Concrete Pumping Holdings, Inc. - Quarter Report: 2020 January (Form 10-Q)

 

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 January 31, 2020

OR

 

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

 

 Commission File No. 001-38166

 

CONCRETE PUMPING HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware	83-1779605
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

 

500 E. 84th Avenue, Suite A-5

Thornton, Colorado 80229

(Address of principal executive offices, including zip code)

 

(303) 289-7497

(Registrant's telephone number, including area code)

None

(Former name, former address and former fiscal year, if changes since last report)

  

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	BBCP	The Nasdaq Capital Market

 

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

 

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

 

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

 

Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐	Smaller Reporting Company	☒
Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

As of March 9, 2020, the registrant had 58,221,934 shares of common stock outstanding. 

 

 

CONCRETE PUMPING HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED JANUARY 31, 2020

 

		Page
Part I. Financial Information
Item 1.	Unaudited Consolidated Financial Statements:
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive Income	4
	Consolidated Statements of Changes in Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	52
Part II. Other Information
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	54
Signatures		55

 

 

PART I

 

ITEM 1.     Unaudited Consolidated Financial Statements 

 

		(Unaudited)
		January 31,				October 31,
(in thousands except per share amounts)		2020				2019
ASSETS
Current assets:
Cash and cash equivalents		$	2,636			$	7,473
Trade receivables, net			40,911				45,957
Inventory			5,827				5,254
Income taxes receivable			1,376				697
Prepaid expenses and other current assets			8,360				3,378
Total current assets			59,110				62,759
Property, plant and equipment, net			310,976				307,415
Intangible assets, net			214,123				222,293
Goodwill			277,102				276,088
Other non-current assets			1,765				1,813
Deferred financing costs			936				997
Total assets		$	864,012			$	871,365
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan		$	38,661			$	23,555
Term loans, current portion			20,888				20,888
Current portion of capital lease obligations			92				91
Accounts payable			7,872				7,408
Accrued payroll and payroll expenses			5,792				9,177
Accrued expenses and other current liabilities			14,332				28,106
Income taxes payable			1,299				1,153
Deferred consideration			-				1,708
Total current liabilities			88,936				92,086
Long term debt, net of discount for deferred financing costs			356,699				360,938
Capital lease obligations, less current portion			454				477
Deferred income taxes			68,547				69,049
Total liabilities			514,636				522,550
Zero-dividend convertible perpetual preferred stock, $0.0001 par value, 2,450,980 shares issued and outstanding as of January 31, 2020 and October 31, 2019			25,000				25,000
Stockholders' equity
Common stock, $0.0001 par value, 500,000,000 shares authorized, 58,221,934 issued and outstanding as of January 31, 2020 and October 31, 2019, respectively			6				6
Additional paid-in capital			351,956				350,489
Treasury stock			(131	)			-
Accumulated other comprehensive income (loss)			1,372				(599	)
(Accumulated deficit)			(28,827	)			(26,081	)
Total stockholders' equity			324,376				323,815
Total liabilities and stockholders' equity		$	864,012			$	871,365

 

		Successor								Predecessor
(in thousands, except share and per share amounts)		Three Months Ended January 31, 2020				December 6, 2018 through January 31, 2019				November 1, 2018 through December 5, 2018
Revenue		$	73,939			$	33,970			$	24,396
Cost of operations			41,791				21,103				14,027
Gross profit			32,148				12,867				10,369
General and administrative expenses			26,607				13,681				4,936
Transaction costs			-				-				14,167
Income (loss) from operations			5,541				(814	)			(8,734	)
Other income (expense):
Interest expense, net			(9,503	)			(5,592	)			(1,644	)
Loss on extinguishment of debt			-				-				(16,395	)
Other income, net			69				11				6
Total other expense			(9,434	)			(5,581	)			(18,033	)
Loss before income taxes			(3,893	)			(6,395	)			(26,767	)
Income tax benefit			(1,147	)			(2,765	)			(4,192	)
Net loss			(2,746	)			(3,630	)			(22,575	)
Less accretion of liquidation preference on preferred stock			(473	)			(269	)			(126	)
Less undistributed earnings allocated to preferred shares			-				-				-
Loss available to common shareholders		$	(3,219	)		$	(3,899	)		$	(22,701	)
Weighted average common shares outstanding
Basic			52,629,214				28,847,707				7,576,289
Diluted			52,629,214				28,847,707				7,576,289
Net loss per common share
Basic		$	(0.06	)		$	(0.14	)		$	(3.00	)
Diluted		$	(0.06	)		$	(0.14	)		$	(3.00	)

 

		Successor								Predecessor
(in thousands)		Three Months Ended January 31, 2020				December 6, 2018 through January 31, 2019				November 1, 2018 through December 5, 2018
Net loss		$	(2,746	)		$	(3,630	)		$	(22,575	)
Other comprehensive income:
Foreign currency translation adjustment			1,971				(557	)			(674	)
Total comprehensive loss		$	(775	)		$	(4,187	)		$	(23,249	)

 

