CONCRETE PUMPING: Discussion and analysis by management of the financial position and operating results. (form 10-Q)
You should read the following management discussion and analysis with
Caution Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as "likely," "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue," or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered. Additionally, information about issues that could lead to material changes in performance and risk factors that have the potential to affect us is contained under the caption "Risk Factors" in our Form 10-K/A filed with the
SECon June 11, 2021. Business Overview The Company is a Delawarecorporation headquartered in Thornton(near Denver), Colorado. The unaudited consolidated financial statements included herein include the accounts of Concrete Pumping Holdings, Inc.and its wholly owned subsidiaries including Brundage-Bone Concrete Pumping, Inc.("Brundage-Bone"), Capital Pumping ("Capital"), and Camfaud Group Limited("Camfaud"), and Eco-Pan, Inc.("Eco-Pan"). On December 6, 2018, the Company, formerly known as Concrete Pumping Holdings Acquisition Corp., consummated a business combination transaction (the "Business Combination") pursuant to which it acquired (i) the private operating company formerly called Concrete Pumping Holdings, Inc.("CPH") and (ii) the former special purpose acquisition company called Industrea Acquisition Corp("Industrea"). In connection with the closing of the Business Combination, the Company changed its name to Concrete Pumping Holdings, Inc.As part of the Company's business growth strategy and capital allocation policy, strategic acquisitions are considered opportunities to enhance our value proposition through differentiation and competitiveness. Depending on the deal size and characteristics of the M&A opportunities available, we expect to allocate capital for opportunistic M&A utilizing cash on the balance sheet and the revolving line of credit. In recent years we have successfully executed on this strategy, including our 2018 acquisition of Richard O'Brien Companiesand its affiliates, which solidified our presence in the Coloradoand Phoenix, Arizonamarkets and our 2019 acquisition of Capital Pumping, LPand its affiliates, which provided us with complementary assets and operations and significantly expanded our geographic footprint and business in Texas. U.S. Concrete PumpingBrundage-Bone and Capital are concrete pumping service providers in the United States("U.S."). Their core business is the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Equipment generally returns to a "home base" nightly and neither company contracts to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately 90 branch locations across 19 states with their corporate headquarters in Thornton(near Denver), Colorado.
Eco-Pan provides industrial cleanup and containment services, primarily to customers in the construction industry. Eco-Pan uses containment pans specifically designed to hold waste products from concrete and other industrial cleanup operations. Eco-Pan has 17 operating locations across
the United Stateswith its corporate headquarters in Thornton, Colorado. 31
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U.K.Operations Camfaudis a concrete pumping service provider in the United Kingdom("U.K."). Their core business is primarily the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Equipment generally returns to a "home base" nightly and does not contract to purchase, mix, or deliver concrete. Camfaudhas approximately 30 branch locations throughout the U.K., with its corporate headquarters in Epping (near London), England. In addition, during the third quarter of fiscal 2019, we started concrete waste management operations under our Eco-Pan brand name in the U.K.and currently operate from a shared Camfaudlocation. Corporate
Our Corporate segment is mainly related to the intercompany leasing of real estate to some of our
Impacts of COVID-19 In
March 2020, the World Health Organizationdeclared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has rapidly changed market and economic conditions globally and may continue to create significant uncertainty in the macroeconomic environment. In addition, during the second quarter of fiscal 2020, the COVID-19 pandemic drove a sustained decline in our stock price and a deterioration in general economic conditions, which qualified as a triggering event necessitating the evaluation of our goodwill and long-lived assets for indicators of impairment. As a result of the evaluation, we conducted a quantitative interim impairment test as of April 30, 2020resulting in non-cash impairment charges of $43.5 millionand $14.4 millionto our U.S. Concrete Pumpingand U.K.Operations reporting units, respectively. Through July 31, 2021, no subsequent triggering events have been identified. We will continue to evaluate our goodwill and intangible assets in future quarters. Additional impairments may be recorded in the future based on events and circumstances, including those related to COVID-19 discussed above. Despite recent progress in administration of vaccines, both the outbreak, the recent impact from the Delta variant and the containment and mitigation