# Concrete Pumping Holdings, Inc. (BBCP) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Concrete Pumping Holdings, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1703956/000143774922000815/bbpp20211031_10k.htm
Accession: 0001437749-22-000815
Filing date: 2022-01-12
Report date: 2021-10-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/BBCP/
All MD&A years: /company/BBCP/mda/
Next year: /company/BBCP/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report. In addition to historical information, the following discussion contains forward-looking statements, such as statements regarding the Company’s expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from the Company's expectations. The Company's actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in “Cautionary Note Regarding Forward-Looking Statements,” and in Item 1A “Risk Factors” of this Annual Report on Form 10-K. The Company assumes no obligation to update any of these forward-looking statements.

Business Overview

The Company is a Delaware corporation headquartered in Thornton, Colorado. The audited 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, LP (“Capital”), and Camfaud Group Limited (“Camfaud”), and Eco-Pan, Inc. (“Eco-Pan”).

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 and as further described below, we have successfully executed on this strategy, including our 2018 acquisition of Richard O’Brien Companies and its affiliates, which solidified our presence in the Colorado and Phoenix, Arizona markets and our 2019 acquisition of Capital and its affiliates, which provided us with complementary assets and operations and significantly expanded our geographic footprint and business in Texas.

U.S. Concrete Pumping

All businesses operating within our U.S Concrete Pumping segment 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. This segment collectively has approximately 90 branch locations across 19 states with their corporate headquarters in Thornton (near Denver), Colorado.

In September 2021, the Company acquired assets from Hi-Tech Concrete Pumping Services (“Hi-Tech”) for the total purchase consideration of $12.3 million. This acquisition added complementary assets in our Texas market. In addition, the Company completed its greenfield expansion into Las Vegas during fiscal 2021. Subsequent to the fiscal 2021 year end, the Company acquired the assets of Pioneer Concrete Pumping Service, Inc. (“Pioneer”) in November 2021 for the purchase price of $20.1 million, which added complementary assets in our Georgia and Texas markets.

U.S. Concrete Waste Management Services

Our U.S. Concrete Waste Management Services segment consists of our U.S. based Eco-Pan business. 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 U.S. with its corporate headquarters in Thornton, Colorado.

U.K. Operations

Our U.K. Operations segment consists of our Camfaud, Premier and U.K. based Eco-Pan businesses. Camfaud is a concrete pumping service provider in the U.K. Their core business is primarily the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Equipment generally returns to a “home base” nightly and does not contract to purchase, mix, or deliver concrete. Camfaud has approximately 30 branch locations throughout the U.K., with its corporate headquarters in Epping (near London), England. In addition, we have concrete waste management operations under our Eco-Pan brand name in the U.K. and currently operate from a shared Camfaud location.

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Corporate

Our Corporate segment is primarily related to the intercompany leasing of real estate to certain of our U.S Concrete Pumping branches.

Impacts of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has rapidly changed market and economic conditions globally and may continue to create significant uncertainty in the macroeconomic environment.

In addition, the COVID-19 pandemic drove a sustained decline in the Company's stock price and a deterioration in general economic conditions in its fiscal 2020 second quarter, which qualified as a triggering event necessitating the evaluation of its goodwill and long-lived assets for indicators of impairment. As a result of the evaluation, the Company conducted a quantitative interim impairment test as of April 30, 2020. Through October 31, 2021, no impairments were identified. The Company will continue to evaluate its goodwill and intangible assets in future quarters. Additional impairments may be recorded in the future based on events and circumstances, including those related to COVID-19 discussed above.

Despite recent progress in the administration of vaccines, both the outbreak of recent variants, including Delta and Omicron, and the related containment and mitigation measures that have been put into place across the globe, have had and are likely to continue to have a serious adverse impact on the global economy and the Company, the severity and duration of which are uncertain. To date, the COVID-19 pandemic has negatively impacted the Company's 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 fiscal 2021 year-end, they have largely returned back to pre-pandemic levels for most of our markets in the U.S. and near pre-pandemic levels in the U.K.; 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 inability to retain employees; and any additional project delays or shutdowns. Customers have and may continue to 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, closed its private offering of $375.0 million in aggregate principal amount of senior secured second lien notes due 2026 (the “Senior Notes”). The Senior Notes were issued at par and bear interest at a fixed rate of 6.000% per annum. In addition, we amended and restated our existing ABL credit agreement (the “ABL Facility”) to provide up to $125.0 million (previously $60.0 million) of commitments.  The offering proceeds from our Senior Notes, along with approximately $15.0 million of borrowings under the ABL Facility, were used to repay all outstanding indebtedness under our then-existing Term Loan Agreement (as defined below), dated December 6, 2018, and pay related fees and expenses.