(in thousands)		Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive Income				Retained Earnings (Accumulated Deficit)				Total
Balance at October 31, 2018		$	8			$	18,724			$	584			$	26,704				46,020
Net loss			-				-				-				(22,575	)			(22,575	)
Stock-based compensation			-				27				-				-				27
Foreign currency translation adjustment			-				-				(674	)			-				(674	)
Balance at December 5, 2018		$	8			$	18,751			$	(90	)		$	4,129			$	22,798

		Common Stock												Accumulated Other
(in thousands)		Class A				Class B				Additional Paid-In Capital				Comprehensive Income				Accumulated Deficit				Total
Balance at December 6, 2018		$	-			$	1			$	12,433			$	-			$	(7,434	)		$	5,000
Redemption of Class A common stock			-				-				(12,433	)			-				(3,577	)			(16,010	)
Issuance of Class A common stock			1				-				96,900				-				-				96,901
Rollover of Class A common stock as a result of the Business Combination			1				-				164,908				-				-				164,909
Conversion of Class B common stock			1				(1	)			-				-				-				-
Net loss			-				-				-				-				(3,630	)			(3,630	)
Foreign currency translation adjustment			-				-				-				(557	)			-				(557	)
Balance at January 31, 2019		$	3			$	-			$	261,808			$	(557	)		$	(14,641	)		$	246,613

(in thousands)		Common Stock				Additional Paid-In Capital				Treasury Stock				Accumulated Other Comprehensive Income				Accumulated Deficit				Total
Balance at October 31, 2019		$	6			$	350,489			$	-			$	(599	)		$	(26,081	)		$	323,815
Stock-based compensation expense			-				1,467				-				-				-				1,467
Shares issued upon exercise of stock options, net of shares used for tax withholding			-				-				(131	)			-				-				(131	)
Net loss			-				-				-				-				(2,746	)			(2,746	)
Foreign currency translation adjustment			-				-				-				1,971				-				1,971
Balance at January 31, 2020		$	6			$	351,956			$	(131	)		$	1,372			$	(28,827	)		$	324,376

 

		Successor								Predecessor
(in thousands)		Three Months Ended January 31, 2020				December 6, 2018 through January 31, 2019				November 1, 2018 through December 5, 2018
Net loss		$	(2,746	)		$	(3,630	)		$	(22,575	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			6,492				3,503				2,060
Deferred income taxes			(645	)			(1,156	)			(4,355	)
Amortization of deferred financing costs			1,044				496				152
Write off deferred debt issuance costs			-				-				3,390
Amortization of debt premium			-				-				(11	)
Amortization of intangible assets			8,593				4,871				653
Stock-based compensation expense			1,467				-				27
Prepayment penalty on early extinguishment of debt			-				-				13,004
Gains, net of losses, on the sale of property, plant and equipment			(281	)			(305	)			(166	)
Payment of contingent consideration in excess of amounts established in purchase accounting			(537	)			-				-
Net changes in operating assets and liabilities (net of acquisitions):
Trade receivables, net			5,207				4,648				485
Inventory			(549	)			172				(294	)
Prepaid expenses and other current assets			(5,771	)			(2,585	)			(1,283	)
Income taxes payable, net			(558	)			(210	)			203
Accounts payable			393				(9,107	)			(654	)
Accrued payroll, accrued expenses and other current liabilities			(10,295	)			(9,646	)			17,280
Net cash provided by (used in) operating activities			1,814				(12,949	)			7,916
Cash flows from investing activities:
Purchases of property, plant and equipment			(17,410	)			(11,243	)			(503	)
Proceeds from sale of property, plant and equipment			1,718				598				364
Cash withdrawn from Industrea Trust Account			-				238,474				-
Acquisition of net assets, net of cash acquired - CPH acquisition			-				(445,386	)			-
Net cash (used in) investing activities			(15,692	)			(217,557	)			(139	)

		Successor								Predecessor
(in thousands)		Three Months Ended January 31, 2020				December 6, 2018 through January 31, 2019				November 1, 2018 through December 5, 2018
Cash flows from financing activities:
Proceeds on long term debt			-				357,000				-
Payments on long term debt			(5,222	)			-				-
Proceeds on revolving loan			84,460				17,267				4,693
Payments on revolving loan			(69,748	)			-				(20,056	)
Payment of debt issuance costs			-				(20,863	)			-
Redemption of common shares			-				(231,415	)			-
Payments on capital lease obligations			(22	)			(14	)			(7	)
Issuance of common stock related to stock plans			-				-				-
Purchase of treasury stock			(131	)			-				-
Issuance of preferred shares			-				25,000				-
Payment of underwriting fees			-				(8,050	)			-
Issuance of common shares			-				96,900				-
Payment of contingent consideration established in purchase accounting			(1,183	)			-				-
Net cash provided by (used in) financing activities			8,154				235,825				(15,370	)
Effect of foreign currency exchange rate on cash			887				(556	)			(70	)
Net increase (decrease) in cash			(4,837	)			4,763				(7,663	)
Cash:
Beginning of period			7,473				4				8,621
End of period		$	2,636			$	4,767			$	958

