest in substantially all assets of Camfaud Concrete Pumps Limited and Premier Concrete Pumping Limited, each of the Company's wholly-owned UK subsidiaries, and by each of the US ABL Borrowers and the US ABL Guarantors, subject to certain exceptions; |
| The ABL Facility also includes (i) a springing financial covenant (fixed charges coverage ratio) based on excess availability levels that the Company must comply with on a quarterly basis during required compliance periods and (ii) certain non-financial covenants. |
| Same. |
There was
Term Loan Agreement
Summarized terms of the Term Loan Agreement are as follows:
|
| ● | Provides for an original aggregate principal amount of $ |
|
| ● | The initial term loans advanced will mature and be due and payable in full seven years after the Closing Date, with principal amortization payments in an annual amount equal to |
|
| ● | Borrowings under the Term Loan Agreement, will bear interest at either (1) an adjusted LIBOR rate or (2) an alternate base rate, plus an applicable margin of |
|
| ● | The Term Loan Agreement is secured by (i) a first priority perfected lien on substantially all of the assets of the Company and certain of its subsidiaries that are loan parties thereunder to the extent not constituting ABL Facility priority collateral and (ii) a second priority perfected lien on substantially all ABL Facility priority collateral, in each case subject to customary exceptions and limitations; |
|
| ● | The Term Loan Agreement includes certain non-financial covenants. |
As discussed above, all outstanding borrowings under the Term Loan Agreement were repaid on January 28, 2021. The pay-off of the term loan were treated as a debt extinguishment while the amended ABL facility was treated as a debt modification. In accordance with debt extinguishment accounting rules, the Company recorded $
The table below is a summary of the composition of the Company’s debt balances at July 31, 2021 and at October 31, 2020.
| July 31, | October 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Revolving loan (short term) | $ | $ | ||||||
| Short term portion of term loan | ||||||||
| Long term portion of term loan | ||||||||
| Senior notes - all long term | ||||||||
| Total debt, gross | ||||||||
| Less unamortized deferred financing costs offsetting long term debt | ( | ) | ( | ) | ||||
| Total debt, net of unamortized deferred financing costs | $ | $ | ||||||
Note 9. Accrued Payroll and Payroll Expenses
The following table summarizes accrued payroll and expenses at July 31, 2021 and at October 31, 2020:
| July 31, | October 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Accrued vacation | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued bonus | ||||||||
| Other accrued | ||||||||
| Total accrued payroll and payroll expenses | $ | $ | ||||||
Note 10. Accrued Expenses and Other Current Liabilities
The following table summarizes accrued expenses and other current liabilities at July 31, 2021 and at October 31, 2020:
| July 31, | October 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Accrued insurance | $ | $ | ||||||
| Accrued interest | ||||||||
| Accrued equipment purchases | ||||||||
| Accrued sales and use tax | ||||||||
| Accrued property taxes | ||||||||
| Accrued professional fees | ||||||||
| Accrued due to related party | ||||||||
| Other | ||||||||
| Total accrued expenses and other liabilities | $ | $ | ||||||
Note 11. Income Taxes
For the third fiscal quarter ended July 31, 2021, the Company recorded income tax expense of $
At July 31, 2021 and October 31, 2020, we had deferred tax liabilities, net of deferred tax assets, of $
Note 12. Commitments and Contingencies
Insurance
As of July 31, 2021 and October 31, 2020, the Company was partially insured for automobile, general and worker's compensation liability. The Company has accrued $
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 July 31, 2021 and October 31, 2020, the Company had accrued $
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 $
Note 13. Stockholders’ Equity
The Company’s amended and restated certificate of incorporation authorizes the issuance of
| ● |
|
| ● |
|
| ● |
|
The Company’s Series A Preferred Stock does pay dividends and is convertible (effective June 6, 2019) into shares of the Company’s common stock at a 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 plus an additional cumulative amount that will accrue at an annual rate of
Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. The preferred stock contains a redemption feature contingent upon a change in control which is not solely within the control of the Company, and as such, the preferred stock is presented outside of permanent equity.
On April 29, 2019,
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
Note 14. Stock-Based Compensation
The Company rolled forward certain vested options from the Predecessor (see discussion below) to
During 2019, pursuant to the Concrete Pumping Holdings, Inc. 2018 Omnibus Incentive Plan, the Company granted stock-based awards to certain employees in the U.S. and U.K. All awards in the U.S. are participating restricted stock awards while awards granted to employees in the U.K. are stock options with exercise prices of $
| (1) | Time-based only – Awards vest in equal installments over a -year period. |
| (2) | $13 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $13.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest annually over a -year period. |
| (3) | $16 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $16.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest annually over a -year period. |
| (4) | $19 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $19.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest annually over a -year period. |
On October 29, 2020 almost all of the then-outstanding stock awards were modified as follows:
| (1) | 113 awards for |
| o | The price vesting targets of $ | |
| o | The market-based awards were exchanged on a |
| (2) | 18 awards for |
| o | Each individual's total award was split into the following: (a) | |
| o | In the aggregate, |
| (a) | ||
| (b) | ||
| (c) |
As a result of the modifications, and in accordance with ASC 718, the Company updated the fair value of each modified award to be equal to the following:
| ● | Unrecognized stock-based compensation expense as of October 29, 2020 immediately before the modification plus | |
| ● | The greater of $0 or the difference between fair value of new award immediately after modification less the fair value of old award immediately before modification |
The fair values for the above awards were calculated using a Monte Carlo simulation model and the updated fair value of the stock award is expensed over the new service period for the new award. As a result of the modifications, the Company recorded $
As of July 31, 2021, the Company had the following outstanding stock-based awards:
| (1) | Time-based only – Awards vest in equal installments over a or -year period. |
| (2) | $6 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $ |
| (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 $ |
| (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 $ |
Included in the table on the next page is a summary of unvested awards at July 31, 2021, including the location, type of award, shares outstanding, unrecognized compensation expense, and the date that expense will be recognized through. In addition, while the table below provides a date through which expense will be recognized on a straight-line basis for the remaining market-based stock awards, if at such time they vest earlier than the Monte Carlo simulation derived service period, expense recognition will be accelerated. The $6 Market/Time-Based shares noted below achieved the $6.00 market condition on March 29, 2021, which was a date that was earlier than the Monte Carlo simulation had originally estimated. As such, the remaining unrecognized expense for these awards will be accelerated over the new remaining requisite service period. In addition, the Company has broken out the market-based awards by vesting tranche to address the accelerated attribution applied to the awards.