measures have had and are likely to continue to have a serious adverse impact on the global economy, the severity and duration of which are uncertain. It is likely that government stabilization efforts will only partially mitigate the consequences to the economy. To date, the COVID-19 pandemic has negatively impacted revenue volumes primarily in the U.K.and certain markets in the U.S.This impact was most heavily pronounced in the second and third quarters of fiscal 2020. Beginning in the fourth quarter of fiscal 2020, revenue volumes began showing signs of improvement, and as of the third quarter of fiscal 2021, they have returned back to pre-pandemic levels for most of our markets in the United Statesand near pre-pandemic levels in the United Kingdom; however, the impact from COVID-19 remains an issue in certain markets. The full extent to which the COVID-19 pandemic will impact the Company's business, financial condition, and results of operations in the future is highly uncertain and will be affected by a number of factors. These include the duration and extent of the pandemic; the duration and extent of imposed or recommended containment and mitigation measures; the extent, duration, and effective execution of government stabilization and recovery efforts, including those from the successful distribution of an effective vaccine; the impact of the pandemic on economic activity, including on construction projects and the Company's customers' demand for its services; the Company's ability to effectively operate, including as a result of travel restrictions and mandatory business and facility closures; the ability of the Company's customers to pay for services rendered; any further closures of the Company's and the Company's customers' offices and facilities; and any additional project delays or shutdowns. Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements. Any of these events may have a material adverse effect on the Company's business, financial condition, and/or results of operations, including further impairment to our goodwill and intangible assets. The Company will continue to evaluate the effect of COVID-19 on its business. Notes Offering In January 2021, Brundage-Bone Concrete Pumping Holdings Inc., a wholly-owned subsidiary of the Company, closed its private offering of $375.0 millionin aggregate principal amount of senior secured second lien notes due 2026 (the "Senior Notes"). The Senior Notes were issued at par and bear interest at a fixed rate of 6.000% per annum. In addition, we amended and restated our existing ABL credit agreement (the "ABL Facility") to provide up to $125.0 million(previously $60.0 million) of commitments. The offering proceeds, along with approximately $15.0 millionof borrowings under the ABL Facility, were used to repay all outstanding indebtedness under our existing term loan agreement, dated December 6, 2018, and pay related fees and expenses. 32
Restatement and revision of financial statements for prior periods
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 SECreleased 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, 2019and for the Successor period from December 6, 2018through October 31, 2019and (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, 2020and (2) unaudited consolidated interim financial statements for the periods ended July 31, 2020, April 30, 2020, and January 31, 2020to correct the accounting for its Warrants. The unaudited consolidated financial statements for the three and nine month periods ended July 31, 2020included in this Quarterly Report on Form 10-Q reflect the impacts of such revisions. Results of Operations Three Months Ended July 31, Nine Months Ended July 31, (dollars in thousands) 2021 2020 2021 2020 Revenue $ 80,761 $ 77,131 $ 228,054 $ 225,111Cost of operations 43,548 39,330 127,676 123,295 Gross profit 37,213 37,801 100,378 101,816 Gross margin 46.1 % 49.0 % 44.0 % 45.2 % General and administrative expenses 24,951 26,954 73,812 79,941 Goodwill and intangibles impairment - - - 57,944 Transaction costs 111 - 195 - Income (loss) from operations 12,151 10,847 26,371 (36,069 ) Other income (expense): Interest expense, net (6,153 ) (8,364 ) (19,082 ) (26,632 ) Loss on extinguishment of debt - - (15,510 ) - Change in fair value of warrant liabilities 260 (2,734 ) (11,195 ) 130 Other income, net 32 36 85 139 Total other expense (5,861 ) (11,062 ) (45,702 ) (26,363 ) Income (loss) before income taxes 6,290
(215) (19 331) (62 432)
Income tax expense (benefit) 1,652 (462 ) (826 ) (3,829 ) Net income (loss) 4,638 247 (18,505 ) (58,603 ) Less accretion of liquidation preference on preferred stock (525 ) (489 ) (1,530 ) (1,432 ) Net income (loss) available to common shareholders
$ 4,113$ (242 ) $ (20,035 ) $ (60,035 )33
Three months ended
For the three months ended
July 31, 2021, our net income was $4.6 million, as compared to a net income of $0.2 millionin same period a year ago. The improvement was due to (1) a 4.7% year-over-year increase in revenue, (2) $2.2 millionin lower interest expense, (3) a $2.0 millionreduction in general and administrative expenses and (4) $3.0 millionin lower warrant liability revaluation expense. These amounts were offset by a $2.1 millionincrease in income tax expense.