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Restatement and Revision of Prior Period Financial Statements

As described in additional detail in the Explanatory Note to our Annual Report on Form 10-K/A for the year ended October 31, 2020, filed with the SEC on June 11, 2021, the SEC released a public statement on April 12, 2021 (the “SEC Statement”) informing market participants that warrants issued by special purpose acquisition companies (“SPACs”) may require classification as a liability of the entity measured at fair value, with changes in fair value each period reported in earnings.

The Company previously classified its publicly traded warrants (the “public warrants”) and private placement warrants (the “private warrants”) (collectively the “Warrants”), which were issued in August of 2017, as equity. Following consideration of the guidance in the SEC Statement, the Company concluded that its Warrants should have been classified as liabilities and measured at fair value, with changes in fair value each period reported in earnings. As such, the Company previously restated its consolidated financial statements as of October 31, 2019 and, while not material, the Company previously revised its consolidated financial statements as of and for the fiscal year ended October 31, 2020 to correct the accounting for its Warrants. The consolidated financial statements for the year ended October 31, 2020 included in this Annual Report on Form 10-K reflect the impacts of such revisions.

Results of Operations

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

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Twelve Months Ended October 31, 2021 and October 31, 2020

For the twelve-months ended October 31, 2021, our net loss was $15.1 million, compared to a net loss of $61.3 million in the same period a year ago. The primary drivers impacting comparability between the two periods were (1) an $11.7 million improvement in general and administrative ("G&A") expenses, (2) a $57.9 million goodwill and intangibles impairment recorded in fiscal 2020 (with no related charge recorded in fiscal 2021), (3) a $9.2 million reduction in interest expense, offset by (4) a $15.5 million loss on extinguishment of debt recorded in fiscal 2021 (with no related charge in fiscal 2020), (5) $9.6 million in higher expense from the revaluation of warrant liabilities from fiscal 2020 to fiscal 2021 and (6) $7.7 million in higher income tax expense in fiscal 2021 when compared to fiscal 2020.

Total Assets

[[GREPCENT_TABLE]]
[["","","October 31,","","","October 31,"],["(in thousands)","","2021","","","2020"],["Total Assets"],["U.S. Concrete Pumping","","$","591,820","","","$","570,536"],["U.K. Operations","","","109,631","","","","109,726"],["U.S. Concrete Waste Management Services","","","145,199","","","","140,209"],["Corporate","","","26,648","","","","25,517"],["Intersegment","","","(80,633",")","","","(72,230",")"],["","","$","792,665","","","$","773,758"]]
[[/GREPCENT_TABLE]]

Total assets increased from $773.8 million as of October 31, 2020 to $792.7 million as of October 31, 2021. The increase was primarily attributable to growth in our U.S Concrete Pumping segment where we have grown organically through capital expenditures while also completing some limited asset acquisitions during the third and fourth quarters of fiscal 2021.

Revenue 

[[GREPCENT_TABLE]]
[["","","Year Ended October 31,","","","Change"],["(in thousands)","","2021","","","2020","","","$","","","%"],["Revenue"],["U.S. Concrete Pumping","","$","229,475","","","$","229,740","","","$","(265",")","","","-0.1","%"],["U.K. Operations","","","48,098","","","","39,145","","","","8,953","","","","22.9","%"],["U.S. Concrete Waste Management Services","","","38,591","","","","35,890","","","","2,701","","","","7.5","%"],["Corporate","","","2,500","","","","2,500","","","","-","","","","0.0","%"],["Intersegment","","","(2,856",")","","","(2,974",")","","","118","","","","-4.0","%"],["Total revenue","","$","315,808","","","$","304,301","","","$","11,507","","","","3.8","%"]]
[[/GREPCENT_TABLE]]

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U.S. Concrete Pumping

Revenue for our U.S. Concrete Pumping segment decreased by 0.1%, or $0.3 million, from $229.7 million in the twelve-months ended October 31, 2020 to $229.5 million for fiscal 2021. Revenue attributable to growth investments was $1.7 million for fiscal 2021. 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 slight decline in revenue. In addition, certain of our markets, most notably in Texas, the South East and the central part of the United States, experienced severe adverse weather during fiscal 2021, which included much higher than average levels of precipitation and some historically rare freezing temperatures, which impacted our ability to provide service.

