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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 31, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 Commission File No. 001-38166

 

CONCRETE PUMPING HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

83-1779605

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer identification no.)

 

500 E. 84th Avenue, Suite A-5

Thornton, Colorado 80229

(Address of principal executive offices, including zip code)

 

(303) 289-7497

(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

Common Stock

BBCP

The Nasdaq Capital Market

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected 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 No ☒

 

As of September 8, 2020, the registrant had 58,200,084 shares of common stock outstanding. 

 

 

 

 

 

CONCRETE PUMPING HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED JULY 31, 2020

 

 

Page

Part I. Financial Information

 

 

 

        Item 1.

Unaudited Consolidated Financial Statements:

 

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations and Comprehensive Income

4

 

Consolidated Statements of Changes in Stockholders’ Equity

6

 

Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Consolidated Financial Statements

11

        Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

        Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59

        Item 4.

Controls and Procedures

59

 

 

 

Part II. Other Information

 

 

 

 

        Item 1.

Legal Proceedings

60

        Item 1A.

Risk Factors

60

        Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

        Item 3.

Defaults Upon Senior Securities

60

        Item 4.

Mine Safety Disclosures

60

        Item 5.

Other Information

60

        Item 6.

Exhibits

61

 

 

 

Signatures

62

 

 

2

 

 

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)

 

2020

  

2019

 

ASSETS

        
         

Current assets:

        

Cash and cash equivalents

 $4,131  $7,473 

Trade receivables, net

  44,365   45,957 

Inventory

  5,339   5,254 

Income taxes receivable

  4,766   697 

Prepaid expenses and other current assets

  4,631   3,378 

Total current assets

  63,232   62,759 
         

Property, plant and equipment, net

  305,896   307,415 

Intangible assets, net

  192,228   222,293 

Goodwill

  223,565   276,088 

Other non-current assets

  1,782   1,813 

Deferred financing costs

  814   997 

Total assets

 $787,517  $871,365 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        
         

Current liabilities:

        

Revolving loan

 $12,990  $23,555 

Term loans, current portion

  20,888   20,888 

Current portion of capital lease obligations

  95   91 

Accounts payable

  5,910   7,408 

Accrued payroll and payroll expenses

  11,183   9,177 

Accrued expenses and other current liabilities

  21,493   28,106 

Income taxes payable

  1,348   1,153 

Deferred consideration

  -   1,708 

Total current liabilities

  73,907   92,086 
         

Long term debt, net of discount for deferred financing costs

  348,183   360,938 

Capital lease obligations, less current portion

  405   477 

Deferred income taxes

  69,257   69,049 

Total liabilities

  491,752   522,550 
         

Zero-dividend convertible perpetual preferred stock, $0.0001 par value, 2,450,980 shares issued and outstanding as of July 31, 2020 and October 31, 2019

  25,000   25,000 
         

Stockholders' equity

        

Common stock, $0.0001 par value, 500,000,000 shares authorized, 58,200,084 and 58,253,220 issued and outstanding as of July 31, 2020 and October 31, 2019, respectively

  6   6 

Additional paid-in capital

  354,696   350,489 

Treasury stock

  (131)  - 

Accumulated other comprehensive income (loss)

  1,008   (599)

(Accumulated deficit)

  (84,814)  (26,081)

Total stockholders' equity

  270,765   323,815 
         

Total liabilities and stockholders' equity

 $787,517  $871,365 

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

3

 

Concrete Pumping Holdings, Inc.

Consolidated Statements of Operations

(Unaudited)

 

   

Successor

   

Predecessor

 

(in thousands, except share and per share amounts)

 

Three Months Ended July 31, 2020

   

Three Months Ended July 31, 2019

   

Nine Months Ended July 31, 2020

   

December 6, 2018 through July 31, 2019

   

November 1, 2018 through December 5, 2018

 
                                         

Revenue

  $ 77,131     $ 78,655     $ 225,111     $ 174,613     $ 24,396  
                                         

Cost of operations

    39,330       39,665       123,295       98,396       14,027  

Gross profit

    37,801       38,990       101,816       76,217       10,369  
                                         

General and administrative expenses

    26,954       28,159       79,941       63,693       4,936  

Goodwill and intangibles impairment

    -       -       57,944       -       -  

Transaction costs

    -       176       -       1,458       14,167  

Income (loss) from operations

    10,847       10,655       (36,069 )     11,066       (8,734 )
                                         

Other income (expense):

                                       

Interest expense, net

    (8,364 )     (9,843 )     (26,632 )     (24,753 )     (1,644 )

Loss on extinguishment of debt

    -       -       -       -       (16,395 )