		Successor								Predecessor
(in thousands)		Three Months Ended January 31, 2020				December 6, 2018 through January 31, 2019				November 1, 2018 through December 5, 2018
Supplemental cash flow information:
Cash paid for interest		$	11,191			$	849			$	201
Cash paid for income taxes		$	(40	)		$	(83	)		$	-
Non-cash investing and financing activities:
Fair value of rollover equity for Business Combination		$	-			$	164,908			$	-
Equipment purchases included in accrued expenses and accounts payable		$	4,110			$	1,415			$	-

 

Note 1. Organization and Description of Business

 

Organization

 

Concrete Pumping Holdings, Inc. (the “Company” or “Successor”) is a Delaware corporation headquartered in Thornton (near Denver), Colorado. The Consolidated Financial Statements include the accounts of Concrete Pumping Holdings, Inc. and its wholly owned subsidiaries including Brundage-Bone Concrete Pumping, Inc. (“Brundage-Bone”), Capital Pumping (“Capital”), Camfaud Group Limited (“Camfaud”), and Eco-Pan, Inc. (“Eco-Pan”).

 

On December 6, 2018 (the "Closing Date"), the Company, formerly known as Concrete Pumping Holdings Acquisition Corp., consummated a business combination transaction (the “Business Combination”) pursuant to which it acquired (i) the private operating company formerly called Concrete Pumping Holdings, Inc. (“CPH”) and (ii) the former special purpose acquisition company called Industrea Acquisition Corp (“Industrea”). In connection with the closing of the Business Combination, the Company changed its name to Concrete Pumping Holdings, Inc.  The financial results described herein for the dates and periods prior to the Business Combination relate to the operations of CPH prior to the consummation of the Business Combination. See Note 4 – Business Combinations for further discussion.

 

Nature of business

 

Brundage-Bone and Capital are concrete pumping service providers in the United States ("U.S.") and Camfaud is a concrete pumping service provider in the United Kingdom (“U.K.”). Their core business is the provision of concrete pumping services to general contractors and concrete 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 22 states, with its corporate headquarters in Thornton (near Denver), Colorado. Camfaud has 28 branch locations throughout the U.K., with its corporate headquarters in Epping (near London), England.

 

Eco-Pan provides industrial cleanup and containment services, primarily to customers in the construction industry in the U.S. and the U.K. Eco-Pan uses containment pans specifically designed to hold waste products from concrete and other industrial cleanup operations. Eco-Pan has 16 operating locations across the U.S. and 1 operating location in the U.K., with its corporate headquarters in Thornton (near Denver), Colorado.

 

Seasonality

 

The Company’s sales are historically seasonal, with lower revenue in the first quarter and higher revenue in the fourth quarter of each year. Such seasonality also causes the Company’s working capital cash flow requirements to vary from quarter to quarter and primarily depends on the variability of weather patterns with the Company generally having lower sales volume during the winter and spring months. 

 

Note 2. Summary of Significant Accounting Policies

 

Basis of presentation

 

The accompanying Unaudited Consolidated Financial Statements have been prepared, without audit, in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. The enclosed statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company at January 31, 2020 and for all periods presented. All intercompany balances and transactions have been eliminated in consolidation.

 

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

 

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

 

 

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

 

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

 

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

 

Principles of consolidation

 

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

 

Use of estimates

 

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

 

Significant estimates include accrued sales and use taxes, the liability for incurred but unreported claims under various partially self-insured polices, allowance for doubtful accounts, goodwill impairment analysis, valuation of share-based compensation and accounting for business combinations. Actual results may differ from those estimates, and such differences may be material to the Company’s consolidated financial statements.

 

Trade receivables

 

Trade receivables are carried at the original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts. Generally, the Company does not require collateral for their accounts receivable; however, the Company may file statutory liens or take other appropriate legal action when necessary on construction projects in which collection problems arise. A trade receivable is typically considered to be past due if any portion of the receivable balance is outstanding for more than 30 days. The Company does not charge interest on past-due trade receivables.

 

Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. The allowance for doubtful accounts was $0.6 million as of January 31, 2020 and October 31, 2019. 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 January 31, 2020 or October 31, 2019.

 

Fair Value Measurements

 

The Financial Accounting Standard Board's (the “FASB”) standard on fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This standard establishes three levels of inputs that may be used to measure fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities.

 

Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

Deferred financing costs

 

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

 

Debt issuance costs, including any original issue discounts, related to term loans are reflected as a direct deduction from the carrying amount of the long-term debt liability that is included in long term debt, net of discount for deferred financing costs in the accompanying consolidated balance sheets. Debt issuance costs related to revolving credit facilities are capitalized and reflected in deferred financing in the accompanying consolidated balance sheets. 

 

Goodwill

 

In accordance with ASC Topic 350, Intangibles–Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit.

 

 

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:

 

 

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 January 31, 2020.

  

Revenue recognition

 

The Company generates revenues primarily from concrete pumping services in both the U.S. and U.K. Additionally, revenue is generated from the Company’s waste management business which consists of service fees charged to customers for the delivery of its pans and containers and the disposal of the concrete waste material.