Nine months ended
For the nine-month period ended
July 31, 2021, our net loss was $18.5 million, as compared to a net loss of $58.6 millionin same period a year ago. The primary driver of the lower net loss was a $15.5 millionloss on extinguishment of debt recorded in the fiscal 2021 first quarter in comparison to the $57.9 milliongoodwill and intangibles impairment recorded in the fiscal 2020 second quarter. In addition, we had a $6.1 millionimprovement in general and administrative ("G&A") expenses and a $7.6 millionreduction in interest expense. These amounts were offset by a year-over-year change in the fair value of warrant liabilities of $11.3 millionfrom $0.1 millionof income in the nine-month period ended July 31, 2020to $11.2 millionof expense in the same period of 2021. Total Assets
Total assets increased slightly from
July 31, October 31, (in thousands) 2021 2020 Total Assets U.S. Concrete Pumping
$ 577,398 $ 570,536U.K. Operations 104,641 109,726 U.S. Concrete Waste Management Services 143,797 140,209 Corporate 26,454 25,517 Intersegment (70,324 ) (72,230 ) $ 781,966 $ 773,758Revenue Three Months Ended July 31, Change (in thousands) 2021 2020 $ % Revenue U.S. Concrete Pumping $ 58,025 $ 58,644 $ (619 )-1.1 % U.K. Operations 12,652 9,208 3,444 37.4 % U.S. Concrete Waste Management Services 10,122 9,390 732 7.8 % Corporate 625 625 - 0.0 % Intersegment (663 ) (736 ) 73 -9.9 % Total revenue $ 80,761 $ 77,131 $ 3,6304.7 % Nine Months Ended July 31, Change (in thousands) 2021 2020 $ % Revenue U.S. Concrete Pumping $ 166,509 $ 171,209 $ (4,700 )-2.7 % U.K. Operations 34,285 28,294 5,991 21.2 % U.S. Concrete Waste Management Services 27,552 25,978 1,574 6.1 % Corporate 1,875 1,875 - 0.0 % Intersegment (2,167 ) (2,245 ) 78 -3.5 % Total revenue $ 228,054 $ 225,111 $ 2,9431.3 % 34
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U.S. Concrete PumpingRevenue for our U.S. Concrete Pumpingsegment decreased by 1.1%, or $0.6 million, from the fiscal 2020 third quarter to the fiscal 2021 third quarter. The second quarter of fiscal 2020 was impacted by COVID-19 primarily during the month of April. While revenue in many of our markets has returned back to, or even improved from pre-pandemic levels, the impact from COVID-19 in certain markets, especially on commercial work, remains an issue and therefore drove the decline in revenue. In addition, certain of our markets, most notably in Texas, experienced record or close to record levels of rainfall impacting our ability to provide service in these markets during the fiscal 2021 third quarter. Revenue for our U.S. Concrete Pumpingsegment for the nine-month period ended July 31, 2021decreased by 2.7%, or $4.7 million, from the same period in fiscal 2020. Certain of our markets, most notably in Texasand the central part of the United States, experienced severe adverse weather during the fiscal 2021 nine-month period, which included much higher than average levels of precipitation and some historically rare freezing temperatures, which impacted our ability to provide service. Furthermore, the fiscal 2020 first quarter had no impact from COVID-19 while the fiscal 2021 first quarter was entirely impacted by the effects of the pandemic. U.K.Operations Revenue for our U.K.Operations segment increased by 37.4%, or $3.4 million, from the fiscal 2020 third quarter to the fiscal 2021 third quarter. Excluding the impact from foreign currency translation, revenue was up 23.2% year over year. For the nine-month period ended July 31, 2021, revenue for our U.K.Operations segment increased by 21.2%, or $6.0 million, from the nine-month period ended July 31, 2020. Excluding the impact from foreign currency translation, revenue was up 11.8% year over year. The increase in revenue during both periods was attributable to the recovery from the impact from COVID-19 which had a much stronger impact on our UKoperations in the fiscal 2020 second and third quarters.