Other income, net

    36       28       139       59       6  

Total other expense

    (8,328 )     (9,815 )     (26,493 )     (24,694 )     (18,033 )
                                         

Income (loss) before income taxes

    2,519       840       (62,562 )     (13,628 )     (26,767 )
                                         

Income tax expense (benefit)

    (462 )     (1,922 )     (3,829 )     (3,115 )     (4,192 )
                                         

Net income (loss)

    2,981       2,762       (58,733 )     (10,513 )     (22,575 )
                                         

Less accretion of liquidation preference on preferred stock

    (489 )     (456 )     (1,432 )     (1,159 )     (126 )
                                         

Income (loss) available to common shareholders

  $ 2,492     $ 2,306     $ (60,165 )   $ (11,672 )   $ (22,701 )
                                         

Weighted average common shares outstanding

                                       

Basic

    52,782,663       49,940,411       52,752,884       37,155,182       7,576,289  

Diluted

    55,892,193       53,122,690       52,752,884       37,155,182       7,576,289  
                                         

Net income (loss) per common share

                                       

Basic

  $ 0.05     $ 0.05     $ (1.14 )   $ (0.31 )   $ (3.00 )

Diluted

  $ 0.04     $ 0.05     $ (1.14 )   $ (0.31 )   $ (3.00 )

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

4

 

Concrete Pumping Holdings, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

   

Successor

   

Predecessor

 

(in thousands)

 

Three Months Ended July 31, 2020

   

Three Months Ended July 31, 2019

   

Nine Months Ended July 31, 2020

   

December 6, 2018 through July 31, 2019

   

November 1, 2018 through December 5, 2018

 
                                         

Net income (loss)

  $ 2,981     $ 2,762     $ (58,733 )   $ (10,513 )   $ (22,575 )
                                         

Other comprehensive income (loss):

                                       

Foreign currency translation adjustment

    3,821       (4,535 )     1,607       (6,441 )     (674 )
                                         

Total comprehensive income (loss)

  $ 6,802     $ (1,773 )   $ (57,126 )   $ (16,954 )   $ (23,249 )

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements 

 

5

 

Concrete Pumping Holdings, Inc.

Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

 

(PREDECESSOR)

October 31, 2018 through December 5, 2018

 

(in thousands)

 

Common Stock

   

Additional Paid-In Capital

   

Accumulated Other Comprehensive Income (loss)

   

Retained Earnings (Accumulated Deficit)

   

Total

 

Balance at October 31, 2018

  $ 8     $ 18,724     $ 584     $ 26,704     $ 46,020  

Net loss

    -       -       -       (22,575 )     (22,575 )

Stock-based compensation

    -       27       -       -       27  

Foreign currency translation adjustment

    -       -       (674 )     -       (674 )

Balance at December 5, 2018

  $ 8     $ 18,751     $ (90 )   $ 4,129     $ 22,798  

 


 

(SUCCESSOR)

December 6, 2018 through July 31, 2019

 

   

Common Stock

   

Additional Paid-In

   

Accumulated Other Comprehensive

                 

(in thousands)

 

Class A

   

Class B

   

Capital

   

Income (loss)

   

Accumulated Deficit

   

Total

 

Balance at December 6, 2018

  $ -     $ 1     $ 12,433     $ -     $ (7,434 )   $ 5,000  

Redemption of Class A common stock

    -       -       (12,433 )     -       (3,577 )     (16,010 )

Issuance of Class A common stock

    1       -       96,900       -       -       96,901  

Rollover of Class A common stock as a result of the Business Combination

    1       -       164,908       -       -       164,909  

Conversion of Class B common stock

    1       (1 )     -       -       -       -  

Net loss

    -       -       -       -       (3,630 )     (3,630 )

Foreign currency translation adjustment

    -       -       -       (557 )     -       (557 )

Balance at January 31, 2019

  $ 3     $ -     $ 261,808     $ (557 )   $ (14,641 )   $ 246,613  

Shares issued to acquire business

    -       -       1,150       -       -     $ 1,150  

Stock-based compensation expense

    -       -       361       -       -       361  

Shares issued upon exercise of stock options and warrants

    -       -       1,370       -       -       1,370  

Shares issued upon awards of restricted stock

    1       -       (1 )     -       -       -  

Issuance of shares in exchange for warrants

    -       -       5,158       -       (5,158 )     -  

Net loss

    -       -       -       -       (9,645 )     (9,645 )

Foreign currency translation adjustment

    -       -       -       (1,349 )     -       (1,349 )