 

The Company recognizes revenue from these businesses when all of the following criteria are met: (a) persuasive evidence of an arrangement exists, (b) the service has been performed or delivery has occurred, (c) the price is fixed or determinable, and (d) collectability is reasonably assured. The Company’s delivery terms for replacement part sales are FOB shipping point.

 

The Company imposes and collects sales taxes concurrent with its revenue-producing transactions with customers and remits those taxes to the various governmental authorities as prescribed by the taxing jurisdictions in which it operates. The Company presents such taxes in its consolidated statement of operations on a net basis. 

 

 

Stock-based compensation

 

The Company follows ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors. The Company expenses the grant date fair value of the award in the consolidated statements of operations over the requisite service periods on a straight-line basis. The Company accounts for forfeitures as they occur in accordance with ASU No. 2016-09, Compensation—Stock Compensation (ASC 718): Improvements to Employee Share-Based Payment Accounting.

 

Income taxes

 

The Company complies with ASC 740, Income Taxes, which requires a liability approach to financial reporting for income taxes.

 

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

 

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

 

Foreign currency translation

 

The functional currency of Camfaud is the Pound Sterling (GBP). The assets and liabilities of the foreign subsidiaries are translated into U.S. Dollars using the period end exchange rates, and the consolidated statements of operations are translated at the average rate for the period. The resulting translation adjustments are recorded as a component of comprehensive income on the consolidated statements of comprehensive income and accumulated in other comprehensive income. The functional currency of our other subsidiaries is the United States Dollar.

 

Earnings per share

 

The Company calculates earnings per share in accordance with ASC 260, Earnings per Share. The two-class method of computing earnings per share is required for entities that have participating securities. The two-class method is an earnings allocation formula that determines earnings per share for participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The Company has two classes of stock: (1) Common Stock and (2) Participating Preferred Stock (“Preferred Stock”).

 

Basic earnings (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the weighted average number of shares of Common Stock outstanding each period. Diluted earnings (loss) per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents which would arise from the exercise of stock options outstanding using the treasury stock method and the average market price per share during the period. Common stock equivalents are not included in the diluted earnings (loss) per share calculation when their effect is antidilutive.

 

An anti-dilutive impact is an increase in earnings per share or a reduction in net loss per share resulting from the conversion, exercise, or contingent issuance of certain securities.

 

 

Business combinations

 

The Company applies the principles provided in ASC 805, Business Combinations (“ASC 805”), when a business is acquired. Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any differences between the fair value of consideration transferred and the fair value of net assets acquired. Transaction costs for business combinations are expensed as incurred in accordance with ASC 805.

 

Concentrations

 

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

 

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

 

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

 

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.

 

Newly adopted accounting pronouncements

 

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

 

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

 

Recently issued accounting pronouncements not yet effective

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606) (“ASU 2014-09”), which is a comprehensive new revenue recognition model.

 

Under ASU 2014-09 and the related clarifying ASUs, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for emerging growth companies in annual reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019 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, 2020. The Company is currently evaluating the impact of the pending adoption of the new standard on the consolidated financial statements. 

 

 

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which is codified in ASC 842, Leases (“ASC 842”) and supersedes current lease guidance in ASC 840, Leases. ASC 842 requires a lessee to recognize a right-of-use asset and a corresponding lease liability for substantially all leases. The lease liability will be equal to the present value of the remaining lease payments while the right-of-use asset will be similarly calculated and then adjusted for initial direct costs. In addition, ASC 842 expands the disclosure requirements to increase the transparency and comparability of the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, Leases ASC 842: Targeted Improvements, which allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

 

The new standard is effective for emerging growth companies for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. 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 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, 2023. The amendments of this ASU should be applied on a modified retrospective basis to all periods presented. The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements.

 

Note 4. Business Combinations

 

May 2019 Acquisition of Capital Pumping

 

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

 

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

 

 

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

 

 

December 2018 Acquisition of CPH

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

Unaudited Pro Forma Financial Information

 

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

 

The unaudited pro forma financial information is as follows:

 

 

 

 

 

Note 5.     Fair Value Measurement

 

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

 

The Company's long-term debt instruments are recorded at their carrying values in the consolidated balance sheet, which may differ from their respective fair values. The fair values of the long-term debt instruments are derived from Level 2 inputs.  The fair value amount of the Long-term debt instruments at January 31, 2020 and at October 31, 2019 is presented in the table below based on the prevailing interest rates and trading activity of the Term loans.

 

 

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

 

The Company's non-financial assets, which primarily consist of property and equipment, goodwill and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite lived intangibles), non-financial instruments are assessed for impairment and, if applicable, written down to and recorded at fair value.

 

 

 

 Note 6. Prepaid Expenses and Other Current Assets

 

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

 

 

Note 7. Property, Plant and Equipment

 

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

 

 

Depreciation expense for the Successor three-month period ended January 31, 2020 and the period from December 6, 2018 to January 31, 2019 was $6.5 million and $3.5 million, respectively. Depreciation expense for the Predecessor from November 1, 2018 to December 5, 2018 was $2.1 million. Depreciation expense related to revenue producing machinery and equipment is recorded in cost of operations and an immaterial amount of depreciation expense related to our capital leases and furniture and fixtures is included in general and administrative expenses.

