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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, 2021

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 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

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

As of September 7, 2021, the registrant had 56,593,944 shares of common stock outstanding. 

 

 

 

 

 

CONCRETE PUMPING HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED July 31, 2021

 

 

 

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

7

 

 

Notes to Unaudited Consolidated Financial Statements

9

 

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

31

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

 

Item 4.

Controls and Procedures

46

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

47

 

Item 1A.

Risk Factors

47

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

 

Item 3.

Defaults Upon Senior Securities

47

 

Item 4.

Mine Safety Disclosures

47

 

Item 5.

Other Information

47

 

Item 6.

Exhibits

48

 

 

 

 

  Signatures   49
 

 

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)

 

2021

  

2020

 
         

Current assets:

        

Cash and cash equivalents

 $20,204  $6,736 

Trade receivables, net

  44,520   44,343 

Inventory

  4,603   4,630 

Income taxes receivable

  391   1,602 

Prepaid expenses and other current assets

  5,177   2,694 

Total current assets

  74,895   60,005 
         

Property, plant and equipment, net

  314,590   304,254 

Intangible assets, net

  164,647   183,839 

Goodwill

  225,165   223,154 

Other non-current assets

  691   1,753 

Deferred financing costs

  1,978   753 

Total assets

 $781,966  $773,758 
         
         

Current liabilities:

        

Revolving loan

 $-  $1,741 

Term loans, current portion

  -   20,888 

Current portion of capital lease obligations

  101   97 

Accounts payable

  6,683   6,587 

Accrued payroll and payroll expenses

  12,366   13,065 

Accrued expenses and other current liabilities

  23,570   18,879 

Income taxes payable

  646   1,055 

Total current liabilities

  43,366   62,312 
         

Long term debt, net of discount for deferred financing costs

  368,736   343,906 

Capital lease obligations, less current portion

  304   380 

Deferred income taxes

  67,173   68,019 

Warrant liability

  18,225   7,031 

Total liabilities

  497,804   481,648 
         

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

  25,000   25,000 
         

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

  6   6 

Additional paid-in capital

  372,961   367,681 

Treasury stock

  (461)  (131)

Accumulated other comprehensive income (loss)

  5,001   (606)

Accumulated deficit

  (118,345)  (99,840)

Total stockholders' equity

  259,162   267,110 
         

Total liabilities and stockholders' equity

 $781,966  $773,758 

 

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

 

3

 

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

 $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 
                 

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)
                 

Income (loss) available to common shareholders

 $4,113  $(242) $(20,035) $(60,035)
                 

Weighted average common shares outstanding

                

Basic

  53,522,089   52,782,663   53,377,032   52,752,884 

Diluted

  54,547,494   52,782,663   53,377,032   52,752,884 
                 

Net income (loss) per common share

                

Basic

 $0.07  $0.00  $(0.38) $(1.14)

Diluted

 $0.07  $0.00  $(0.38) $(1.14)

 

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)

 

  

Three Months Ended July 31,

  

Nine Months Ended July 31,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 
                 

Net income (loss)

 $4,638  $247  $(18,505) $(58,603)
                 

Other comprehensive income:

                

Foreign currency translation adjustment

  438   3,821   5,607   1,607 
                 

Total comprehensive income (loss)

 $5,076  $4,068  $(12,898) $(56,996)

 

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)

 

 

(in thousands)

 

Common Stock

  

Additional Paid-In Capital

  

Treasury Stock

  

Accumulated Other Comprehensive Income (loss)

  

Accumulated Deficit

  

Total

 

Balance at October 31, 2019

 $6  $356,227  $-  $(599) $(38,589) $317,045 

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

  -   -   -   -   (3,137)  (3,137)

Foreign currency translation adjustment

  -   -   -   1,971   -   1,971 

Balance at January 31, 2020

 $6  $357,694  $(131) $1,372  $(41,726) $317,216 

Stock-based compensation expense

  -   1,383   -   -   -   1,383 

Net loss

  -   -   -   -   (55,714)  (55,714)

Foreign currency translation adjustment

  -   -   -   (4,185)  -   (4,185)

Balance at April 30, 2020

 $6  $359,077  $(131) $(2,813) $(97,439) $258,700 

Stock-based compensation expense

  -   1,357   -   -   -   1,357 

Net income

  -   -   -   -   247   247 

Foreign currency translation adjustment

  -   -   -   3,821   -   3,821 

Balance at July 31, 2020

 $6  $360,434  $(131) $1,008  $(97,192) $264,125 

 