Balance at April 30, 2019

  $ 4     $ -     $ 269,846     $ (1,906 )   $ (29,444 )   $ 238,500  
Shares issued upon public offering Class A common stock     2       -       77,385       -       -     $ 77,387  
Stock-based compensation expense     -       -       1,625       -       -       1,625  
Net income     -       -       -       -       2,762       2,762  
Foreign currency translation adjustment     -       -       -       (4,535 )     -       (4,535 )
Balance at July 31, 2019   $ 6     $ -     $ 348,856     $ (6,441 )   $ (26,682 )   $ 315,739  

 

6

                                         

(SUCCESSOR)

October 31, 2019 through 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, 2019

  $ 6     $ 350,489     $ -     $ (599 )   $ (26,081 )   $ 323,815  

Stock-based compensation expense

    -       1,467       -       -       -       1,467  

Shares issued upon exercise of stock options, net of shares used for tax withholding

    -       -       (131 )     -       -       (131 )

Net loss

    -       -       -       -       (2,746 )     (2,746 )

Foreign currency translation adjustment

    -       -       -       1,971       -       1,971  

Balance at January 31, 2020

  $ 6     $ 351,956     $ (131 )   $ 1,372     $ (28,827 )   $ 324,376  

Stock-based compensation expense

    -       1,383       -       -       -     $ 1,383  

Net loss

    -       -       -       -       (58,968 )     (58,968 )

Foreign currency translation adjustment

    -       -       -       (4,185 )     -       (4,185 )

Balance at April 30, 2020

  $ 6     $ 353,339     $ (131 )   $ (2,813 )   $ (87,795 )   $ 262,606  

Stock-based compensation expense

    -       1,357       -       -       -     $ 1,357  

Net income

    -       -       -       -       2,981       2,981  

Foreign currency translation adjustment

    -       -       -       3,821       -       3,821  

Balance at July 31, 2020

  $ 6     $ 354,696     $ (131 )   $ 1,008     $ (84,814 )   $ 270,765  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

7

 

Concrete Pumping Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

   

Successor

   

Predecessor

 

(in thousands)

 

Nine Months Ended July 31, 2020

   

December 6, 2018 through July 31, 2019

   

November 1, 2018 through December 5, 2018

 

Net loss

  $ (58,733 )   $ (10,513 )   $ (22,575 )

Adjustments to reconcile net income to net cash provided by operating activities:

                       

Goodwill and intangibles impairment

    57,944       -       -  

Depreciation

    19,537       14,125       2,060  

Deferred income taxes

    92       (2,983 )     (4,355 )

Amortization of deferred financing costs

    3,094       1,385       152  

Write off deferred debt issuance costs

    -       -       3,390  

Amortization of debt premium

    -       -       (11 )

Amortization of intangible assets

    25,290       22,235       653  

Stock-based compensation expense

    4,207       1,986       27  

Prepayment penalty on early extinguishment of debt

    -       -       13,004  

Net (loss) gain on the sale of property, plant and equipment

    (944 )     420       (166 )

Payment of contingent consideration in excess of amounts established in purchase accounting

    (526 )     -       -  
Net changes in operating assets and liabilities (net of acquisitions):                        

Trade receivables, net

    1,668       (4,346 )     485  

Inventory

    (63 )     (143 )     (294 )

Prepaid expenses and other current assets

    (3,520 )     (4,209 )     (1,283 )

Income taxes payable, net

    (3,899 )     (279 )     203  

Accounts payable

    (1,489 )     (7,666 )     (654 )

Accrued payroll, accrued expenses and other current liabilities

    10,826       (8,587 )     17,280  

Net cash provided by operating activities

    53,484       1,425       7,916  
                         

Cash flows from investing activities:

                       

Purchases of property, plant and equipment

    (36,658 )     (29,700 )     (503 )

Proceeds from sale of property, plant and equipment

    6,392       1,546       364  

Cash withdrawn from Industrea Trust Account

    -       238,474       -  

Acquisition of net assets, net of cash acquired - CPH acquisition

    -       (449,434 )     -  

Acquisition of net assets, net of cash acquired - Capital acquisition

    -       (129,218 )      

Acquisition of net assets, net of cash acquired - Other Business Combinations

    -       (2,257 )     -  

Net cash (used in) investing activities

    (30,266 )     (370,589 )     (139 )

 

8

                                    

Concrete Pumping Holdings, Inc.