 

 

 

Note 8. Goodwill and Intangible Assets

 

The Company recognized goodwill and certain intangible assets in connection with business combinations (see Note 4 - Business Combinations). The following table summarizes the composition of intangible assets at January 31, 2020 and at October 31, 2019:

 

 

Amortization expense for the Successor three-month period ended January 31, 2020 and the period from December 6, 2018 to January 31, 2019 was $8.6 million and $4.9 million, respectively. Amortization expense for the Predecessor from November 1, 2018 to December 5, 2018 was $0.7 million. The estimated aggregate amortization expense for intangible assets over the next five fiscal years ending October 31 and thereafter is as follows:

 

 

The changes in the carrying value of goodwill by reportable segment for the quarter ended January 31, 2020 are as follows:

 

 

 

 

Note 9. Long Term Debt and Revolving Lines of Credit

Successor

 

As part of the Business Combination, the Predecessor’s Revolver, U.K. Revolver, Senior secured notes, and Seller notes (see Predecessor section below for a discussion of these agreements) were all extinguished and the Company entered into (i) a term loan agreement, dated December 6, 2018, among the Company, certain subsidiaries of the Company, Credit Suisse AG, Cayman Islands Branch as administrative agent and Credit Suisse Loan Funding LLC, Jefferies Finance LLC and Stifel Nicolaus & Company Incorporated LLC as joint lead arrangers and joint bookrunners, and the other Lenders party thereto and (the “Term Loan Agreement”) (ii) a Credit Agreement, dated December 6, 2018, 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, and the other parties thereto (“ABL Credit Agreement”). In addition, in order to finance the acquisition of Capital, the Company added $60.0 million of incremental term loans under the Term Loan Agreement in May 2019. Summarized terms of these facilities are included below.

 

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 Credit Agreement priority collateral and (ii) a second priority perfected lien on substantially all ABL Credit Agreement priority collateral, in each case subject to customary exceptions and limitations;
	●	The Term Loan Agreement includes certain non-financial covenants.

 

The outstanding balance under the Term Loan Agreement as of January 31, 2020 was $396.9 million and as of that date, the Company was in compliance with all debt covenants. The Company’s interest on borrowings under the Term Loan Agreement bear interest using the London Inter-bank Offered Rate (LIBOR) as the base rate plus an applicable margin in line with the summarized terms of the Term Loan Agreement as described above.

 

Future maturities of the term loans for fiscal years ending October 31 and thereafter is as follows:

 

 

 

ABL Credit Agreement

 

Summarized terms of the ABL Credit Agreement are as follows:

 

	●	Borrowing availability in U.S. Dollars and GBP up to a maximum of $60.0 million;
	●	Borrowing capacity available for standby letters of credit of up to $7.5 million and for swingline loan borrowings of up to $7.5 million. Any issuance of letters of credit or making of a swingline loan will reduce the amount available under the ABL Facility;
	●	All loans advanced will mature and be due and payable in full five years after the Closing Date;
	●	Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement;
	●	Borrowings in U.S. Dollars and GBP under the ABL Credit Agreement will 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 Credit Agreement is subject to two step-downs of 0.25% and 0.50% based on excess availability levels;
	●	U.S. ABL Credit Agreement 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;
	●	U.K. ABL Credit Agreement 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
	●	The ABL Credit Agreement also includes (i) a springing financial covenant (fixed charges coverage ratio) based on excess availability levels that the Company must comply with on a quarterly basis during required compliance periods and (ii) certain non-financial covenants.

 

The outstanding balance under the ABL Credit Agreement as of January 31, 2020 was $38.7 million and as of that date, the Company was in compliance with all debt covenants.

 

Predecessor

 

Revolving line of credit

 

The Predecessor had a revolving loan agreement (the "Revolver"). Summarized terms of the Revolver were as follows:

 

	●	Maximum borrowing capacity of $65.0 million with a maturity date of September 8, 2022;
	●	Borrowings bear interest at the LIBOR rate plus an applicable margin that resets quarterly and is (a) 2.00%, (b) 2.25% or (c) 2.50% if the quarterly average excess availability is (a) at least 66.67%, (b) less than 66.67% and at least 33.33% and (c) less than 33.33%, respectively;
	●	Interest is due monthly and the outstanding principal balance was due upon maturity;
	●	On October 2, 2017, $35.0 million of the Revolver balance was transferred to a 3-month line of credit with a separate LIBOR interest rate; and
	●	Required Predecessor to maintain a maximum ratio of total fixed charges.

 

 

U.K. Revolver

 

The Predecessor had a revolving loan agreement (the “U.K. Revolver”) associated with the acquisition of Camfaud in November 2016. The U.K. Revolver had a maximum borrowing capacity of approximately $28.0 million and bore interest at LIBOR plus 2.00%. The U.K. Revolver required the Predecessor maintain a maximum ratio of total fixed charges.