Revenue for the
U.S.Concrete Waste Management Servicessegment increased by 7.8%, or $0.7 million, from the fiscal 2020 third quarter to the fiscal 2021 third quarter. For the nine-month period ended July 31, 2021, revenue for the U.S.Concrete Waste Management Servicessegment increased by 6.1%, or $1.6 million, from the same period in fiscal 2020. The increase in revenue during both periods was primarily due to organic growth, pricing improvements, and new product offerings (such as our new roll off service, which allows for 100 to 120 concrete truck mixer wash outs) that more than offset impacts from COVID-19 in certain markets. Corporate There was no change in revenue for our Corporate segment for the periods presented. All activity in our Corporate segment is related to the intercompany leasing of real estate to certain of our U.SConcrete Pumping branches. This revenue is eliminated in consolidation through the Intersegment line included above. Gross Margin Gross margin was 46.1% and 44.0% for the three and nine-month periods ended July 31, 2021, respectively, down 290 basis points and 120 basis points, respectively, from the same periods in fiscal 2020. This slight decline in gross margin is due to inflationary pressures seen throughout the US and UK, specifically around labor and fuel costs.
General and administrative expenses
G&A expenses for the fiscal 2021 third quarter were
$25.0 million, down 7.4% from $27.0 millionin the fiscal 2020 third quarter. As a percent of revenue, G&A expenses were 30.9% for the fiscal 2021 third quarter compared to 34.9% in the fiscal 2020 third quarter. During the fiscal 2020 third quarter, we recorded a $2.0 millioncontingent liability charge for a potential settlement between the Company and our previous shareholders as a result of carrying back certain net operating loss carryforwards and remitting them to the prior shareholders. There was no such charge in the fiscal 2021 third quarter. The other key driver of the decline in our G&A expenses is lower amortization of intangible assets expense of $1.5 million. These amounts were slightly offset by higher administrative overhead expenses. Excluding non-cash G&A expenses related to amortization of intangible assets and stock-based compensation expense, G&A expenses were $17.0 millionfor the fiscal 2021 third quarter (21.1% of revenue), down $0.5 millionfrom $17.5 millionfor the fiscal 2020 third quarter (22.6% of revenue). 35
G&A expenses for the first nine-months of fiscal 2021 were
$73.8 million, down from $79.9 millionin the first nine months of fiscal 2021. As a percent of revenue, G&A expenses were 32.4% for the first nine-months of fiscal 2021 compared to 35.5% in the same period a year ago. The decrease was largely due to lower amortization of intangible assets expense of $4.8 millionand lower stock-based compensation expense of $1.1 million. Excluding amortization of intangible assets and stock-based compensation expense, G&A expenses were down $2.4 millionyear-over-year. The primary driver of the decline was the contingent liability charge discussed above.
During the second quarter of fiscal year 2020, as a result of the COVID-19 impact on the Company's market capitalization, with the assistance of a third party valuation specialist, we performed an interim impairment test over our indefinite-lived trade name intangible assets and goodwill as of
April 30, 2020. The analysis resulted in $57.9 millionin impairments, including a $5.0 millionimpairment of our Brundage-Bone Concrete Pumping trade-name, a $38.5 milliongoodwill impairment for our U.SConcrete Pumping reporting unit and a $14.4 millionimpairment to our U.K.Operations reporting unit. Through July 31, 2021, no subsequent triggering events have been identified.
Change in fair value of liabilities related to warrants
During the third quarter of fiscal 2021 and 2020 we recognized a
$0.3 milliongain and a $2.7 millionexpense, respectively, on the fair value remeasurement of our liability-classified warrants. For the first nine-months of fiscal 2021 and 2020, we recognized an $11.2 millionexpense and a $0.1 milliongain, respectively, on the fair value remeasurement of our liability-classified warrants. The significant increase seen in the fair value remeasurement of the public warrants for the first nine months of fiscal 2021 is due to the substantial increase in the Company's share price.
Transaction costs and debt extinguishment costs
Transaction costs include expenses for legal, accounting, and other professionals that were engaged in connection with an acquisition. There were no significant transaction costs incurred during the three and nine-month periods ended
July 31, 2021or 2020. On January 28, 2021, we (1) closed on our private offering of $375.0 millionin aggregate principal amount of senior secured second lien notes due 2026, (2) amended and restated our existing ABL Facility to provide up to $125.0 million(previously $60.0 million) of commitments and (3) repaid all outstanding indebtedness under our then-existing term loan agreement, dated December 6, 2018. The $15.5 millionin debt extinguishment costs incurred relate to the write-off of all unamortized deferred debt issuance costs that were related to the term loan. Interest Expense, Net Interest expense, net for the three months ended July 31, 2021was $6.2 million, down $2.2 millionfrom $8.4 millionin third quarter of fiscal 2020. Interest expense, net for the nine-month period ended July 31, 2021was $19.1 million, down $7.6 millionfrom $26.6the nine-month period from a year ago. The decreases in both periods were due to having lower average debt from strategic refinance activities secured in January 2021and the associated lower competitive interest rates during the fiscal 2021 periods when compared to the fiscal 2020 periods.