Consolidated Statements of Cash Flows (Continued)

(Unaudited) 

 

   

Successor

   

Predecessor

 

(in thousands)

 

Nine Months Ended July 31, 2020

   

December 6, 2018 through July 31, 2019

   

November 1, 2018 through December 5, 2018

 

Cash flows from financing activities:

                       

Proceeds on long term debt

    -       417,000       -  

Payments on long term debt

    (15,666 )     (9,747 )     -  

Proceeds on revolving loan

    206,420       161,123       4,693  

Payments on revolving loan

    (217,162 )     (128,932 )     (20,056 )

Payment of debt issuance costs

    -       (23,708 )     -  

Redemption of common shares

    -       (231,415 )     -  

Payments on capital lease obligations

    (67 )     (56 )     (7 )

Purchase of treasury stock

    (131 )     -       -  

Issuance of preferred shares

    -       25,000       -  

Payment of underwriting fees

    -       (8,050 )     -  

Issuance of common shares - Dec 2018

    -       96,900       -  

Issuance of common shares - May 2019

    -       77,387       -  

Payment of contingent consideration established in purchase accounting

    (1,161 )     -       -  

Proceeds on exercise of rollover incentive options

    -       1,370       -  

Net cash provided by (used in) financing activities

    (27,767 )     376,872       (15,370 )

Effect of foreign currency exchange rate on cash

    1,207       (3,183 )     (70 )

Net increase (decrease) in cash

    (3,342 )     4,525       (7,663 )

Cash:

                       

Beginning of period

    7,473       4       8,621  

End of period

  $ 4,131     $ 4,529     $ 958  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

9

 

Concrete Pumping Holdings, Inc.

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

 

   

Successor

   

Predecessor

 

(in thousands)

 

Nine Months Ended July 31, 2020

   

December 6, 2018 through July 31, 2019

   

November 1, 2018 through December 5, 2018

 

Supplemental cash flow information:

                       

Cash paid for interest

  $ 24,017     $ 20,696     $ 201  

Cash paid for income taxes

  $ 343     $ 1,860     $ -  
                         

Non-cash investing and financing activities:

                       

Fair value of rollover equity for Business Combination

  $ -     $ 164,909     $ -  

Equipment purchases included in accrued expenses and accounts payable

  $ 2,397     $ 7,658     $ -  

Shares issued to acquire a business

  $ -     $ 1,150     $ -  

Holdbacks related to the acquisition of a business

  $ -     $ 181     $ -  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

10

 

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. (“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. The financial results described herein for the dates and periods prior to the Business Combination relate to the operations of CPH prior to the consummation of the Business Combination. See Note 4 – Business Combinations for further discussion.

 

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 contractor companies in the commercial, infrastructure and residential sectors. Most often equipment returns to a “home base” nightly and neither company contracts to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately 90 branch locations across 22 states, with its corporate headquarters in Thornton (near Denver), Colorado. Camfaud has 30 branch locations throughout the U.K., with its corporate headquarters in Epping (near London), England.

 

Eco-Pan provides industrial cleanup and containment services, primarily to customers in the construction industry 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 16 operating locations across the U.S. and shares an operating location in the U.K. with one of the Camfaud branches mentioned above, with its corporate headquarters in Thornton (near Denver), Colorado.

 

Seasonality

 

The Company’s sales are historically seasonal, with lower revenue volumes typically in the first half of the year and higher revenue volumes in the second half of each year. Such seasonality also causes the Company’s working capital cash flow requirements to vary from first half to second half of the 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 December 2019, a novel strain of coronavirus (“COVID-19”) emerged and has spread around the world. On March 11, 2020, the World Health Organization declared COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, U.S. President Trump announced a National Emergency relating to the pandemic. Government authorities in the U.S. and U.K. have recommended or imposed various social distancing, quarantine, and isolation measures on large portions of the population, which include limitations on travel and mandatory cessation of certain business activities. Both the outbreak 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. The extent to which the COVID-19 pandemic will impact the Company’s business, financial condition, and results of operations 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; 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.

 

11

 

In the final month of the second quarter of fiscal 2020, our operations in the Seattle and U.K. markets were negatively impacted due to COVID-19-imposed construction site shutdowns. These restrictions were, for the most part, lifted during the third quarter ended July 31, 2020. As a result of the pandemic, the Company has implemented certain short-term cost reductions, including headcount reductions, modified work schedules reducing hours where needed, and furloughs in limited locations. The Company had previously suspended any remaining uncommitted 2020 capital expenditure investments, but that has since been lifted as its overall liquidity and operations have improved. While the Company believes these disruptions will be temporary, it is difficult to predict how long they will last and the impact they will have on the Company in future periods. The Company will continue to evaluate the effect of COVID-19 on its business.

 

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 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. There were no triggering events during the fiscal 2020 third quarter. Refer to Notes 2 and 8 for further discussion. The Company will continue to evaluate its goodwill and intangible assets in future quarters. Additional impairments may be recorded in the future based on events and circumstances, including those related to COVID-19 discussed above.