| Location | Type of Award | Shares Unvested at July 31, 2021 | Weighted Average Fair Value | Unrecognized Compensation Expense at July 31, 2021 | Date Expense will be Recognized Through (Straight-Line Basis) | ||||||||||
| U.S. |
| $ | $ | 12/6/2023 | |||||||||||
| U.S. |
| $ | $ | 10/29/2020 | |||||||||||
| U.S. |
| $ | $ | 3/29/2022 | |||||||||||
| U.S. |
| $ | $ | 3/29/2023 | |||||||||||
| U.S. |
| $ | $ | 3/29/2024 | |||||||||||
| U.S. |
| $ | $ | 10/29/2020 | |||||||||||
| U.S. |
| $ | $ | 8/23/2022* | |||||||||||
| U.S. |
| $ | $ | 8/23/2023* | |||||||||||
| U.S. |
| $ | $ | 8/23/2024* | |||||||||||
| U.S. |
| $ | $ | 10/29/2020 | |||||||||||
| U.S. | | $ | $ | 7/9/2023 | |||||||||||
| U.S. | | $ | $ | 7/9/2024 | |||||||||||
| U.S. | | $ | $ | 7/9/2025 | |||||||||||
| U.S. | | $ | $ | 5/4/2022 | |||||||||||
| U.S. | | $ | $ | 5/4/2023 | |||||||||||
| U.S. | | $ | $ | 5/4/2024 | |||||||||||
| U.S. | | $ | $ | 8/27/2022 | |||||||||||
| U.S. | | $ | $ | 8/27/2023 | |||||||||||
| U.S. | | $ | $ | 8/27/2024 | |||||||||||
| U.S. | | $ | $ | 11/19/2022 | |||||||||||
| U.S. | | $ | $ | 11/19/2023 | |||||||||||
| U.S. | | $ | $ | 11/19/2024 | |||||||||||
| U.K. | | $ | $ | 12/6/2023 | |||||||||||
| U.K. | | $ | $ | 10/29/2020 | |||||||||||
| U.K. | | $ | $ | 3/29/2022 | |||||||||||
| U.K. | | $ | $ | 3/29/2023 | |||||||||||
| U.K. | | $ | $ | 3/29/2024 | |||||||||||
| U.K. | | $ | $ | 10/29/2020 | |||||||||||
| U.K. | | $ | $ | 8/23/2022* | |||||||||||
| U.K. | | $ | $ | 8/23/2023* | |||||||||||
| U.K. | | $ | $ | 8/23/2024* | |||||||||||
| U.K. | | $ | $ | 10/29/2020 | |||||||||||
| U.K. | | $ | $ | 7/9/2023 | |||||||||||
| U.K. | | $ | $ | 7/9/2024 | |||||||||||
| U.K. | | $ | $ | 7/9/2025 | |||||||||||
| Total | $ | ||||||||||||||
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 $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-based compensation expense for the three and nine month periods ended July 31, 2021 was $
Note 15. 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 July 31, 2021, the Company had outstanding (1)
The table below shows our basic and diluted EPS calculations for the three and nine month periods ended July 31, 2021 and 2020:
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| (in thousands, except share and per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net income (loss) (numerator): | ||||||||||||||||
| Net income (loss) attributable to Concrete Pumping Holdings, Inc. | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Less: Accretion of liquidation preference on preferred stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Undistributed earnings allocated to participating securities | ( | ) | ||||||||||||||
| Net income (loss) attributable to common stockholders (numerator for basic earnings per share) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Add back: Undistributed earning allocated to participating securities | ||||||||||||||||
| Less: Undistributed earnings reallocated to participating securities | ( | ) | ||||||||||||||
| Numerator for diluted earnings (loss) per share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares (denominator): | ||||||||||||||||
| Weighted average shares - basic | ||||||||||||||||
| Weighted average shares - diluted | ||||||||||||||||
| Basic loss per share | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Diluted loss per share | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
The dilutive effects of the
Note 16. 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 tradenames. |
|
| ● | 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 tradenames. In addition to concrete pumping, we recently started operations of waste management services in the U.K. under the Eco-Pan tradename 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 tradename. |
|
| ● | 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 Corporate and/or 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:
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenue | ||||||||||||||||
| U.S. Concrete Pumping | $ | $ | $ | $ | ||||||||||||
| U.K. Operations | ||||||||||||||||
| U.S. Concrete Waste Management Services | ||||||||||||||||
| Corporate | ||||||||||||||||
| Intersegment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| Income (loss) before income taxes | ||||||||||||||||
| U.S. Concrete Pumping | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| U.K. Operations | ( | ) | ( | ) | ||||||||||||
| U.S. Concrete Waste Management Services | ||||||||||||||||
| Corporate | ( | ) | ( | ) | ||||||||||||
| Total income (loss) before income taxes | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| EBITDA | ||||||||||||||||
| U.S. Concrete Pumping | $ | $ | $ | $ | ||||||||||||
| U.K. Operations | ( | ) | ||||||||||||||
| U.S. Concrete Waste Management Services | ||||||||||||||||
| Corporate | ( | ) | ( | ) | ||||||||||||
| Total EBITDA | $ | $ | $ | $ | ||||||||||||
| Consolidated EBITDA reconciliation | ||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Interest expense, net | ||||||||||||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ( | ) | ||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total EBITDA | $ | $ | $ | $ | ||||||||||||
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Depreciation and amortization | ||||||||||||||||
| U.S. Concrete Pumping | $ | $ | $ | $ | ||||||||||||
| U.K. Operations | ||||||||||||||||
| U.S. Concrete Waste Management Services | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Interest expense, net | ||||||||||||||||
| U.S. Concrete Pumping | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| U.K. Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| U.S. Concrete Waste Management Services | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total interest expense, net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Transaction and debt extinguishment costs | ||||||||||||||||
| U.S. Concrete Pumping | $ | $ | $ | $ | ||||||||||||
| Total transaction costs including transaction-related debt extinguishment | $ | $ | $ | $ | ||||||||||||
Total assets by segment for the periods presented are as follows:
| July 31, | October 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Total Assets | ||||||||
| U.S. Concrete Pumping | $ | $ | ||||||
| U.K. Operations | ||||||||
| U.S. Concrete Waste Management Services | ||||||||
| Corporate | ||||||||
| Intersegment | ( | ) | ( | ) | ||||
| Total assets | $ | $ | ||||||
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 July 31, 2021 and October 31, 2020 are as follows:
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenue by Geography | ||||||||||||||||
| U.S. | $ | $ | $ | $ | ||||||||||||
| U.K. | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| July 31, | October 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Long Lived Assets | ||||||||
| U.S. | $ | $ | ||||||
| U.K. | ||||||||
| Total long lived assets | $ | $ | ||||||
Note 17. Related Party Transaction
During fiscal years 2016 and 2017, the Company paid federal income taxes totaling $
Note 18. Subsequent Events
On September 1, 2021, the Company acquired Hi-Tech Concrete Pumping Services (“Hi-Tech”), a concrete pumping provider based in southern Texas, for a purchase price of $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following management’s discussion and analysis together with Concrete Pumping Holdings, Inc.’s (the “Company”, “we”, “us”, “our” or “Successor”) Unaudited Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report.