(in thousands)

 

Common Stock

  

Additional Paid-In Capital

  

Treasury Stock

  

Accumulated Other Comprehensive Income (loss)

  

Accumulated Deficit

  

Total

 

Balance at October 31, 2020

 $6  $367,681  $(131) $(606) $(99,840) $267,110 

Stock-based compensation expense

  -   672   -   -   -   672 

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

  -   -   (330)  -   -   (330)

Net loss

  -   -   -   -   (12,290)  (12,290)

Foreign currency translation adjustment

  -   -   -   4,501   -   4,501 

Balance at January 31, 2021

 $6  $368,353   (461) $3,895  $(112,130) $259,663 

Stock-based compensation expense

  -   3,350   -   -   -   3,350 

Net loss

  -   -   -   -   (10,853)  (10,853)

Foreign currency translation adjustment

  -   -   -   668   -   668 

Balance at April 30, 2021

 $6  $371,703   (461) $4,563  $(122,983) $252,828 

Stock-based compensation expense

  -   1,258   -   -   -   1,258 

Net income

  -   -   -   -   4,638   4,638 

Foreign currency translation adjustment

  -   -   -   438   -   438 

Balance at July 31, 2021

 $6  $372,961   (461) $5,001  $(118,345) $259,162 

 

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

 

6

 

Concrete Pumping Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

  

For the Nine Months Ended July 31,

 

(in thousands)

 

2021

  

2020

 

Net loss

 $(18,505) $(58,603)

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

        

Goodwill and intangibles impairment

  -   57,944 

Depreciation

  21,169   19,537 

Deferred income taxes

  (1,417)  92 

Amortization of deferred financing costs

  1,877   3,094 

Amortization of intangible assets

  20,517   25,290 

Stock-based compensation expense

  5,280   4,207 

Change in fair value of warrant liabilities

  11,195   (130)

Loss on extinguishment of debt

  15,510   - 

Net gain on the sale of property, plant and equipment

  (1,125)  (944)

Payment of contingent consideration in excess of amounts established in purchase

accounting

  -   (526)

Net changes in operating assets and liabilities:

        

Trade receivables, net

  475   1,668 

Inventory

  122   (63)

Prepaid expenses and other current assets

  (1,331)  (3,520)

Income taxes payable, net

  750   (3,899)

Accounts payable

  (93)  (1,489)

Accrued payroll, accrued expenses and other current liabilities

  5,920   10,826 

Net cash provided by operating activities

  60,344   53,484 
         

Cash flows from investing activities:

        

Purchases of property, plant and equipment

  (34,558)  (36,658)

Proceeds from sale of property, plant and equipment

  5,070   6,392 

Net cash used in investing activities

  (29,488)  (30,266)
         

Cash flows from financing activities:

        

Proceeds on long term debt

  375,000   - 

Payments on long term debt

  (381,206)  (15,666)

Proceeds on revolving loan

  201,125   206,420 

Payments on revolving loan

  (202,977)  (217,162)

Payment of debt issuance costs

  (8,464)  - 

Payments on capital lease obligations

  (72)  (67)

Purchase of treasury stock

  (330)  (131)

Payment of contingent consideration established in purchase accounting

  -   (1,161)

Net cash used in financing activities

  (16,924)  (27,767)

Effect of foreign currency exchange rate on cash

  (464)  1,207 

Net increase (decrease) in cash and cash equivalents

  13,468   (3,342)

Cash and cash equivalents:

        

Beginning of period

  6,736   7,473 

End of period

 $20,204  $4,131 

 

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

 

7

 

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

 $5,912  $24,017 

Cash paid for income taxes

 $841  $343 
         

Non-cash investing and financing activities:

        

Equipment purchases included in accrued expenses and accounts payable

 $1,928  $2,397 

 

 

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

 

8

 

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 90 branch locations across 19 states, with its corporate headquarters in Thornton (near Denver), Colorado. Camfaud has approximately 30 branch locations throughout the U.K., with its corporate headquarters in Epping (near London), England.

 

Eco-Pan provides industrial cleanup and containment services, primarily to customers in the construction industry 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 17 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 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 $43.5 million and $14.4 million to the Company's U.S. Concrete Pumping and U.K. Operations reporting units, respectively. Through July 31, 2021, no subsequent triggering events have been identified. The Company will continue to evaluate its goodwill and intangible assets in future quarters. Additional impairments may be recorded in the future based on events and circumstances, including those related to COVID-19 discussed above.