 

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 Securities and Exchange Commission (“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, 2020 and for all periods presented. All intercompany balances and transactions have been eliminated in consolidation.

 

As a result of the Business Combination, the Company is the acquirer for accounting purposes and CPH is the acquiree and accounting predecessor. The Company’s financial statement presentation distinguishes the Company’s financial performance into two distinct periods, the period up to the Closing Date (labeled “Predecessor”) and the period including and after that date (labeled “Successor”).

 

The Business Combination was accounted for as a business combination using the acquisition method of accounting, and the Successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired.

 

Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. See Note 4 – Business Combinations for a discussion of the estimated fair values of assets and liabilities recorded in connection with the Company’s acquisition of CPH.

 

As a result of the application of the acquisition method of accounting as of the Closing Date of the Business Combination, the accompanying Consolidated Financial Statements include a black line division which indicates that the Predecessor and Successor reporting entities shown are presented on a different basis and are therefore, not comparable.

 

The historical financial information of Industrea prior to the Business Combination (a special purpose acquisition company, or “SPAC”) has not been reflected in the Predecessor financial statements as these historical amounts have been determined to be not useful information to a user of the financial statements. SPACs deposit the proceeds from their initial public offerings into a segregated trust account until a business combination occurs, where such funds are then used to pay consideration for the acquiree and/or to pay stockholders who elect to redeem their shares of common stock in connection with the business combination. The operations of a SPAC, until the closing of a business combination, other than income from the trust account investments and transaction expenses, are nominal. Accordingly, no other activity in the Company was reported for periods prior to December 6, 2018 besides CPH’s operations as Predecessor.

 

12

 

Principles of consolidation

 

The Successor Consolidated Financial Statements include all accounts of the Company and its subsidiaries. The Predecessor Consolidated Financial Statements include all accounts of CPH and its subsidiaries. All intercompany balances and transactions have been eliminated.

 

Use of estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant estimates include 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 $0.7 million and $0.6 million as of July 31, 2020 and October 31, 2019, respectively. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.

 

Inventory

 

Inventory consists primarily of replacement parts for concrete pumping equipment. Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. The Company evaluates inventory and records an allowance for obsolete and slow- moving inventory to account for cost adjustments to market. Based on management’s analysis, no allowance for obsolete and slow-moving inventory was required as of July 31, 2020 or October 31, 2019.

 

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.

 

13


Deferred financing costs

 

Deferred financing costs representing third-party, non-lender debt issuance costs are deferred and amortized using the effective interest rate method over the term of the related long-term-debt agreement, and the straight-line method for the revolving credit agreement.

 

Debt issuance costs, including any original issue discounts, related to term loans are reflected as a direct deduction from the carrying amount of the long-term debt liability that is included in long term debt, net of discount for deferred financing costs in the accompanying consolidated balance 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 ASC Topic 350, Intangibles–Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit.

 

During the second quarter of fiscal year 2020, the Company identified a triggering event from the recent decline in its stock price resulting from the COVID-19 pandemic (“COVID-19”). 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”). Refer to Note 8 for further discussion.

 

Property, plant and equipment

 

Property, plant and equipment are recorded at cost. Expenditures for additions and betterments are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred; however, maintenance and repairs that improve or extend the life of existing assets are capitalized. The carrying amount of assets disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains or losses from property and equipment disposals are recognized in the year of disposal. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives:

 

 In Years

Buildings and improvements

15 to 40

Capital lease assets—buildings

40

Furniture and office equipment

2 to 7

Machinery and equipment

3 to 25

Transportation equipment

3 to 7

 

Intangible assets

 

Intangible assets are recorded at cost or their estimated fair value (when acquired through a business combination) less accumulated amortization (if finite-lived).

 

Intangible assets with finite lives, except for customer relationships, are amortized on a straight-line basis over their estimated useful lives. Customer relationships are amortized on an accelerated basis over their estimated useful lives. Intangible assets with indefinite lives are not amortized but are subject to annual reviews for impairment. As noted above, the Company identified a triggering event during the second fiscal quarter of 2020 from the recent decline in its stock price and elected to perform an interim impairment test on its indefinite-lived trade names. Refer to Note 8 for further discussion.

 

14

 

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. Based on the results of the Company’s analysis, long-lived assets were not impaired. No indicators of impairment were identified as of July 31, 2020. As noted above, the Company identified a triggering event during the second fiscal quarter of 2020 from the recent decline in its stock price and assessed its long-lived assets for impairment.

  

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 a liability approach to financial reporting for income taxes.