Cautionary Statement Concerning Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered. Additionally, information about issues that could lead to material changes in performance and risk factors that have the potential to affect us is contained under the caption “Risk Factors” in our Form 10-K/A filed with the SEC on June 11, 2021.
Business Overview
The Company is a Delaware corporation headquartered in Thornton (near Denver), Colorado. The unaudited 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 (“Capital”), and Camfaud Group Limited (“Camfaud”), and Eco-Pan, Inc. (“Eco-Pan”).
On December 6, 2018, the Company, formerly known as Concrete Pumping Holdings Acquisition Corp., consummated a business combination transaction (the “Business Combination”) pursuant to which it acquired (i) the private operating company formerly called Concrete Pumping Holdings, Inc. (“CPH”) and (ii) the former special purpose acquisition company called Industrea Acquisition Corp (“Industrea”). In connection with the closing of the Business Combination, the Company changed its name to Concrete Pumping Holdings, Inc.
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 we have successfully executed on this strategy, including our 2018 acquisition of Richard O’Brien Companies and its affiliates, which solidified our presence in the Colorado and Phoenix, Arizona markets and our 2019 acquisition of Capital Pumping, LP and its affiliates, which provided us with complementary assets and operations and significantly expanded our geographic footprint and business in Texas.
U.S. Concrete Pumping
Brundage-Bone and Capital are concrete pumping service providers in the United States ("U.S."). Their core business is the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Equipment generally returns to a “home base” nightly and neither company contracts to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately 90 branch locations across 19 states with their corporate headquarters in Thornton (near Denver), Colorado.
U.S. Concrete Waste Management Services
Eco-Pan provides industrial cleanup and containment services, primarily to customers in the construction industry. Eco-Pan uses containment pans specifically designed to hold waste products from concrete and other industrial cleanup operations. Eco-Pan has 17 operating locations across the United States with its corporate headquarters in Thornton, Colorado.
U.K. Operations
Camfaud is a concrete pumping service provider in the United Kingdom (“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, during the third quarter of fiscal 2019, we started concrete waste management operations under our Eco-Pan brand name in the U.K. and currently operate from a shared Camfaud location.
Corporate
Our Corporate segment is primarily related to the intercompany leasing of real estate to certain of our U.S Concrete Pumping branches.
Impacts of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has rapidly changed market and economic conditions globally and may continue to create significant uncertainty in the macroeconomic environment.
In addition, during the second quarter of fiscal 2020, the COVID-19 pandemic drove a sustained decline in our stock price and a deterioration in general economic conditions, which qualified as a triggering event necessitating the evaluation of our goodwill and long-lived assets for indicators of impairment. As a result of the evaluation, we conducted a quantitative interim impairment test as of April 30, 2020 resulting in non-cash impairment charges of $43.5 million and $14.4 million to our U.S. Concrete Pumping and U.K. Operations reporting units, respectively. Through July 31, 2021, no subsequent triggering events have been identified. We will continue to evaluate our goodwill and intangible assets in future quarters. Additional impairments may be recorded in the future based on events and circumstances, including those related to COVID-19 discussed above.
Despite recent progress in administration of vaccines, both the outbreak, the recent impact from the Delta variant and the containment and mitigation measures have had and are likely to continue to have a serious adverse impact on the global economy, the severity and duration of which are uncertain. It is likely that government stabilization efforts will only partially mitigate the consequences to the economy. To date, the COVID-19 pandemic has negatively impacted revenue volumes primarily in the U.K. and certain markets in the U.S. This impact was most heavily pronounced in the second and third quarters of fiscal 2020. Beginning in the fourth quarter of fiscal 2020, revenue volumes began showing signs of improvement, and as of the third quarter of fiscal 2021, they have returned back to pre-pandemic levels for most of our markets in the United States and near pre-pandemic levels in the United Kingdom; however, the impact from COVID-19 remains an issue in certain markets. The full extent to which the COVID-19 pandemic will impact the Company’s business, financial condition, and results of operations in the future is highly uncertain and will be affected by a number of factors. These include the duration and extent of the pandemic; the duration and extent of imposed or recommended containment and mitigation measures; the extent, duration, and effective execution of government stabilization and recovery efforts, including those from the successful distribution of an effective vaccine; the impact of the pandemic on economic activity, including on construction projects and the Company’s customers’ demand for its services; the Company’s ability to effectively operate, including as a result of travel restrictions and mandatory business and facility closures; the ability of the Company’s customers to pay for services rendered; any further closures of the Company’s and the Company’s customers’ offices and facilities; and any additional project delays or shutdowns. Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements. Any of these events may have a material adverse effect on the Company’s business, financial condition, and/or results of operations, including further impairment to our goodwill and intangible assets. The Company will continue to evaluate the effect of COVID-19 on its business.
Notes Offering
In January 2021, Brundage-Bone Concrete Pumping Holdings Inc., a wholly-owned subsidiary of the Company, 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, along with approximately $15.0 million of borrowings under the ABL Facility, were used to repay all outstanding indebtedness under our existing term loan agreement, dated December 6, 2018, and pay related fees and expenses.
Restatement and Revision of Prior Period Financial Statements
As described in additional detail in the Explanatory Note to our Annual Report on Form 10-K/A for the year ended October 31, 2020, filed on June 11, 2021, the SEC released a public statement on April 12, 2021 (the “SEC Statement”) informing market participants that warrants issued by special purpose acquisition companies (“SPACs”) may require classification as a liability of the entity measured at fair value, with changes in fair value each period reported in earnings.
The Company previously classified its publicly traded warrants (the “public warrants”) and private placement warrants (the “private warrants”) (collectively the “Warrants”), which were issued in August of 2017, as equity. Following consideration of the guidance in the SEC Statement, the Company concluded that its Warrants should have been classified as liabilities and measured at fair value, with changes in fair value each period reported in earnings. As such, the Company previously restated its (1) consolidated financial statements as of October 31, 2019 and for the Successor period from December 6, 2018 through October 31, 2019 and (2) unaudited consolidated interim financial statements for the periods ended July 31, 2019, April 30, 2019, and January 31, 2019. Also, while not material, the Company previously revised its (1) consolidated financial statements as of and for the fiscal year ended October 31, 2020 and (2) unaudited consolidated interim financial statements for the periods ended July 31, 2020, April 30, 2020, and January 31, 2020 to correct the accounting for its Warrants. The unaudited consolidated financial statements for the three and nine month periods ended July 31, 2020 included in this Quarterly Report on Form 10-Q reflect the impacts of such revisions.