 

9

 

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.

 

10

 

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 as of  July 31, 2021 and October 31, 2020, respectively. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.

 

Inventory

 

Inventory consists primarily of replacement parts for concrete pumping equipment. Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. The Company evaluates inventory and records an allowance for obsolete and slow- moving inventory to account for cost adjustments to market. Based on management’s analysis, no allowance for obsolete and slow-moving inventory was required as of  July 31, 2021 and October 31, 2020.

 

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. 

 

11

 

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

  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.

 

Impairment of long-lived assets

 

ASC 360, Property, Plant and Equipment (ASC 360) requires other long-lived assets to be evaluated for impairment when indicators of impairment are present. If indicators are present, assets are grouped to the lowest level for which identifiable cash flows are largely independent of other asset groups and cash flows are estimated for each asset group over the remaining estimated life of each asset group. If the undiscounted cash flows estimated to be generated by those assets are less than the asset’s carrying amount, impairment is recognized in the amount of the excess of the carrying value over the fair value. No indicators of impairment were identified as of July 31, 2021.

 

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.

 

12

 

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, CompensationStock 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, CompensationStock 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.

 

13

 

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 three 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 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. 

 

14

 

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.

 

15

 

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

 $-  $-  $381,205  $365,003 

Senior notes

 $375,000  $390,938  $-  $- 

Capital lease obligations

 $405  $405  $477  $477 

 

Deferred consideration

 

In connection with the acquisition of Camfaud in November 2016, former Camfaud shareholders were eligible to receive earnout payments (“deferred consideration”) of up to $3.1 million if certain Earnings before interest, taxes, depreciation, and amortization ("EBITDA") targets were met. In accordance with ASC 805, the Company reviewed the deferred consideration on a quarterly basis in order to determine its fair value. Changes in the fair value of the liability are recorded within general and administrative expenses in the consolidated statements of operations in the period in which the change was made. The Company estimated the fair value of the deferred consideration based on its probability assessment of Camfaud’s EBITDA achievements during the 3 year earnout period. In developing these estimates, the Company considered its revenue and EBITDA projections, its historical results, and general macro-economic environment and industry trends. This fair value measurement was based on significant revenue and EBITDA inputs not observed in the market, which represents a Level 3 measurement. The $1.7 million in deferred consideration was fully paid out during the first quarter of fiscal 2020. In accordance with US GAAP, the related cash outflows are reflected in the statement of cash flows with $1.2 million being included in financing activities, reflecting the payment of contingent consideration that was originally established in purchase accounting, and the remaining $0.5 million being included in operating activities, reflecting the payment amount that is in excess of the contingent consideration that was originally established in purchase accounting.

 

Warrants

At both July 31, 2021 and October 31, 2020, there were 13,017,777 public warrants and no private warrants outstanding. Each warrant entitles its holder to purchase one share of Class A common stock at an exercise price of $11.50 per share. The warrants expire on December 6, 2023, or earlier upon redemption or liquidation. The Company may call the outstanding public warrants for redemption at a price of $0.01 per warrant, if the last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third business day before the Company sends the notice of redemption to the warrant holders.

The Company accounts for the public warrants issued in connection with its IPO in accordance with ASC 815, under which certain provisions in the public warrant agreements do not meet the criteria for equity classification and therefore these warrants must be recorded as liabilities.  The fair value of each public warrant is based on the public trading price of the warrant (Level 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.

 

16

 

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

 $3,179  $1,399 

Prepaid licenses and deposits

  515   429 

Prepaid rent

  301   149 

Other current assets and prepaids

  1,182   717 

Total prepaid expenses and other current assets

 $5,177  $2,694 
 

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

 $26,809  $26,728 

Capital leases—land and buildings

  828   828 

Machinery and equipment

  345,364   318,029 

Transportation equipment

  2,859   2,338 

Furniture and office equipment

  2,764   1,230 

Property, plant and equipment, gross

  378,624   349,153 

Less accumulated depreciation

  (64,034)  (44,899)

Property, plant and equipment, net

 $314,590  $304,254 

 

Depreciation expense for the three and nine month periods ended July 31, 2021 was $7.2 million and $21.2 million, respectively. Depreciation expense for the three and nine month periods ended July 31, 2020 was $6.5 million and $19.5 million, respectively. Depreciation expense related to revenue producing machinery and equipment is recorded in cost of operations and an immaterial amount of depreciation expense related to our capital leases and furniture and fixtures is included in general and administrative expenses.