 

Senior secured notes

 

In August 2014, the Predecessor issued $140.0 million in senior secured notes through a high-yield bond offering under SEC Rule 144A (“Senior Notes”). In November 2016, the Predecessor issued additional senior secured notes of $40.0 million as an incremental borrowing with the same terms and form as the original Senior Notes.

 

Summarized terms of the Senior Notes were as follows:

 

	●	Maturity date on September 1, 2021. Principal due upon maturity;
	●	Interest rate of 10.375% per annum, payments due every March 1 and September 1 commencing March 1, 2015;
	●	The Senior Notes were secured by substantially all of the assets of the Company and contain various non-financial covenants.

 

Over the period of January 2016 through September 2017, the Predecessor repurchased and retired approximately $26.0 million, in the aggregate, of principal of the Senior Notes.

 

In September 2017, the Predecessor completed an exchange of substantially all outstanding existing Senior Notes for newly issued senior secured notes (“New Senior Notes”). The terms of the New Senior Notes were identical to the Senior Notes except that the maturity date was extended to September 1, 2023.

 

In conjunction with the acquisition of the O’Brien Companies (See Note 4 - Business Combinations) in April 2018, the Predecessor issued additional New Senior Notes with a principal amount of $15.0 million at a 104 percent premium for a total purchase price of $15.6 million. The $0.6 million has been recorded by the Company as a debt premium and will be amortized over the life of the New Senior Notes using the effective interest method. 

 

 

Seller notes

 

In connection with the acquisitions of the Camfaud and Reilly Concrete Pumping Limited (“Reilly”) in November 2016 and July 2017, respectively, the Predecessor entered into separate loan agreements with the former owners of Camfaud and Reilly for $6.2 million and $1.9 million, respectively (collectively, the “Seller Notes”). The Seller Note with respect to Camfaud bore interest at 5.0% per annum and all principal plus accrued interest was due upon the earlier of; (1) 6 months after the U.K. Revolver is repaid in full, (2) 42 months after the acquisition date (May 2020) or (3) the date on which the Predecessor suffers an insolvency event. The Seller Note with respect to Reilly bore interest at 5.0% per annum and all principal plus accrued interest are due three years after the acquisition date (July 2020). The Seller Notes were unsecured.

 

In connection with the Business Combination, the Company repaid its existing credit facilities in full and replaced them with the Term Loan Agreement and the ABL Credit Agreement. The Company also incurred an aggregate of $16.4 million of costs related to the extinguishment of its existing debts, including the write-off of unamortized borrowing costs and an early extinguishment fee paid to its lenders. The amount has been reflected as debt extinguishment costs in the Predecessor’s consolidated statement of income for the period ended December 5, 2018.

 

The table below is a summary of the composition of the Company’s long-term debt balances at January 31, 2020 and at October 31, 2019.

 

 

Note 10. Accrued Payroll and Payroll Expenses

 

The following table summarizes accrued payroll and expenses at January 31, 2020 and at October 31, 2019:

 

 

 

 

Note 11. Accrued Expenses and Other Current Liabilities

 

The following table summarizes accrued expenses and other current liabilities at January 31, 2020 and at October 31, 2019: 

 

 

Note 12. Income Taxes

 

For the first quarter ended January 31, 2020, we recorded an income tax benefit of $1.1 million on a pretax loss of $3.9 million, resulting in an effective tax rate of 29.5%. For the Successor period from December 6, 2018 to January 31, 2019, the Company recorded an income tax benefit of $2.8 million on a pretax loss of $6.4 million, resulting in a 43.2% effective tax rate. For the Predecessor period from November 1, 2018 to December 5, 2018, the Company recorded an income tax benefit of $4.2 million on a pretax loss of $26.8 million, resulting in an effective tax rate of 15.7%.

 

The factors impacting comparability between our effective tax rates for the periods discussed above are as follows:

 

	(1)	The Predecessor recording tax expense of $1.4 million for the period ended December 5, 2018 related to nondeductible transaction related costs;
	(2)	The Successor including $0.7 million of tax expense in the estimated annual effective rate for the period ended January 31, 2019 related to foreign income inclusions compared to $0.3 million for the period ended January 31, 2020 and $0.0 for the Predecessor period ended December 5, 2018;
	(3)	The impact from the reduction in the current statutory UK corporate tax rate from 19% to 17% for the period ended January 31, 2020; and
	(4)	Differences in our estimated full year income before tax and the related impact on our estimated full year effective tax rate that was applied to year to date losses for the Successor periods ended January 31, 2020 and January 31, 2019.

 

At January 31, 2020 and October 31, 2019, we had deferred tax liabilities, net of deferred tax assets, of $68.5 million and $69.0 million, respectively. The decrease in our net deferred tax liability is primarily due to current year operating results and reversal of existing deferred tax assets and liabilities during the period ended January 31, 2020. The Company has a valuation allowance of $0.1 million as of both January 31, 2020 and October 31, 2019 related to foreign tax credit carryforwards where realization is more uncertain at this time due to the limited carryforward periods that exist.

 

The Company had unrecognized tax benefits of $1.7 million as of January 31, 2020 and October 31, 2019. If recognized, none of these benefits would favorably impact the Company's income tax expense.