Results of Operations
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (dollars in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| Revenue |
$ | 80,761 | $ | 77,131 | $ | 228,054 | $ | 225,111 | ||||||||
| Cost of operations |
43,548 | 39,330 | 127,676 | 123,295 | ||||||||||||
| Gross profit |
37,213 | 37,801 | 100,378 | 101,816 | ||||||||||||
| Gross margin |
46.1 | % | 49.0 | % | 44.0 | % | 45.2 | % | ||||||||
| General and administrative expenses |
24,951 | 26,954 | 73,812 | 79,941 | ||||||||||||
| Goodwill and intangibles impairment |
- | - | - | 57,944 | ||||||||||||
| Transaction costs |
111 | - | 195 | - | ||||||||||||
| Income (loss) from operations |
12,151 | 10,847 | 26,371 | (36,069 | ) | |||||||||||
| Other income (expense): |
||||||||||||||||
| Interest expense, net |
(6,153 | ) | (8,364 | ) | (19,082 | ) | (26,632 | ) | ||||||||
| Loss on extinguishment of debt |
- | - | (15,510 | ) | - | |||||||||||
| Change in fair value of warrant liabilities |
260 | (2,734 | ) | (11,195 | ) | 130 | ||||||||||
| Other income, net |
32 | 36 | 85 | 139 | ||||||||||||
| Total other expense |
(5,861 | ) | (11,062 | ) | (45,702 | ) | (26,363 | ) | ||||||||
| Income (loss) before income taxes |
6,290 | (215 | ) | (19,331 | ) | (62,432 | ) | |||||||||
| Income tax expense (benefit) |
1,652 | (462 | ) | (826 | ) | (3,829 | ) | |||||||||
| Net income (loss) |
4,638 | 247 | (18,505 | ) | (58,603 | ) | ||||||||||
| Less accretion of liquidation preference on preferred stock |
(525 | ) | (489 | ) | (1,530 | ) | (1,432 | ) | ||||||||
| Net income (loss) available to common shareholders |
$ | 4,113 | $ | (242 | ) | $ | (20,035 | ) | $ | (60,035 | ) | |||||
Three Months Ended July 31, 2021
For the three months ended July 31, 2021, our net income was $4.6 million, as compared to a net income of $0.2 million in same period a year ago. The improvement was due to (1) a 4.7% year-over-year increase in revenue, (2) $2.2 million in lower interest expense, (3) a $2.0 million reduction in general and administrative expenses and (4) $3.0 million in lower warrant liability revaluation expense. These amounts were offset by a $2.1 million increase in income tax expense.
Nine Months Ended July 31, 2021
For the nine-month period ended July 31, 2021, our net loss was $18.5 million, as compared to a net loss of $58.6 million in same period a year ago. The primary driver of the lower net loss was a $15.5 million loss on extinguishment of debt recorded in the fiscal 2021 first quarter in comparison to the $57.9 million goodwill and intangibles impairment recorded in the fiscal 2020 second quarter. In addition, we had a $6.1 million improvement in general and administrative (“G&A”) expenses and a $7.6 million reduction in interest expense. These amounts were offset by a year-over-year change in the fair value of warrant liabilities of $11.3 million from $0.1 million of income in the nine-month period ended July 31, 2020 to $11.2 million of expense in the same period of 2021.
Total Assets
Total assets increased slightly from $773.8 million as of October 31, 2020 to $782.0 million as of July 31, 2021.
| July 31, |
October 31, |
|||||||
| (in thousands) |
2021 |
2020 |
||||||
| Total Assets |
||||||||
| U.S. Concrete Pumping |
$ | 577,398 | $ | 570,536 | ||||
| U.K. Operations |
104,641 | 109,726 | ||||||
| U.S. Concrete Waste Management Services |
143,797 | 140,209 | ||||||
| Corporate |
26,454 | 25,517 | ||||||
| Intersegment |
(70,324 | ) | (72,230 | ) | ||||
| $ | 781,966 | $ | 773,758 | |||||
Revenue
| Three Months Ended July 31, |
Change |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
$ |
% |
||||||||||||
| Revenue |
||||||||||||||||
| U.S. Concrete Pumping |
$ | 58,025 | $ | 58,644 | $ | (619 | ) | -1.1 | % | |||||||
| U.K. Operations |
12,652 | 9,208 | 3,444 | 37.4 | % | |||||||||||
| U.S. Concrete Waste Management Services |
10,122 | 9,390 | 732 | 7.8 | % | |||||||||||
| Corporate |
625 | 625 | - | 0.0 | % | |||||||||||
| Intersegment |
(663 | ) | (736 | ) | 73 | -9.9 | % | |||||||||
| Total revenue |
$ | 80,761 | $ | 77,131 | $ | 3,630 | 4.7 | % | ||||||||
| Nine Months Ended July 31, |
Change |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
$ |
% |
||||||||||||
| Revenue |
||||||||||||||||
| U.S. Concrete Pumping |
$ | 166,509 | $ | 171,209 | $ | (4,700 | ) | -2.7 | % | |||||||
| U.K. Operations |
34,285 | 28,294 | 5,991 | 21.2 | % | |||||||||||
| U.S. Concrete Waste Management Services |
27,552 | 25,978 | 1,574 | 6.1 | % | |||||||||||
| Corporate |
1,875 | 1,875 | - | 0.0 | % | |||||||||||
| Intersegment |
(2,167 | ) | (2,245 | ) | 78 | -3.5 | % | |||||||||
| Total revenue |
$ | 228,054 | $ | 225,111 | $ | 2,943 | 1.3 | % | ||||||||
U.S. Concrete Pumping
Revenue for our U.S. Concrete Pumping segment decreased by 1.1%, or $0.6 million, from the fiscal 2020 third quarter to the fiscal 2021 third quarter. The second quarter of fiscal 2020 was impacted by COVID-19 primarily during the month of April. While revenue in many of our markets has returned back to, or even improved from pre-pandemic levels, the impact from COVID-19 in certain markets, especially on commercial work, remains an issue and therefore drove the decline in revenue. In addition, certain of our markets, most notably in Texas, experienced record or close to record levels of rainfall impacting our ability to provide service in these markets during the fiscal 2021 third quarter.