 

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 11.8% below its carrying value and as such, recorded a non-cash impairment charge of $5.0 million in intangibles impairment on April 30, 2020.

 

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 on April 30, 2020.

 

17

 

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

 $195,192  $-  $(84,730) $(716) $109,746  $193,585  $-  $(64,676) $(106) $128,803 

Trade name

  5,843   -   (1,453)  (97)  4,293   5,432   -   (1,020)  (14) $4,398 

Trade name (indefinite life)

  55,500   (5,000)  -   -   50,500   55,500   (5,000)  -   -  $50,500 

Non-compete agreements

  200   -   (92)  -   108   200   -   (62)  -  $138 

Total intangibles

 $256,735  $(5,000) $(86,275) $(813) $164,647  $254,717  $(5,000) $(65,758) $(120) $183,839 

 

Amortization expense for the three and nine month periods ended July 31, 2021 was $6.7 million and $20.5 million, respectively. Amortization expense for the three and nine month periods ended July 31, 2020 was $8.1 million and $25.3 million, respectively. The estimated aggregate amortization expense for intangible assets over the next five fiscal years ending October 31 and thereafter is as follows:

 

(in thousands)

    

2021 (excluding the period from November 1, 2020 to July 31, 2021)

 $6,503 

2022

  21,747 

2023

  17,292 

2024

  13,892 

2025

  11,245 

Thereafter

  43,468 

Total

 $114,147 

 

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

 $147,482  $26,539  $49,133  $223,154 

Foreign currency translation

  -   2,011   -   2,011 

Balance at July 31, 2021

 $147,482  $28,550  $49,133  $225,165 

 

18

 

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 $375.0 million in aggregate principal amount of its 6.000% senior secured second lien notes due 2026 (the “Senior Notes”) issued pursuant to an indenture, among the Issuer, the Company, the other Guarantors (as defined below), Deutsche Bank Trust Company Americas, as trustee and as collateral agent (the "Indenture") and (ii) entered into an amended and restated ABL Facility (the "ABL Facility") by and among the Company, certain subsidiaries of the Company, Wells Fargo Bank, National Association, as agent, sole lead arranger and sole bookrunner, the other Lenders party thereto, which provided up to $125.0 million of asset-based revolving loan commitments to the Company and the other borrowers under the ABL Facility. The proceeds from the Senior Notes, along with certain borrowings under the ABL Facility, were used to repay all outstanding indebtedness under the Company’s existing term loan agreement (see discussion below), dated December 6, 2018, and pay related fees and expenses. Summarized terms of these facilities are included below.

 

Senior Notes

 

Summarized terms of the Senior Notes are as follows:

 

 

Provides for an original aggregate principal amount of $375.0 million;

 

The Senior Notes will mature and be due and payable in full on February 1, 2026;

 

The Senior Notes bear interest at a rate of 6.000% per annum, payable on February 1 and August 1 of each year;

 

The Senior Notes are jointly and severally guaranteed on a senior secured basis by the Company, Concrete Pumping Intermediate Acquisition Corp. and each of the Issuer’s domestic, wholly-owned subsidiaries that 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.

 

19

 

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 $60.0 million;

 

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 and for swing loan borrowings of up to $7.5 million. Any issuance of letters of credit or making of a swing loan will reduce the amount available under the ABL Facility;

 

Same;

 

All loans advanced will mature and be due and payable in full on December 6, 2023;

 

All loans advanced will mature and be due and payable in full on January 28, 2026;

Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement;

 

Same;

Borrowings in U.S. Dollars and GBP bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at 2.25% and 1.25%, respectively. The ABL Facility is subject to two step-downs of 0.25% and 0.50% based on excess availability levels;

 

Borrowings in U.S. Dollars and GBP 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;

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 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.