 

 

 

Note 13. Commitments and Contingencies

 

Insurance

 

As of January 31, 2020 and October 31, 2019, the Company was partially insured for automobile, general and worker's compensation liability with the following deductibles:

 

 

We had accrued $4.6 million and $5.0 million, as of January 31, 2020 and October 31, 2019, 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 January 31, 2020 and October 31, 2019, the Company had accrued $0.8 million and $1.1 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 $0.2 million and $0.3 million, as of January 31, 2020 and October 31, 2019, respectively, and is included in cash and cash equivalents in the accompanying consolidated balance sheets.

 

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 Credit Agreement provides for up to $7.5 million of standby letters of credit. As of January 31, 2020, total outstanding letters of credit totaled $1.2 million, the vast majority of which had been committed to the Company’s general liability insurance provider.

 

 

 

Note 14. Stockholders’ Equity

 

In conjunction with the Business Combination, all common and preferred shares that were in existence for the Predecessor were settled and no longer outstanding subsequent to December 5, 2018. On December 6, 2018, in connection with the closing of the Business Combination, the Company redeemed a total of 22,337,322 shares of its Class A common stock pursuant to the terms of its certificate of incorporation, resulting in a total cash payment from the Company’s trust account to redeeming stockholders of $231.4 million.

 

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

 

On May 14, 2019, in order to finance a portion of the purchase price for the acquisition of Capital, the Company completed a public offering of 18,098,166 of its common stock at a price of $4.50 per share, receiving net proceeds of approximately $77.4 million, after deducting underwriting discounts, commissions, and other offering expenses. In connection with the offering, certain of the Company’s directors, officers and significant stockholders, and certain other related investors, purchased an aggregate of 3,980,166 shares of its common stock from the underwriters at the public offering price of $4.50, representing approximately 25% of the total shares issued (without giving effect to the underwriters’ option to purchase additional shares).

 

As discussed below, on April 29, 2019, 2,101,213 shares of common stock were issued in exchange for the Company's public warrants and 1,707,175 shares of common stock were issued in exchange for the Company's private warrants. After the completion of the warrant exchange and as of January 31, 2020, there were 13,017,777 public warrants and no private warrants outstanding.

 

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.

 

Warrant Exchange

 

On April 1, 2019, the Company commenced an offer to each holder of its publicly traded warrants (the “public warrants”) and private placement warrants that were issued in connection with Industrea’s initial public offering on April 17, 2017 (the “private warrants”) the opportunity to receive 0.2105 shares of common stock in exchange for each outstanding public warrant tendered and 0.1538 shares of common stock in exchange for each private warrant tendered pursuant to the offer (the “Offer” or “Warrant Exchange”).

 

 

On April 26, 2019, a total of 9,982,123 public warrants and 11,100,000 private warrants were tendered for exchange pursuant to the Offer.  On April 29, 2019, 2,101,213 shares of common stock were issued in exchange for the tendered public warrants and 1,707,175 shares of common stock were issued in exchange for the tendered private warrants. A negligible amount of cash was paid for fractional shares. As no agreement was modified as a result of the exchange, we concluded that the exchange of Company common stock for the warrants was analogous to a share repurchase. The Company recorded a loss on repurchase of the warrants of $5.2 million in the 2019 second quarter, all of which was included as an adjustment to retained earnings. The $5.2 million loss reflects the par value of the warrants in APIC of $21.1 million less the fair value of the common stock that was issued in exchange for the warrants of $26.3 million. After the completion of the Warrant Exchange and as of January 31, 2020, 13,017,777 public warrants and no private warrants were outstanding.

 

Note 15. Stock-Based Compensation

Successor

 

The Company rolled forward certain vested options from the Predecessor (see discussion below) to 2,783,479 equivalent vested options in the Successor. 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 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 vest pursuant to one of the following four 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 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 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 days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

 

Included in the table below is a summary of the awards granted, including the location, type of award, fair value of awards, and the date that expense will be recognized through. In accordance with ASC 718, the market-based awards were assigned the fair values in the table below using a Monte Carlo simulation model.  In addition, while the table below provides a date through which expense will be recognized on a straight-line basis, if at such time these market-based stock awards vest under both vesting conditions, expense recognition will be accelerated. Stock-based compensation expense for the three-month period ended January 31, 2020 was $1.5 million. There were no outstanding stock awards during the period from December 6, 2018 through January 31, 2019.

 

 

Predecessor

 

The Predecessor accounted for share-based awards in accordance with ASC Topic 718 Compensation–Stock Compensation (“ASC 718”), which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at fair value on the date of grant. As a result of the Business Combination, the acceleration clause within the original award agreements was triggered and all unvested awards immediately vested, resulting in an amount of $0.6 million of stock-based compensation expense presented “on the line” (see Note 4 - Business Combinations). Stock-based compensation for the Predecessor period from November 1, 2018 to December 5, 2018 totaled $0.1 million, and has been included in general and administrative expenses on the accompanying consolidated statements of operations. 