Income tax provision (benefit)
For the third fiscal quarter ended
July 31, 2021, the Company recorded income tax expense of $ 1.7 millionon pretax income of $ 6.3 million. For the same quarter a year ago, the Company recorded income tax benefit of $ 0.5 millionon a pretax loss of $ 0.2 million. For the first nine months of 2021, the Company recorded income tax benefit of $ 0.8 millionon pretax loss of $ 19.3 million. For the same period a year ago, the Company recorded income tax benefit of $ 3.8 millionon 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 millionchange 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, 2020were 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 millioncontingent liability charge that was not deductible for tax purposes and (3) a $1.4 milliondiscrete 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, 2020was 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 UKthat drove an increase in expense to the tax provision of $0.9 million. 36
Adjusted EBITDA (1) and net income (loss)
Net Income (Loss) Adjusted EBITDA Three Months Ended July 31, Three Months Ended July 31, Change (in thousands, except percentages) 2021 2020 2021 2020 $ % U.S. Concrete Pumping $ 1,844 $ 865
$ 18,403 $ 21,170 $ (2,767 )-13.1 % U.K. Operations 384 (20 ) 4,087 3,397 690 20.3 % U.S. Concrete Waste Management Services 1,832 1,679 5,334 4,846 488 10.1 % Corporate 578 (2,277 ) 625 625 - 0.0 % Total adjusted EBITDA $ 4,638 $ 247 $ 28,449 $ 30,038 $ (1,589 )-5.3 % Net Income (Loss) Adjusted EBITDA Nine Months Ended July 31, Nine Months Ended July 31, Change (in thousands) 2021 2020 2021 2020 $ %
$ 54,338 $ (4,343 )-8.0 % U.K. Operations 254 (16,868 ) 10,948 8,524 2,424 28.4 % U.S.Concrete Waste Management Services 3,282 2,904 13,037 12,650 387 3.1 % Corporate (10,282 ) 1,286 1,877 1,875 2 0.1 %
Total adjusted EBITDA
(1) Please refer to the “Non-GAAP Measures (EBITDA and Adjusted EBITDA)” section below.
U.S. Concrete PumpingAdjusted EBITDA for our U.S. Concrete Pumpingsegment was $18.4 millionfor the three months ended July 31, 2021and $21.2for the third quarter of fiscal 2020. For the nine-month period ended July 31, 2021, adjusted EBITDA for our U.S. Concrete Pumpingsegment was $50.0 million, down 8.0% from $54.3 million. The year-over-year decline seen for both the three and nine-month periods was primarily attributable to the year-over-year change in revenue and higher costs due to inflation that drove a slight decline in our gross margins as discussed previously. U.K.Operations Adjusted EBITDA for our U.K.Operations segment was $4.1 millionfor the three months ended July 31, 2021as compared to $3.4 millionfor the same period in fiscal 2020. For the nine-month period ended July 31, 2021, adjusted EBITDA for our U.K.Operations segment was $10.9 million, up 28.4% from $8.5 millionfor the same period in fiscal 2020. The year-over-year increase was primarily attributable to the year-over-year improvement in revenue discussed previously.
Adjusted EBITDA for our
U.S.Concrete Waste Management Servicessegment was $5.3 millionfor the three months ended July 31, 2021, up 10.1% as compared to $4.8 millionfor the same period in fiscal 2020. For the nine-month period ended July 31, 2021, adjusted EBITDA for our U.S.Concrete Waste Management segment was $13.0 million, up 3.1% from $12.7 millionin the same period in fiscal 2020. The year-over-year increase was primarily attributable to the strong year-over-year revenue growth coupled with slightly improved gross margins. Corporate
There was no movement in Adjusted EBITDA for our Corporate segment for the two periods presented. Any year-over-year change for our Headquarters segment is primarily related to the allocation of overheads.