Revenue for our U.S. Concrete Pumping segment for the nine-month period ended July 31, 2021 decreased by 2.7%, or $4.7 million, from the same period in fiscal 2020. Certain of our markets, most notably in Texas and the central part of the United States, experienced severe adverse weather during the fiscal 2021 nine-month period, which included much higher than average levels of precipitation and some historically rare freezing temperatures, which impacted our ability to provide service. Furthermore, the fiscal 2020 first quarter had no impact from COVID-19 while the fiscal 2021 first quarter was entirely impacted by the effects of the pandemic.
U.K. Operations
Revenue for our U.K. Operations segment increased by 37.4%, or $3.4 million, from the fiscal 2020 third quarter to the fiscal 2021 third quarter. Excluding the impact from foreign currency translation, revenue was up 23.2% year over year. For the nine-month period ended July 31, 2021, revenue for our U.K. Operations segment increased by 21.2%, or $6.0 million, from the nine-month period ended July 31, 2020. Excluding the impact from foreign currency translation, revenue was up 11.8% year over year. The increase in revenue during both periods was attributable to the recovery from the impact from COVID-19 which had a much stronger impact on our UK operations in the fiscal 2020 second and third quarters.
U.S. Concrete Waste Management Services
Revenue for the U.S. Concrete Waste Management Services segment increased by 7.8%, or $0.7 million, from the fiscal 2020 third quarter to the fiscal 2021 third quarter. For the nine-month period ended July 31, 2021, revenue for the U.S. Concrete Waste Management Services segment increased by 6.1%, or $1.6 million, from the same period in fiscal 2020. The increase in revenue during both periods was primarily due to organic growth, pricing improvements, and new product offerings (such as our new roll off service, which allows for 100 to 120 concrete truck mixer wash outs) that more than offset impacts from COVID-19 in certain markets.
Corporate
There was no change in revenue for our Corporate segment for the periods presented. All activity in our Corporate segment is related to the intercompany leasing of real estate to certain of our U.S Concrete Pumping branches. This revenue is eliminated in consolidation through the Intersegment line included above.
Gross Margin
Gross margin was 46.1% and 44.0% for the three and nine-month periods ended July 31, 2021, respectively, down 290 basis points and 120 basis points, respectively, from the same periods in fiscal 2020. This slight decline in gross margin is due to inflationary pressures seen throughout the US and UK, specifically around labor and fuel costs.
General and Administrative Expenses
G&A expenses for the fiscal 2021 third quarter were $25.0 million, down 7.4% from $27.0 million in the fiscal 2020 third quarter. As a percent of revenue, G&A expenses were 30.9% for the fiscal 2021 third quarter compared to 34.9% in the fiscal 2020 third quarter. During the fiscal 2020 third quarter, we recorded a $2.0 million contingent liability charge for a potential settlement between the Company and our previous shareholders as a result of carrying back certain net operating loss carryforwards and remitting them to the prior shareholders. There was no such charge in the fiscal 2021 third quarter. The other key driver of the decline in our G&A expenses is lower amortization of intangible assets expense of $1.5 million. These amounts were slightly offset by higher administrative overhead expenses. Excluding non-cash G&A expenses related to amortization of intangible assets and stock-based compensation expense, G&A expenses were $17.0 million for the fiscal 2021 third quarter (21.1% of revenue), down $0.5 million from $17.5 million for the fiscal 2020 third quarter (22.6% of revenue).
G&A expenses for the first nine-months of fiscal 2021 were $73.8 million, down from $79.9 million in the first nine months of fiscal 2021. As a percent of revenue, G&A expenses were 32.4% for the first nine-months of fiscal 2021 compared to 35.5% in the same period a year ago. The decrease was largely due to lower amortization of intangible assets expense of $4.8 million and lower stock-based compensation expense of $1.1 million. Excluding amortization of intangible assets and stock-based compensation expense, G&A expenses were down $2.4 million year-over-year. The primary driver of the decline was the contingent liability charge discussed above.
Change in Fair Value of Warrant Liabilities
During the third quarter of fiscal 2021 and 2020 we recognized a $0.3 million gain and a $2.7 million expense, respectively, on the fair value remeasurement of our liability-classified warrants. For the first nine-months of fiscal 2021 and 2020, we recognized an $11.2 million expense and a $0.1 million gain, respectively, on the fair value remeasurement of our liability-classified warrants. The significant increase seen in the fair value remeasurement of the public warrants for the first nine months of fiscal 2021 is due to the substantial increase in the Company's share price.
Transaction Costs & Debt Extinguishment Costs
Transaction costs include expenses for legal, accounting, and other professionals that were engaged in connection with an acquisition. There were no significant transaction costs incurred during the three and nine-month periods ended July 31, 2021 or 2020.
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 term loan.
Interest Expense, Net
Interest expense, net for the three months ended July 31, 2021 was $6.2 million, down $2.2 million from $8.4 million in third quarter of fiscal 2020. Interest expense, net for the nine-month period ended July 31, 2021 was $19.1 million, down $7.6 million from $26.6 the nine-month period from a year ago. The decreases in both periods were due to having lower average debt from strategic refinance activities secured in January 2021 and the associated lower competitive interest rates during the fiscal 2021 periods when compared to the fiscal 2020 periods.