 

The Company computes deferred income tax assets and liabilities annually for differences between the financial statements and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carryback opportunities, and tax planning strategies in making the assessment. Income tax expense includes both the current income taxes payable or refundable and the change during the period in the deferred tax assets and liabilities. The tax benefit from an uncertain tax position is only recognized in the consolidated balance sheet if the tax position is more likely than not to be sustained upon an examination.

 

The Company's U.K. Operations segment files income tax returns in the U.K. and national statutes are generally open for one year following the statutory filing period.

 

15


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. The Company has two classes of stock: (1) Common Stock (comprised of shareholder owned common stock and shares of unvested restricted stock held by participating security holders) and (2) Participating Preferred Stock (“Preferred Stock”).

 

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, 2020, and October 31, 2019, there were two significant vendors that the Company relied upon to purchase concrete pumping boom equipment. However, should the need arise, there are alternate vendors who can provide concrete pumping boom equipment.

 

Cash balances held at financial institutions may, at times, be in excess of federally insured limits. The Company places its temporary cash balances in high-credit quality financial institutions.

 

The Company’s customer base is dispersed across the U.S. and U.K. The Company performs ongoing evaluations of its customers’ financial condition and requires no collateral to support credit sales. During the Predecessor and Successor periods described above, no customer represented 10 percent or more of sales or trade receivables.

 

16

 

Note 3. New Accounting Pronouncements

 

The Company has opted to take advantage of the extended transition period available to emerging growth companies pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) for new accounting standards.

 

Newly adopted accounting pronouncements

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (ASC 805): Clarifying the Definition of a Business (“ASU 2017-01”), which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs to be further evaluated against the framework. The new standard will be applied prospectively to any transactions occurring within the period of adoption and is effective for entities other than public business entities for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company adopted this ASU in the first quarter of 2020. As there have been no new business combinations, this ASU has not had an effect on the Company’s consolidated financial statements. The Company will continue to evaluate this ASU as new business combinations occur.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) related to how certain cash receipts and payments are presented and classified in the statement of cash flows. These cash flow issues include debt prepayment or extinguishment costs, settlement of zero-coupon debt, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows. ASU 2016-15 is effective for emerging growth companies in annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company early adopted this ASU in the first quarter of 2020 on a retrospective basis and the adoption did not have a material impact on the consolidated financial statements.

 

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, 2019 and interim reporting periods within annual reporting periods beginning after December 15, 2020 and is to be adopted using either a full retrospective or modified retrospective transition method. The Company 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 evaluating the impact of the pending adoption of the new standard 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. 

 

17

 

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 is evaluating the anticipated impact of this standard on its condensed consolidated financial statements as well as timing of adoption.

 

Note 4. Business Combinations

 

May 2019 Acquisition of Capital Pumping

 

On May 15, 2019, the Company acquired Capital Pumping, LP and its affiliates (“Capital”), a concrete pumping provider based in Texas for a purchase price of $129.2 million, which was paid using proceeds from the Company’s public offering of common stock and additional borrowings on its term loan facility. This acquisition qualified as a business combination under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition-date fair values, with any excess recognized as goodwill. Goodwill recorded from the transaction represents expected synergies from combining operations and the assembled workforce.

 

The following table represents the final allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values with any measurement-period adjustments included:

 

Consideration paid:

 $129,218 
     

Net assets acquired:

    

Current assets

 $748 

Intangible assets

  45,500 

Property and equipment

  56,467 

Liabilities assumed

  (63)

Total net assets acquired

  102,652 
     

Goodwill

 $26,566 

 

Identifiable intangible assets acquired consist of customer relationships of $40.0 million and a trade name valued at $5.5 million. The customer relationships were valued using the multi-period excess earnings method. The Company determined the useful life of the customer relationships to be 15 years. The trade name was valued using the relief-from-royalty method and the Company determined the trade name associated with Capital to be indefinite.

 

18

 

December 2018 Acquisition of CPH

 

On December 6, 2018, the Company consummated the Business Combination. This acquisition qualified as a business combination under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition-date fair values, with any excess recognized as goodwill. Goodwill recorded from the transaction represents the value provided by the Company’s leading market share in a highly-fragmented industry. 

 

The following table represents the final allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values with any measurement-period adjustments included (see paragraph below for any measurement-period adjustments included):

 

Consideration paid:

    

Cash

 $445,386 

Fair value of rollover equity

  164,908 

Net working capital adjustment

  4,050 

Total consideration paid

 $614,344 
     

Net assets acquired:

    

Current assets

 $48,912 

Intangible assets

  208,063 

Property and equipment

  219,467 

Liabilities assumed

  (110,245)

Total net assets acquired

  366,197 
     

Goodwill

 $248,147 

 

Note: Cash in table above is net of $1.0 million in cash acquired

 

Identifiable intangible assets acquired consist of customer relationships of $152.7 million and trade names of $55.4 million. The customer relationships were valued using the multi-period excess earnings method. The Company determined the useful life of the customer relationships to be 15 years. The trade names were valued using the relief-from-royalty method. The Company determined the useful life of the trade name associated with Camfaud to be 10 years. The Company determined the trade names associated with Brundage-Bone and Eco-Pan to be indefinite.