Liquidity and capital resources
Overview We use our liquidity and capital resources to: (1) finance working capital requirements; (2) service our indebtedness; (3) purchase property, plant and equipment; and (4) finance strategic acquisitions, such as the acquisition of Capital. Our primary sources of liquidity are cash generated from operations, available cash and cash equivalents and access to our revolving credit facility under our Asset-Based Lending Credit Agreement (the "ABL Facility"), which provides for aggregate borrowings of up to
$125.0 million, subject to a borrowing base limitation. As of July 31, 2021, we had $20.2 millionof cash and cash equivalents and $121.9 millionof available borrowing capacity under the ABL Facility, providing total available liquidity of $142.2 million. Capital Resources Our capital structure is primarily a combination of (1) permanent financing, represented by stockholders' equity; (2) zero-dividend convertible perpetual preferred stock; (3) long-term financing represented by our Senior Notes and (4) short-term financing under our ABL Facility. We may from time to time seek to retire or pay down borrowings on the outstanding balance of our ABL Facility or Senior Notes using cash on hand. Such repayments, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We believe our existing cash and cash equivalent balances, cash flow from operations and borrowing capacity under our ABL Facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, potential acquisitions and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity could result in dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Senior Notes and ABL Facility 38
Table of Contents Senior Notes
The summary terms of the Senior Secured Notes are as follows:
? Provides for an initial aggregate principal amount of
? The Senior Notes will mature and will be due and payable in full on
2026; ? The Senior Notes bear interest at a rate of 6.000% per annum, payable on
February 1stand August 1steach year;
? The senior notes are guaranteed jointly and severally on a senior guaranteed security
based by the Company,
each of the national wholly-owned subsidiaries of the Issuer that are borrowers
and some of the guarantors under the ABL Facility (collectively, the
“The guarantors”). The Senior Bonds and the guarantees are guaranteed on a
of second priority by all the assets of the Issuer and the Guarantors
which secure the obligations under the ABL facility, subject to certain
exceptions. The Senior Bonds and the guarantees will belong to the Issuer 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 debts and commitments of the
Subsidiaries of the Company which do not guarantee the Senior Bonds;
? The act includes certain restrictive clauses which limit, among other things, the
The issuer’s ability and the ability of its restricted subsidiaries to: incur
additional indebtedness and issuance of certain preferred shares; Make sure
restricted investments, distributions and other payments; create or engage
certain privileges; 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, 2021was $375.0 millionand as of that date, the Company was in compliance with all covenants under the Indenture.
Revolving Asset Based Credit Agreement
Summary terms of the ABL Facility, as modified on
? Availability of borrowing in
millions and an accordion function under which the Company can increase the ABL
Ease up to a surcharge
? Borrowing capacity available for stand-by letters of credit up to
? All loans granted will fall due and be due and payable in full on
2026; ? Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement;
? Loans in
LIBOR rate or (2) a base rate, in each case increased by an applicable margin
currently set at 2.0% and 1.00% per annum, respectively. The ABL facility is
subject to a reduction of 0.25% based on excess availability levels;
? The obligations of the US ABL facility will be secured by a
security on almost all the assets of the American guarantors ABL,
subject to certain exceptions;
security on almost all of the assets of the
? The ABL facility also includes (i) a spring financial covenant (fixed
expense coverage rate) based on the excess availability levels that the Company
must comply on a quarterly basis during the required compliance periods and
(ii) certain non-financial covenants.