Income Tax (Benefit) Provision
Adjusted EBITDA(1) and Net Income (Loss)
| Net Income (Loss) |
Adjusted EBITDA |
|||||||||||||||||||||||
| Three Months Ended July 31, |
Three Months Ended July 31, |
Change |
||||||||||||||||||||||
| (in thousands, except percentages) |
2021 |
2020 |
2021 |
2020 |
$ |
% |
||||||||||||||||||
| U.S. Concrete Pumping |
$ | 1,844 | $ | 865 | $ | 18,403 | $ | 21,170 | $ | (2,767 | ) | -13.1 | % | |||||||||||
| U.K. Operations |
384 | (20 | ) | 4,087 | 3,397 | 690 | 20.3 | % | ||||||||||||||||
| U.S. Concrete Waste Management Services |
1,832 | 1,679 | 5,334 | 4,846 | 488 | 10.1 | % | |||||||||||||||||
| Corporate |
578 | (2,277 | ) | 625 | 625 | - | 0.0 | % | ||||||||||||||||
| Total adjusted EBITDA |
$ | 4,638 | $ | 247 | $ | 28,449 | $ | 30,038 | $ | (1,589 | ) | -5.3 | % | |||||||||||
| Net Income (Loss) |
Adjusted EBITDA |
|||||||||||||||||||||||
| Nine Months Ended July 31, |
Nine Months Ended July 31, |
Change |
||||||||||||||||||||||
| (in thousands) |
2021 |
2020 |
2021 |
2020 |
$ |
% |
||||||||||||||||||
| U.S. Concrete Pumping |
$ | (11,759 | ) | $ | (45,925 | ) | $ | 49,995 | $ | 54,338 | $ | (4,343 | ) | -8.0 | % | |||||||||
| U.K. Operations |
254 | (16,868 | ) | 10,948 | 8,524 | 2,424 | 28.4 | % | ||||||||||||||||
| U.S. Concrete Waste Management Services |
3,282 | 2,904 | 13,037 | 12,650 | 387 | 3.1 | % | |||||||||||||||||
| Corporate |
(10,282 | ) | 1,286 | 1,877 | 1,875 | 2 | 0.1 | % | ||||||||||||||||
| Total adjusted EBITDA |
$ | (18,505 | ) | $ | (58,603 | ) | $ | 75,857 | $ | 77,387 | $ | (1,530 | ) | -2.0 | % | |||||||||
(1) Please see “Non-GAAP Measures (EBITDA and Adjusted EBITDA)” below
U.S. Concrete Pumping
Adjusted EBITDA for our U.S. Concrete Pumping segment was $18.4 million for the three months ended July 31, 2021 and $21.2 for the third quarter of fiscal 2020. For the nine-month period ended July 31, 2021, adjusted EBITDA for our U.S. Concrete Pumping segment was $50.0 million, down 8.0% from $54.3 million. The year-over-year decline seen for both the three and nine-month periods was primarily attributable to the year-over-year change in revenue and higher costs due to inflation that drove a slight decline in our gross margins as discussed previously.
U.K. Operations
Adjusted EBITDA for our U.K. Operations segment was $4.1 million for the three months ended July 31, 2021 as compared to $3.4 million for the same period in fiscal 2020. For the nine-month period ended July 31, 2021, adjusted EBITDA for our U.K. Operations segment was $10.9 million, up 28.4% from $8.5 million for the same period in fiscal 2020. The year-over-year increase was primarily attributable to the year-over-year improvement in revenue discussed previously.
U.S. Concrete Waste Management Services
Adjusted EBITDA for our U.S. Concrete Waste Management Services segment was $5.3 million for the three months ended July 31, 2021, up 10.1% as compared to $4.8 million for the same period in fiscal 2020. For the nine-month period ended July 31, 2021, adjusted EBITDA for our U.S. Concrete Waste Management segment was $13.0 million, up 3.1% from $12.7 million in the same period in fiscal 2020. The year-over-year increase was primarily attributable to the strong year-over-year revenue growth coupled with slightly improved gross margins.
Corporate
There was no movement in Adjusted EBITDA for our Corporate segment for both periods presented. Any year-over-year changes for our Corporate segment is primarily related to the allocation of overhead costs.
Liquidity and Capital Resources
Overview
We use our liquidity and capital resources to: (1) finance working capital requirements; (2) service our indebtedness; (3) purchase property, plant and equipment; and (4) finance strategic acquisitions, such as the acquisition of Capital. Our primary sources of liquidity are cash generated from operations, available cash and cash equivalents and access to our revolving credit facility under our Asset-Based Lending Credit Agreement (the “ABL Facility”), which provides for aggregate borrowings of up to $125.0 million, subject to a borrowing base limitation. As of July 31, 2021, we had $20.2 million of cash and cash equivalents and $121.9 million of available borrowing capacity under the ABL Facility, providing total available liquidity of $142.2 million.
Capital Resources
Our capital structure is primarily a combination of (1) permanent financing, represented by stockholders’ equity; (2) zero-dividend convertible perpetual preferred stock; (3) long-term financing represented by our Senior Notes and (4) short-term financing under our ABL Facility. We may from time to time seek to retire or pay down borrowings on the outstanding balance of our ABL Facility or Senior Notes using cash on hand. Such repayments, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
We believe our existing cash and cash equivalent balances, cash flow from operations and borrowing capacity under our ABL Facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, potential acquisitions and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity could result in dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.
Senior Notes and ABL Facility
Senior Notes
Summarized terms of the senior secured 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 are borrowers and certain of the guarantors 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 July 31, 2021 was $375.0 million and as of that date, the Company was in compliance with all covenants under the Indenture.
Asset Based Revolving Lending Credit Agreement
Summarized terms of the ABL Facility, as amended on January 28, 2021, are as follows:
| ● |
Borrowing availability in U.S. Dollars and GBP up to a maximum of $125.0 million and an accordion feature under which the Company can increase the ABL Facility by up to an additional $75.0 million; |
| ● |
Borrowing capacity available for standby letters of credit of up to $7.5 million; |
| ● |
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; |
| ● |
Borrowings in U.S. Dollars and GBP bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at 2.0% and 1.00% per annum, respectively. The ABL Facility is subject to a step-down of 0.25% based on excess availability levels; |
| ● |
US ABL Facility obligations will be secured by a first-priority perfected security interest in substantially all the assets of the US ABL Guarantors, subject to certain exceptions; |
| ● |
UK ABL Facility obligations will be secured by a first priority perfected security interest in substantially all assets of the UK ABL Guarantors; 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. |
There was no outstanding balance under the amended ABL Facility as of July 31, 2021 and as of that date, the Company was in compliance with all debt covenants.
Cash Flows
Cash generated from operating activities typically reflects net income, as adjusted for non-cash expense items such as depreciation, amortization and stock-based compensation, and changes in our operating assets and liabilities. Generally, we believe our business requires a relatively low level of working capital investment due to low inventory requirements and customers paying the Company as invoices are submitted daily for many of our services.
Net cash provided by operating activities generally reflects the cash effects of transactions and other events used in the determination of net income or loss. Net cash provided by operating activities during the nine-month period ended July 31, 2021 was $60.3 million. The Company had a net loss of $18.5 million that included an increase of $1.4 million in our net deferred income taxes, a gain on sale of assets of $1.1 million, and significant non-cash charges totaling $75.6 million as follows: (1) depreciation of $21.2 million, (2) amortization of intangible assets of $20.5 million, (3) amortization of deferred financing costs of $1.9 million, (4) loss on extinguishment of debt expense of $15.5 million, (5) stock-based compensation expense of $5.3 million, and (6) an $11.2 million increase in the fair value of warrant liabilities. In addition, we had cash inflows primarily related to the following activity: (1) a decrease of $0.5 million in trade receivables, (2) an increase of $5.9 million in accrued payroll, accrued expenses and other current liabilities and (3) an increase of $0.8 million in income taxes payable. These amounts were partially offset by net cash outflows primarily related to a $1.3 million increase in prepaid expenses and other current assets.