 

20

 

Term Loan Agreement

 

Summarized terms of the Term Loan Agreement are as follows:

 

 

Provides for an original aggregate principal amount of $357.0 million. This amount was increased in May 2019 by $60.0 million in connection with the acquisition of Capital;

 

The initial term loans advanced will mature and be due and payable in full seven years after the Closing Date, with principal amortization payments in an annual amount equal to 5.00% of the original principal amount;

 

Borrowings under the Term Loan Agreement, will bear interest at either (1) an adjusted LIBOR rate or (2) an alternate base rate, plus an applicable margin of 6.00% or 5.00%, respectively;

 

The Term Loan Agreement is secured by (i) a first priority perfected lien on substantially all of the assets of the Company and certain of its subsidiaries that are loan parties thereunder to the extent not constituting ABL Facility priority collateral and (ii) a second priority perfected lien on substantially all ABL Facility priority collateral, in each case subject to customary exceptions and limitations;

 

The Term Loan Agreement includes certain non-financial covenants.

 

As discussed above, all outstanding borrowings under the Term Loan Agreement were repaid on January 28, 2021. The pay-off of the term loan were treated as a debt extinguishment while the amended ABL facility was treated as a debt modification. In accordance with debt extinguishment accounting rules, the Company recorded $15.5 million in debt extinguishment costs related to the write-off of all unamortized deferred debt issuance costs that were related to the term loan and capitalized $7.0 million of debt issuance costs related to the Senior Notes. For the amendments to the ABL Facility, the Company capitalized $1.5 million of debt issuance costs.

 

The table below is a summary of the composition of the Company’s debt balances at  July 31, 2021 and at October 31, 2020.

 

 

  

July 31,

  

October 31,

 

(in thousands)

 

2021

  

2020

 

Revolving loan (short term)

 $-  $1,741 

Short term portion of term loan

  -   20,888 

Long term portion of term loan

  -   360,317 

Senior notes - all long term

  375,000   - 

Total debt, gross

  375,000   382,946 

Less unamortized deferred financing costs offsetting long term debt

  (6,264)  (16,411)

Total debt, net of unamortized deferred financing costs

 $368,736  $366,535 
 

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

 $2,009  $1,667 

Accrued payroll

  2,616   1,507 

Accrued bonus

  2,871   4,752 

Other accrued

  4,870   5,139 

Total accrued payroll and payroll expenses

 $12,366  $13,065 

 

 

21

 

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

 $6,865  $7,806 

Accrued interest

  11,438   146 

Accrued equipment purchases

  1,275   4,149 

Accrued sales and use tax

  423   311 

Accrued property taxes

  749   882 

Accrued professional fees

  1,158   1,213 

Accrued due to related party

  -   1,765 

Other

  1,662   2,607 

Total accrued expenses and other liabilities

 $23,570  $18,879 
 

Note 11. Income Taxes

 

For the third fiscal quarter ended July 31, 2021, the Company recorded income tax expense of $1.7 million on pretax income of $6.3 million. For the same quarter a year ago, the Company recorded income tax benefit of $0.5 million on a pretax loss of $0.2 million. For the first nine months of 2021, the Company recorded income tax benefit of $0.8 million on pretax loss of $19.3 million. For the same period a year ago, the Company recorded income tax benefit of $3.8 million on pretax loss of $62.4 million. For the nine-month period ended July 31, 2021, the Company’s effective tax rate was significantly impacted by the $11.2 million change in fair value of warrant liabilities, all of which is not recognized for tax purposes. The effective tax rates for the three and nine-month periods ended July 31, 2020 were impacted by (1) the respective change in fair value of warrant liabilities, all of which is not recognized for tax purposes, (2) a $2.0 million contingent liability charge that was not deductible for tax purposes and (3) a $1.4 million discrete benefit from the revaluation of net operating losses that were carried back during the period. In addition, the income tax provision for the year-to-date period ended July 31, 2020 was impacted by the goodwill and intangibles impairment recorded during the fiscal 2020 second quarter, as most of the impairment was not deductible, and a rate change in the UK that drove an increase in expense to the tax provision of $0.9 million.   

 

At  July 31, 2021 and October 31, 2020, we had deferred tax liabilities, net of deferred tax assets, of $67.2 million and $68.0 million, respectively. Included in deferred tax assets at July 31, 2021 and October 31, 2020 were net operating loss carryforwards of $13.3 million and $10.3 million, respectively. The Company has a valuation allowance of $0.1 million as of both  July 31, 2021 and  October 31, 2020 related to foreign tax credit carryforwards where realization is more uncertain at this time due to the limited carryforward periods that exist.