There were no outstanding balances under the amended ABL facility at
Table of Contents Cash Flows Cash generated from operating activities typically reflects net income, as adjusted for non-cash expense items such as depreciation, amortization and stock-based compensation, and changes in our operating assets and liabilities. Generally, we believe our business requires a relatively low level of working capital investment due to low inventory requirements and customers paying the Company as invoices are submitted daily for many of our services. Net cash provided by operating activities generally reflects the cash effects of transactions and other events used in the determination of net income or loss. Net cash provided by operating activities during the nine-month period ended
July 31, 2021was $60.3 million. The Company had a net loss of $18.5 millionthat included an increase of $1.4 millionin our net deferred income taxes, a gain on sale of assets of $1.1 million, and significant non-cash charges totaling $75.6 millionas follows: (1) depreciation of $21.2 million, (2) amortization of intangible assets of $20.5 million, (3) amortization of deferred financing costs of $1.9 million, (4) loss on extinguishment of debt expense of $15.5 million, (5) stock-based compensation expense of $5.3 million, and (6) an $11.2 millionincrease in the fair value of warrant liabilities. In addition, we had cash inflows primarily related to the following activity: (1) a decrease of $0.5 millionin trade receivables, (2) an increase of $5.9 millionin accrued payroll, accrued expenses and other current liabilities and (3) an increase of $0.8 millionin income taxes payable. These amounts were partially offset by net cash outflows primarily related to a $1.3 millionincrease in prepaid expenses and other current assets. We used $29.5 millionto fund investing activities during the nine-month period ended July 31, 2021. The Company used $34.6 millionfor the purchase of property, plant and equipment, which was partially offset by proceeds from the sale of property, plant and equipment of $5.1 million. Net cash used in financing activities was $16.9 millionfor the nine-month period ended July 31, 2021. Financing activities during this period included $1.9 millionin net borrowings under the Company's ABL Facility, $375.0 millionin proceeds from the issuance of Senior Notes, $381.2 millionin payments made to extinguish the Term Loan Agreement and $8.5 millionin debt issuance costs. Net cash provided by operating activities during the nine-month period ended July 31, 2020was $53.5 million. The Company had a net loss of $58.6 millionthat included a non-cash gain of $0.1 millionfrom the change in fair value of warrant liabilities, a loss of $0.1 millionin our net deferred income taxes, a gain on sale of assets of $0.9 millionand significant non-cash charges totaling $110.0 millionas follows: (1) Goodwilland intangibles impairment of $57.9 million, (2) depreciation of $19.5 million, (3) amortization of intangible assets of $25.3 million, (4) amortization of deferred financing costs of $3.1 millionand (5) stock-based compensation expense of $4.2 million. In addition, we had cash outflows related to the following activity: (1) a $3.5 millionincrease in prepaid expenses and other current assets, (2) a $1.5 milliondecrease in accounts payable, (3) a decrease of $3.9 millionin income taxes payable and (4) a $0.5 millionpayment of contingent consideration in excess of amounts established in purchase accounting. These amounts were partially offset by net cash inflows primarily related to the following activity: (1) a decrease of $1.7 millionin trade receivables and (2) an increase of $10.8 millionin accrued payroll, accrued expenses and other current liabilities. We used $30.3 millionto fund investing activities during the nine-month period ended July 31, 2020. The Company used $36.7 millionfor the purchase of property, plant and equipment, which was partially offset by proceeds from the sale of property, plant and equipment of $6.4 million. Net cash provided by financing activities was $27.8 millionfor the nine-month period ended July 31, 2020. Financing activities during this period included $10.7 millionin net borrowings under the Company's ABL Credit Agreement and was partially offset by payments on the Term Loan Agreement of $15.7 millionand the payment of the contingent consideration in connection with the acquisition of Camfaudof $1.2 million. 40
Non-GAAP measures (EBITDA and Adjusted EBITDA)
We calculate EBITDA by taking GAAP net income and adding back interest expense, income taxes, depreciation and amortization. Adjusted EBITDA is calculated by taking EBITDA and adding back transaction expenses, loss on debt extinguishment, stock-based compensation, other income, net, goodwill and intangibles impairment, and other adjustments. We believe these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends related to our financial condition and results of operations, and as a tool for investors to use in evaluating our ongoing operating results and trends and in comparing our financial measures with competitors
whoalso present similar non-GAAP financial measures. In addition, these measures (1) are used in quarterly and annual financial reports prepared for management and our board of directors and (2) may be used to help management determine incentive compensation. EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated under GAAP. These non-GAAP measures exclude certain cash expenses that we are obligated to record on our GAAP financial statements. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently or may not calculate it at all, which limits the usefulness of EBITDA and Adjusted EBITDA as comparative measures. Transaction expenses represent expenses for legal, accounting, and other professionals that were engaged in the completion of various acquisitions. Transaction expenses can be volatile as they are primarily driven by the size of a specific acquisition. As such, we exclude these amounts from Adjusted EBITDA for comparability across periods. Other adjustments include severance expenses, director fees, expenses related to being a publicly-traded company and other non-recurring costs. In addition, within the individual segment presentations only, other adjustments also include transfer pricing and allocation of intercompany related expenses, which are eliminated in consolidation.
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