We used $29.5 million to fund investing activities during the nine-month period ended July 31, 2021. The Company used $34.6 million for the purchase of property, plant and equipment, which was partially offset by proceeds from the sale of property, plant and equipment of $5.1 million.
Net cash used in financing activities was $16.9 million for the nine-month period ended July 31, 2021. Financing activities during this period included $1.9 million in net borrowings 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 Term Loan Agreement and $8.5 million in debt issuance costs.
Net cash provided by operating activities during the nine-month period ended July 31, 2020 was $53.5 million. The Company had a net loss of $58.6 million that included a non-cash gain of $0.1 million from the change in fair value of warrant liabilities, a loss of $0.1 million in our net deferred income taxes, a gain on sale of assets of $0.9 million and significant non-cash charges totaling $110.0 million as follows: (1) Goodwill and intangibles impairment of $57.9 million, (2) depreciation of $19.5 million, (3) amortization of intangible assets of $25.3 million, (4) amortization of deferred financing costs of $3.1 million and (5) stock-based compensation expense of $4.2 million. In addition, we had cash outflows related to the following activity: (1) a $3.5 million increase in prepaid expenses and other current assets, (2) a $1.5 million decrease in accounts payable, (3) a decrease of $3.9 million in income taxes payable and (4) a $0.5 million payment of contingent consideration in excess of amounts established in purchase accounting. These amounts were partially offset by net cash inflows primarily related to the following activity: (1) a decrease of $1.7 million in trade receivables and (2) an increase of $10.8 million in accrued payroll, accrued expenses and other current liabilities.
We used $30.3 million to fund investing activities during the nine-month period ended July 31, 2020. The Company used $36.7 million for the purchase of property, plant and equipment, which was partially offset by proceeds from the sale of property, plant and equipment of $6.4 million.
Net cash provided by financing activities was $27.8 million for the nine-month period ended July 31, 2020. Financing activities during this period included $10.7 million in net borrowings under the Company’s ABL Credit Agreement and was partially offset by payments on the Term Loan Agreement of $15.7 million and the payment of the contingent consideration in connection with the acquisition of Camfaud of $1.2 million.
Non-GAAP Measures (EBITDA and Adjusted EBITDA)
We calculate EBITDA by taking GAAP net income and adding back interest expense, income taxes, depreciation and amortization. Adjusted EBITDA is calculated by taking EBITDA and adding back transaction expenses, loss on debt extinguishment, stock-based compensation, other income, net, 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) may be used to help management 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 record on our GAAP financial statements. 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 severance expenses, director fees, expenses related to being a publicly-traded company and other non-recurring costs. In addition, within the individual segment presentations only, other adjustments also include transfer pricing and allocation of intercompany related expenses, which are eliminated in consolidation.
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| Consolidated |
||||||||||||||||
| Net income (loss) |
$ | 4,638 | $ | 247 | $ | (18,505 | ) | $ | (58,603 | ) | ||||||
| Interest expense, net |
6,153 | 8,364 | 19,082 | 26,632 | ||||||||||||
| Income tax benefit |
1,652 | (462 | ) | (826 | ) | (3,829 | ) | |||||||||
| Depreciation and amortization |
13,838 | 14,665 | 41,686 | 44,827 | ||||||||||||
| EBITDA |
26,281 | 22,814 | 41,437 | 9,027 | ||||||||||||
| Transaction expenses |
111 | - | 195 | - | ||||||||||||
| Loss on debt extinguishment |
- | - | 15,510 | - | ||||||||||||
| Stock-based compensation |
1,258 | 1,357 | 5,280 | 4,208 | ||||||||||||
| Change in fair value of warrant liabilities |
(260 | ) | 2,734 | 11,195 | (130 | ) | ||||||||||
| Other income, net |
(32 | ) | (36 | ) | (85 | ) | (139 | ) | ||||||||
| Goodwill and intangibles impairment |
- | - | - | 57,944 | ||||||||||||
| Other adjustments |
1,091 | 3,169 | 2,325 | 6,477 | ||||||||||||
| Adjusted EBITDA |
$ | 28,449 | $ | 30,038 | $ | 75,857 | $ | 77,387 | ||||||||
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| U.S. Concrete Pumping |
||||||||||||||||
| Net income (loss) |
$ | 1,844 | $ | 865 | $ | (11,759 | ) | $ | (45,925 | ) | ||||||
| Interest expense, net |
5,347 | 7,620 | 16,717 | 24,448 | ||||||||||||
| Income tax benefit |
781 | (368 | ) | (2,424 | ) | (4,505 | ) | |||||||||
| Depreciation and amortization |
9,206 | 9,745 | 27,885 | 29,893 | ||||||||||||
| EBITDA |
17,178 | 17,862 | 30,419 | 3,911 | ||||||||||||
| Transaction expenses |
111 | - | 195 | - | ||||||||||||
| Loss on debt extinguishment |
- | - | 15,510 | - | ||||||||||||
| Stock-based compensation |
1,258 | 1,357 | 5,280 | 4,208 | ||||||||||||
| Other income, net |
(17 | ) | 1 | (42 | ) | (16 | ) | |||||||||
| Goodwill and intangibles impairment |
- | - | - | 43,500 | ||||||||||||
| Other adjustments |
(127 | ) | 1,950 | (1,367 | ) | 2,735 | ||||||||||
| Adjusted EBITDA |
$ | 18,403 | $ | 21,170 | $ | 49,995 | $ | 54,338 | ||||||||
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| U.K. Operations |
||||||||||||||||
| Net income (loss) |
$ | 384 | $ | (20 | ) | $ | 254 | $ | (16,868 | ) | ||||||
| Interest expense, net |
806 | 744 | 2,365 | 2,184 | ||||||||||||
| Income tax expense (benefit) |
149 | (61 | ) | 51 | 333 | |||||||||||
| Depreciation and amortization |
2,042 | 2,052 | 6,124 | 6,313 | ||||||||||||
| EBITDA |
3,381 | 2,715 | 8,794 | (8,038 | ) | |||||||||||
| Transaction expenses |
- | - | - | - | ||||||||||||
| Loss on debt extinguishment |
- | - | - | - | ||||||||||||
| Stock-based compensation |
- | - | - | - | ||||||||||||
| Other income, net |
(12 | ) | (37 | ) | (38 | ) | (123 | ) | ||||||||
| Goodwill and intangibles impairment |
- | - | - | 14,444 | ||||||||||||
| Other adjustments |
718 | 719 | 2,192 | 2,241 | ||||||||||||
| Adjusted EBITDA |
$ | 4,087 | $ | 3,397 | $ | 10,948 | $ | 8,524 | ||||||||
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| U.S. Concrete Waste Management Services |
||||||||||||||||
| Net income (loss) |
$ | 1,832 | $ | 1,679 | $ | 3,282 | $ | 2,904 | ||||||||
| Interest expense, net |
- | - | - | - | ||||||||||||
| Income tax expense (benefit) |
626 | 6 | 1,210 | 245 | ||||||||||||
| Depreciation and amortization |
2,379 | 2,661 | 7,050 | 8,000 | ||||||||||||
| EBITDA |
4,837 | 4,346 | 11,542 | 11,149 | ||||||||||||
| Transaction expenses |
- | - | - | - | ||||||||||||
| Loss on debt extinguishment |
- | - | - | - | ||||||||||||
| Stock-based compensation |
- | - | - | - | ||||||||||||
| Other income, net |
(3 | ) | - | (5 | ) | - | ||||||||||
| Goodwill and intangibles impairment |
- | - | - | - | ||||||||||||
| Other adjustments |
500 | 500 | 1,500 | 1,501 | ||||||||||||
| Adjusted EBITDA |
$ | 5,334 | $ | 4,846 | $ | 13,037 | $ | 12,650 | ||||||||
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| Corporate |
||||||||||||||||
| Net income |
$ | 578 | $ | (2,277 | ) | $ | (10,282 | ) | $ | 1,286 | ||||||
| Interest expense, net |
- | - | - | - | ||||||||||||
| Income tax expense (benefit) |
96 | (39 | ) | 337 | 98 | |||||||||||
| Depreciation and amortization |
211 | 207 | 627 | 621 | ||||||||||||
| EBITDA |
885 | (2,109 | ) | (9,318 | ) | 2,005 | ||||||||||