 

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 $5.6 million and $5.4 million, as of  July 31, 2021 and October 31, 2020, respectively, for claims incurred but not reported and estimated losses reported, which is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

 

The Company offers employee health benefits via a partially self-insured medical benefit plan. Participant claims exceeding certain limits are covered by a stop-loss insurance policy. As of  July 31, 2021 and October 31, 2020, the Company had accrued $1.3 million and $1.9 million, respectively, for health claims incurred but not reported based on historical claims amounts and average lag time. These accruals are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets. The Company contracts with a third party administrator to process claims, remit benefits, etc. The third party administrator requires the Company to maintain a bank account to facilitate the administration of claims. The account balance was $0.0 million and $0.3 million, as of  July 31, 2021 and October 31, 2020, respectively, and is included in cash and cash equivalents in the accompanying consolidated balance sheets.

 

22

 

Litigation

 

The Company is currently involved in certain legal proceedings and other disputes with third parties that have arisen in the ordinary course of business. Management believes that the outcomes of these matters will not have a material impact on the Company’s financial statements and does not believe that any amounts need to be recorded for contingent liabilities in the Company’s consolidated balance sheet.

 

Letters of credit

 

The ABL Facility provides for up to $7.5 million of standby letters of credit. As of  July 31, 2021, total outstanding letters of credit totaled $2.3 million, the vast majority of which had been committed to the Company’s general liability insurance provider.

 

Note 13. Stockholders Equity

 

The Company’s amended and restated certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock, par value $0.0001, and 10,000,000 shares of preferred stock, par value $0.0001. Immediately following the Business Combination, there were:

 

 

28,847,707 shares of common stock issued and outstanding;

 

 

34,100,000 warrants outstanding, each exercisable for one share of common stock at an exercise price of $11.50 per share, with exercisable rights expiring December 6, 2023; and

 

 

2,450,980 shares of zero-dividend convertible perpetual preferred stock (“Series A Preferred Stock”) outstanding, as further discussed below

 

The Company’s Series A Preferred Stock does not pay dividends and is convertible (effective June 6, 2019) into shares of the Company’s common stock at a 1:1 ratio (subject to customary adjustments). The Company has the right to elect to redeem all or a portion of the Series A Preferred Stock at its election after December 6, 2022 for cash at a redemption price equal to the amount of the principal investment plus an additional cumulative amount that will accrue at an annual rate of 7.0% thereon. In addition, if the volume weighted average price of shares of the Company’s common stock equals or exceeds $13.00 for 30 consecutive days, then the Company will have the right to require the holder of the Series A Preferred Stock to convert its Series A Preferred Stock into Company common stock, at a ratio of 1:1 (subject to customary adjustments).

 

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, 2,101,213 shares of common stock were issued in exchange for 9,982,123 of the Company's public warrants and 1,707,175 shares of common stock were issued in exchange for all 11,100,000 of the Company's private warrants. After the completion of the warrant exchange and as of July 31, 2021, there were 13,017,777 public warrants and no private warrants outstanding. On April 12, 2021, the SEC staff issued a statement regarding accounting and reporting considerations for warrants issued by SPACs. In light of the issues raised by the SEC staff, the Company re-evaluated its accounting position for its private and public warrants. See Note 2 for further discussion of the accounting implications relating to these warrants.

 

On May 14, 2019, in order to finance a portion of the purchase price for the acquisition of Capital, the Company completed a public offering of 18,098,166 of its common stock at a price of $4.50 per share, receiving net proceeds of approximately $77.4 million, after deducting underwriting discounts, commissions, and other offering expenses.

 

23

 

Note 14. Stock-Based Compensation

 

The Company rolled forward certain vested options from the Predecessor (see discussion below) to 2,783,479 equivalent vested options in the Company. No incremental compensation costs were recognized on conversion as the fair value of the options issued were equivalent to the fair value of the vested options of the Predecessor. Exercise prices for those options range from $0.87 to $6.09.

 

During 2019, pursuant to the Concrete Pumping Holdings, Inc. 2018 Omnibus Incentive Plan, the Company granted stock-based awards to certain employees in the U.S. and U.K. All awards in the U.S. are participating restricted stock awards while awards granted to employees in the U.K. are stock options with exercise prices of $0.01. Regardless of where the awards were granted, the awards vested pursuant to one of the four following conditions:

 

 

(1)

Time-based only – Awards vest in equal installments over a five-year period.