 

During the Successor period from December 6, 2018 through October 31, 2019, the Company recorded an out of period adjustment related to the reduction of sales tax accrual of $3.4 million that resulted in changes to goodwill and liabilities assumed in the transaction. The impact of the adjustment was not considered material to the Company's previously issued financial statements.

 

CPH incurred transaction costs of $14.2 million and debt extinguishment costs of $16.4 million independently prior to the Business Combination.

 

Additional costs consisting of stock option and other compensation related expenses were recorded in connection with the Business Combination. These costs were solely contingent upon the completion of the business combination and did not include any future service requirements. As such, these costs will be presented “on the line” and are not reflected in either Predecessor or Successor financial statements.  “On the line” describes those expenses triggered by the consummation of a business combination that were incurred by the acquiree, i.e. CPH, that are not recognized in the Statement of Operations of either the Predecessor or Successor as they are not directly attributable to either period but instead were contingent on the Business Combination.

 

In conjunction with the Business Combination, there were $15.6 million of transaction bonuses and, as a result of a change in control provision for stock-based awards, certain unvested stock-based awards immediately vested, resulting in the recognition of compensation expense of approximately $0.6 million. These expenses were not reflected in either the Predecessor or Successor consolidated statement of operations and comprehensive loss periods.

 

19

 

Unaudited Pro Forma Financial Information

 

The following unaudited pro forma financial information presents the combined results of operations for the Company and gives effect to the CPH and Capital business combinations discussed above as if they had occurred on November 1, 2018. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the CPH and Capital business combinations had been completed on November 1, 2018, nor does it purport to project the results of operations of the combined company in future periods. The unaudited pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.

 

The unaudited pro forma financial information is as follows:

 

(in thousands)

 

Nine Months Ended July 31, 2020

  

Nine Months Ended July 31, 2019

 

Revenue

 $225,111  $24,396 

Pro forma revenue adjustments by Business Combination

        

Capital

  -   26,829 

CPH

  -   174,613 

Total pro forma revenue

 $225,111  $225,838 

 

 

(in thousands)

 

Nine Months Ended July 31, 2020

  

Nine Months Ended July 31, 2019

 
Net loss $(58,733) $(22,575)

Pro forma net income (loss) adjustments by Business Combination

        

Capital

  -   2,868 

CPH

  -   (10,513)
Total pro forma net loss $(58,733) $(30,220)

 

20

 

Note 5.     Fair Value Measurement

 

The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable and current accrued liabilities approximate their fair value as recorded due to the short-term maturity of these instruments, which approximates fair value. The Company’s outstanding obligations on its ABL credit facility are deemed to be at fair value as the interest rates on these debt obligations are variable and consistent with prevailing rates. The Company believes the carrying values of its capital lease obligations represent fair value.

 

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, 2020 and at October 31, 2019 is presented in the table below based on the prevailing interest rates and trading activity of the Term loans.

 

  

July 31,

  

October 31,

 
  

2020

  

2019

 

(in thousands)

 

Carrying Value

  

Fair Value

  

Carrying Value

  

Fair Value

 

Term loans

 $386,427  $359,377  $402,094  $394,052 

Capital lease obligations

  500   500   568   568 

  

 In connection with the acquisition of Camfaud in November 2016, former Camfaud shareholders were eligible to receive earnout payments (“deferred consideration”) of up to $3.1 million if certain Earnings before interest, taxes, depreciation, and amortization ("EBITDA") targets were met. In accordance with ASC 805, the Company reviewed the deferred consideration on a quarterly basis in order to determine its fair value. Changes in the fair value of the liability are recorded within general and administrative expenses in the consolidated statement of income in the period in which the change was made. The Company estimated the fair value of the deferred consideration based on its probability assessment of Camfaud’s EBITDA achievements during the 3 year earnout period. In developing these estimates, the Company considered its revenue and EBITDA projections, its historical results, and general macro-economic environment and industry trends. This fair value measurement was based on significant revenue and EBITDA inputs not observed in the market, which represents a Level 3 measurement. The fair value of the deferred consideration was $1.7 million at October 31, 2019, which also represented the date at which the 3-year earnout period ended. The deferred consideration was paid out during the fiscal 2020 first quarter and as such, the liability no longer exists at July 31, 2020.