| Transaction expenses |
- | - | - | - | ||||||||||||
| Loss on debt extinguishment |
- | - | - | - | ||||||||||||
| Stock-based compensation |
- | - | - | - | ||||||||||||
| Change in fair value of warrant liabilities |
(260 | ) | 2,734 | 11,195 | (130 | ) | ||||||||||
| Other income, net |
- | - | - | - | ||||||||||||
| Goodwill and intangibles impairment |
- | - | - | - | ||||||||||||
| Other adjustments |
- | - | - | - | ||||||||||||
| Adjusted EBITDA |
$ | 625 | $ | 625 | $ | 1,877 | $ | 1,875 | ||||||||
Jobs Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We have previously elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.
Critical Accounting Policies and Estimates
In presenting our financial statements in conformity with U.S. GAAP, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material impact to our consolidated and combined results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our business activities are in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
Listed below are those estimates that we believe are critical and require the use of complex judgment in their application.
Goodwill and Intangible Assets
In accordance with ASC Topic 350, Intangibles–Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment annually, generally as of August 31st, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating fair value of individual reporting units and indefinite-lived intangible assets requires us to make assumptions and estimates regarding out 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, royalty rate, 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.
During the second quarter of fiscal year 2020, the Company identified a triggering event from the recent decline in its stock price and deterioration in general economic conditions resulting from the COVID-19 pandemic. As a result, the Company performed an interim step one goodwill impairment analysis in accordance with ASU 2017-04, Intangibles — Goodwill and Other (ASC 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) and recorded a goodwill and intangibles impairment charge of $57.9 million. No such impairment was required during fiscal 2021.
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 impairment charges were primarily due to COVID-19, which negatively impacted our market capitalization, drove an increase in the discount rate that is utilized in our DCF models, and negatively impacted near-term cash flow expectations.
Income Taxes
We are subject to income taxes in the U.S., U.K. and other jurisdictions. Significant judgment is required in determining our provision for income tax, including evaluating uncertainties in the application of accounting principles and complex tax laws.
Income taxes include federal, state and foreign taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the differences between the financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized.
Stock-Based Compensation.
ASC Topic 718, Compensation—Stock Compensation (“ASC 718”) requires that share-based compensation expense be measured and recognized at an amount equal to the fair value of share-based payments granted under compensation arrangements. The fair value of each restricted stock award or stock option awards (with an exercise price of $0.01) that only contains a time-based vesting condition is equal to the market value of our common stock on the date of grant. A substantial portion of the Company's stock awards contain a market condition. For those awards, we estimate the fair value using a Monte Carlo simulation model whereby the fair value of the awards is fixed at grant date and amortized over the longer of the remaining performance or service period. The Monte Carlo Simulation valuation model incorporates the following assumptions: expected stock price volatility, the expected life of the awards, a risk-free interest rate and expected dividend yield. Significant judgment is required in determining the expected volatility of our common stock. Due to the limited history of trading of the Company’s common stock, the Company determined expected volatility based on a peer group of publicly traded companies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of July 31, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of a material weakness in internal control over financial reporting that was identified during the second quarter of 2021, our disclosure controls and procedures were not determined to be effective as of July 31, 2021 as multiple periods would need to be viewed as effective before concluding the controls and procedures put in place would be identified as effective. The disclosure controls and procedures are specifically related to errors in our accounting for the warrants issued in connection with our IPO and a simultaneous private placement that continue to impact the Company.
In response to this material weakness in internal control over financial reporting related to errors in our accounting for the warrants issued in connection with our IPO and a simultaneous private placement, we have implemented a new control to assess complex accounting issues reached in the past that continue to impact the Company to ensure those conclusions reached are still appropriate. Our plans include increased communication among our personnel and third-party professionals with whom we consult regarding the application of complex accounting transactions. Our remediation plan can only be accomplished over time and will be continually reviewed to determine that it is achieving its objectives. We can offer no assurance that these initiatives will ultimately have the intended effects.
Changes in Internal Control Over Financial Reporting
Other than the discussion above, there have been no changes in our internal control over financial reporting that occurred during our second quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II
From time to time, we may have been and may again become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any litigation that we believe to be material and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results, financial condition, or cash flows.
There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended October 31, 2020 filed with the SEC on January 12, 2021 (the “Form 10-K”) as amended by Form 10-K/A filed on June 11, 2021. For a detailed discussion of the other risks that affect our business, please refer to the entire section entitled “Risk Factors” in the Form 10-K/A.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not Applicable.
(a) None
(b) None
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
| Exhibit No. |
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Description |
| 31.1 |
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Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule15d-14(a). |
| 31.2 |
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Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule15d-14(a). |
| 32.1 |
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| 32.2 |
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| 101.INS |
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Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| 101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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CONCRETE PUMPING HOLDINGS, INC. |
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By: /s/ Iain Humphries |
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Name: Iain Humphries |
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Title: Chief Financial Officer and Secretary |
| (Authorized Signatory) |
Dated: September 8, 2021