 

 

 

Note 16. Earnings Per Share

 

The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share. For purposes of calculating earnings (loss) per share (“EPS”), a company that has participating security holders (for example, holders of unvested restricted stock that have non-forfeitable dividend rights and the Company’s Series A Preferred Stock) is required to utilize the two-class method for calculating EPS unless the treasury stock method results in lower EPS. The two-class method is an allocation of earnings/(loss) between the holders of common stock and a company’s participating security holders. Under the two-class method, earnings/(loss) for the reporting period is calculated by taking the net income (loss) for the period, less both the dividends declared in the period on participating securities (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) for the period. Our common shares outstanding are comprised of shareholder owned common stock and shares of unvested restricted stock held by participating security holders. Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding, excluding participating shares. To calculate diluted EPS, basic EPS is further adjusted to include the effect of potentially dilutive stock options outstanding and Series A Preferred Stock outstanding as of the beginning of the period. 

 

Successor

 

At January 31, 2020 (Successor), the Company had outstanding (1) 13,017,777 million warrants to purchase shares of common stock at an exercise price of $11.50, (2) 5.5 million outstanding unvested restricted stock awards, (3) 1.2 million outstanding vested incentive stock options, (4) 0.8 million outstanding unvested non-qualified stock options, and (5) 2.5 million shares of Series A Preferred Stock, all of which could potentially be dilutive. For the Successor period presented, the weighted-average dilutive impact, if any, of these shares was excluded from the calculation of diluted earnings (loss) per common share because their inclusion would have been anti-dilutive. As a result, dilutive earnings (loss) per share is equal to basic earnings (loss) per share. 

 

The table below shows our basic and diluted EPS calculations for the three-month period ended January 31, 2020 and the period from December 6, 2018 through January 31, 2019:

 

 

 

Predecessor

 

Under the terms and conditions of the Company’s Participating Preferred Stock Agreement, the holders of the preferred stock had the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock on a one-for-one per-share basis. Under the two-class method, undistributed earnings was calculated by the earnings for the period less the cumulative preferred stock dividends earned for the period. The undistributed earnings were then allocated on a pro-rata basis to the common and preferred stockholders on a one-for-one per-share basis. The weighted-average number of common and preferred shares outstanding during the period was then used to calculate basic EPS for each class of shares. As a result, the undistributed earnings available to common shareholders was calculated by earnings (loss) for the period less the cumulative preferred stock dividends earned for the period less undistributed earnings allocated to the holders of the preferred stock.

 

In periods in which the Company had a net loss or undistributed net loss, basic loss per share was calculated by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The two-class method was not used, because the holders of the preferred stock did not participate in losses.

 

The table below shows our basic and diluted EPS calculations for the Predecessor periods from November 1, 2018 through December 5, 2018:

 

 

 

 

Note 17. Segment Reporting

 

The Company conducts business through the following reportable segments based on geography and the nature of services sold:

 

	●	U.S. Concrete Pumping – Consists of concrete pumping services sold to customers in the U.S. Business in this segment is primarily performed under the Brundage-Bone and Capital tradenames.
	●	U.K. Operations – Consists of concrete pumping services and leasing of concrete pumping equipment to customers in the U.K. Business in this segment is primarily performed under the Camfaud Concrete Pumps and Premier Concrete Pumping tradenames. In addition to concrete pumping, we recently started operations of waste management services in the U.K. under the Eco-Pan tradename and the results of this business are included in this segment. This represents the Company’s foreign operations.
	●	U.S. Concrete Waste Management Services – Consists of pans and containers rented to customers in the U.S. and the disposal of the concrete waste material services sold to customers in the U.S. Business in this segment is performed under the Eco-Pan tradename.

 

Any differences between segment reporting and consolidated results are reflected in Corporate and/or Intersegment below.

 

The accounting policies of the reportable segments are the same as those described in Note 2. The Company’s Chief Operating Decision Maker (“CODM”) evaluates the performance of each segment based on revenue, and measures segment performance based upon EBITDA (earnings before interest, taxes, depreciation and amortization). Non-allocated interest expense and various other administrative costs are reflected in Corporate. Corporate assets primarily include cash and cash equivalents, prepaid expenses and other current assets, and real property. The following provides operating information about the Company’s reportable segments for the periods presented:

 

 

 

 

 

 

Total assets by segment for the periods presented are as follows:

 

 

The U.S. and U.K. were the only regions that accounted for more than 10% of the Company’s revenue for the periods presented. There was no single customer that accounted for more than 10% of revenue for the periods presented. Revenue for the periods presented and long lived assets as of January 31, 2020 and October 31, 2019 are as follows:

 

 

 

Note 18. Related Party Transaction

 

Predecessor

 

The Predecessor had a Management Services Agreement, as amended from time to time, with PGP Advisors, LLC (“PGP”), the Predecessor’s largest shareholder, to provide advisory, consulting and other professional services. Under the terms of the agreement the annual fee for these services was $4.0 million from September of 2017 through August of 2019, and $2.0 million annually thereafter. For the period from November 1, 2018 through December 5, 2018, the Predecessor incurred no fees related to this agreement and other agreed upon expenses. These expenses were included in general and administrative expenses on the accompanying consolidated statements of operations. In conjunction with the Business Combination, this agreement was terminated.