 

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.

 

21

 

Note 6. Prepaid Expenses and Other Current Assets

 

The significant components of prepaid expenses and other current assets at July 31, 2020 and at October 31, 2019 are comprised of the following:

 

   

July 31,

   

October 31,

 

(in thousands)

 

2020

   

2019

 

Prepaid insurance

  $ 3,358     $ 1,416  

Prepaid licenses and deposits

    363       528  

Prepaid rent

    533       485  

Other prepaids

    377       949  

Total prepaid expenses and other current assets

  $ 4,631     $ 3,378  
 

Note 7. Property, Plant and Equipment

 

The significant components of property, plant and equipment at July 31, 2020 and at October 31, 2019 are comprised of the following:

 

   

July 31,

   

October 31,

 

(in thousands)

 

2020

   

2019

 

Land, building and improvements

  $ 26,682     $ 26,085  

Capital leases—land and buildings

    828       828  

Machinery and equipment

    311,903       295,741  

Transportation equipment

    2,213       2,223  

Furniture and office equipment

    1,184       1,209  

Property, plant and equipment, gross

    342,810       326,086  

Less accumulated depreciation

    (36,914 )     (18,671 )

Property, plant and equipment, net

  $ 305,896     $ 307,415  

 

Depreciation expense for the three and nine-month periods ended July 31, 2020 was $6.5 million and $19.5 million, respectively. Depreciation expense for the Successor for the three-month period ended July 31, 2019 and the period from December 6, 2018 to July 31, 2019 was $5.5 million and $14.1 million, respectively. Depreciation expense for the Predecessor from November 1, 2018 to December 5, 2018 was $2.1 million. Depreciation expense related to revenue producing machinery and equipment is recorded in cost of operations and an immaterial amount of depreciation expense related to the Company's capital leases and furniture and fixtures is included in general and administrative expenses.

 

22

 

Note 8. Goodwill and Intangible Assets

 

The Company recognized goodwill and certain intangible assets in connection with business combinations (see Note 4 - Business Combinations).

 

During the second quarter of fiscal year 2020, the Company identified a triggering event from the recent sustained decline in its stock price and deterioration in general economic conditions resulting from COVID-19. As a result, the Company, with the assistance of a third party valuation specialist, performed an interim impairment test on its indefinite-lived trade name intangible assets and goodwill as of April 30, 2020.

 

The valuation methodology used to value the trade-names was based on the relief-from-royalty method which is an income based measure that derives the value from total revenue growth projected and what percentage is attributable to the trade name. As a result of the analysis, the Company identified that the fair value of its Brundage-Bone Concrete Pumping trade name was approximately 11.8% below its carrying value and as such, recorded a non-cash impairment charge of $5.0 million in intangibles impairment in its consolidated statements of operations for both the three and six-month periods ended April 30, 2020. The impaired trade name has a remaining value of $37.3 million as of July 31, 2020. In addition, the Company concluded that the fair values of its Eco-Pan and Capital Pumping trade names exceeded their carrying values by approximately 7.8% and 109.1%, respectively, and their remaining values are $7.7 million and $5.5 million as of July 31, 2020, respectively.

 

The goodwill impairment test was performed on the Company’s U.S. Concrete Pumping, U.S. Concrete Waste Management Services, and U.K. Operations reporting units. The valuation methodologies used to value the reporting units included the discounted cash flow method (income approach) and the guideline public company method (market approach). As a result of the goodwill impairment analysis, the Company identified that the fair values of its U.S. Concrete Pumping and U.K. Operations reporting units were approximately 6.9% and 14.8% below their carrying values, respectively. As such, the Company recorded non-cash impairment charges of $38.5 million and $14.4 million to its U.S. Concrete Pumping and U.K. Operations reporting units, respectively, in goodwill impairment in its consolidated statements of operations for both the three and six-month periods ended April 30, 2020. In addition, the Company concluded that the fair value of its U.S. Concrete Waste Management Services reporting unit exceeded its carrying value by approximately 4.5% and, as such, no impairment charge was recorded.

 

The factors leading to the impairment of the Company's goodwill and intangibles were primarily due to (1) lower anticipated future net revenues and earnings in its estimate of future cash flows resulting from COVID-19 and (2) a higher discount rate applied to future cash flows as a result of uncertainties of the overall economic impact from COVID-19. There is inherent uncertainty associated with key assumptions used by the Company in its impairment analyses including the duration of the economic downturn associated with COVID-19 and the recovery period.

 

There were no triggering events during the fiscal 2020 third quarter. 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, 2020 and at October 31, 2019:

 

  

July 31,

  

October 31,

 
  

2020

  

2019