 

 

(2)

$13 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $13.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

 

(3)

$16 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $16.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

 

(4)

$19 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $19.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

On October 29, 2020 almost all of the then-outstanding stock awards were modified as follows:

 

 (1)113 awards for 113 employees accepted a modification to their restricted stock awards (if U.S. employees) or stock options (if U.K. employees) with market-based vesting conditions as follows:
 oThe price vesting targets of $13.00 per share, $16.00 per share or $19.00 per share were reduced to $6.00 per share, $8.00 per share or $10.00 per share, respectively
 oThe market-based awards were exchanged on a 2-for-1 exchange ratio.  In total 3,816,450 market-based awards were exchanged for 1,908,165 market-based awards
 (2)18 awards for 18 employees had their restricted stock awards (if U.S. employees) or stock options (if U.K. employees) with market-based vesting conditions (the same $13/$16/$19 price targets outlined above) modified as follows:
 oEach individual's total award was split into the following: (a) 46% of time vesting shares that vested on December 6, 2020, (b) 15% of time vesting shares which will vest ratably 1/3 each year on December 6, 2021, 2022 and 2023, and (c) the remaining 39% will initially vest based on reduced price vesting targets of $6.00 per share, $8.00 per share or $10.00 per share. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.
 oIn the aggregate, 1,381,426 stock awards were modified as follows:
 (a)635,455 shares vested on December 6, 2020,
 (b)207,215 shares will vest ratably 1/3 each year on December 6, 2021, 2022 and 2023, and
 (c)538,756 shares will vest based on reduced price vesting targets of $6.00 per share, $8.00 per share or $10.00 per share

 

As a result of the modifications, and in accordance with ASC 718, the Company updated the fair value of each modified award to be equal to the following:

 

 Unrecognized stock-based compensation expense as of October 29, 2020 immediately before the modification plus
 The greater of $0 or the difference between fair value of new award immediately after modification less the fair value of old award immediately before modification

 

24

 

The fair values for the above awards were calculated using a Monte Carlo simulation model and the updated fair value of the stock award is expensed over the new service period for the new award. As a result of the modifications, the Company recorded $5.9 million of compensation expense on day 1 of the modification as the requisite service period is zero. Outside of the unrecognized compensation expense for all other awards, no incremental costs are expected to be incurred in the future.

 

As of July 31, 2021, the Company had the following outstanding stock-based awards:

 

 

(1)

Time-based only – Awards vest in equal installments over a three or five-year period.

 

 

(2)

$6 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $6.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

 

(3)

$8 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $8.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

 

(4)

$10 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $10.00 for 30 consecutive trading days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

Included in the table 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.

 

25

 

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.

 

Time Based Only

  862,028  $6.20  $3,506,409 

12/6/2023

U.S.

 

$6 Market/Time- Based

  150,697  $3.86  $- 

10/29/2020

U.S.

 

$6 Market/Time- Based

  191,985  $8.65  $443,476 

3/29/2022

U.S.

 

$6 Market/Time- Based

  191,985  $8.65  $745,037 

3/29/2023

U.S.

 

$6 Market/Time- Based

  191,997  $8.65  $923,485 

3/29/2024

U.S.

 

$8 Market/Time- Based

  150,697  $3.46  $- 

10/29/2020

U.S.

 

$8 Market/Time- Based

  191,986  $7.45  $543,232 

8/23/2022*

U.S.

 

$8 Market/Time- Based

  191,986  $7.45  $726,916 

8/23/2023*

U.S.

 

$8 Market/Time- Based

  191,996  $7.45  $849,205 

8/23/2024*

U.S.

 

$10 Market/Time- Based

  150,706  $3.15  $- 

10/29/2020

U.S.

 

$10 Market/Time- Based

  191,991  $6.46  $511,665 

7/9/2023

U.S.

 

$10 Market/Time- Based

  191,987  $6.46  $656,956 

7/9/2024

U.S.

 

$10 Market/Time- Based

  192,004  $6.46  $755,069 

7/9/2025

U.S.

 

$13 Market/Time- Based

  433  $4.47  $613 

5/4/2022

U.S.

 

$13 Market/Time- Based

  433  $4.47  $912 

5/4/2023

U.S.

 

$13 Market/Time- Based

  434  $4.47  $1,104 

5/4/2024

U.S.

 

$16 Market/Time- Based

  433  $3.85  $624 

8/27/2022

U.S.

 

$16 Market/Time- Based

  433  $3.85  $845 

8/27/2023

U.S.

 

$16 Market/Time- Based

  434  $3.85  $991 

8/27/2024

U.S.

 

$19 Market/Time- Based