U.K. Operations

Revenue for our U.K. Operations segment increased by 22.9%, or $9.0 million, from $39.1 million in the twelve-months ended October 31, 2020 to $48.1 million for fiscal 2021. Excluding the impact from foreign currency translation, revenue was up 14.0% year-over-year. The increase in revenue was primarily attributable to the recovery from the impact of COVID-19.

U.S. Concrete Waste Management Services

Revenue for the U.S. Concrete Waste Management Services segment improved by 7.5%, or $2.7 million, from $35.9 million in the twelve-months ended October 31, 2020 to $38.6 million for fiscal 2021. The increase in revenue was primarily due to organic growth and pricing improvements 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. Any year-over-year changes for our Corporate segment were primarily related to the intercompany leasing of real estate to certain of our U.S Concrete Pumping branches. These revenues are eliminated in consolidation through the Intersegment line item.

Gross Margin

Gross margin for the twelve-months ended October 31, 2021 decreased 150 basis points from 45.1% in the twelve-months ended October 31, 2020 to 43.6%. The slight decrease in gross margin for the twelve-months ended October 31, 2021 was primarily due to inflationary pressures seen throughout the U.S., specifically for labor and fuel costs.

General and Administrative Expenses

G&A expenses for the twelve-months ended October 31, 2021 were $99.4 million, a decrease of $11.7 million from $111.1 million in the twelve-months ended October 31, 2020. The overall decrease was largely due to (1) a $4.9 million decrease in stock-based compensation expense and (2) a $6.3 million decrease in the amortization of intangible assets.

G&A expenses as a percent of revenue were 31.5% for fiscal 2021 compared to 36.5% for the same period a year ago. Excluding non-cash costs for depreciation expense, amortization of intangibles, and stock-based compensation expense, our G&A expenses were $63.6 million for the fiscal year 2021 (20.1% of revenue), down $1.0 million from $64.4 million for fiscal 2020 (21.2% of revenue). 

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Goodwill and Intangibles Impairment

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 million in impairments, including a $5.0 million impairment of our Brundage-Bone trade-name, a $38.5 million goodwill impairment for our U.S Concrete Pumping reporting unit and a $14.4 million impairment to our U.K. Operations reporting unit. No impairments were identified through October 31, 2021. 

Change in Fair Value of Warrant Liabilities

During the years ended October 31, 2021 and 2020 we recognized a $9.9 million and a $0.3 million expense, respectively, on the fair value remeasurement of our liability-classified warrants. The increase seen in the fair value remeasurement of the public warrants year-over-year is due to the substantial increase in the Company's share price.

Transaction Costs & Debt Extinguishment Costs

Transaction costs include expenses for legal, accounting, and other professionals that were engaged in connection with an acquisition. Transaction costs for the twelve months ended October 31, 2021 were $0.3 million and there were no transaction costs during fiscal 2020.

On January 28, 2021, we (1) closed on our private offering of $375.0 million in aggregate principal amount of Senior Notes, (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. In connection with the foregoing, we incurred $15.5 million in debt extinguishment costs relating to the write-off of all unamortized deferred debt issuance costs that were related to the Term Loan Agreement. No such charges were incurred in fiscal 2020.

Interest Expense, Net

Interest expense, net for the year ended October 31, 2021 was $25.2 million, down $9.2 million from the same period from a year ago due to having lower average debt from strategic refinance activities secured in January 2021 and the associated lower competitive interest rates during the fiscal 2021 periods when compared to the fiscal 2020 periods.

Income Tax (Benefit) Provision

For the twelve-months ended October 31, 2021, the Company recorded an income tax expense of $2.6 million on a pretax loss of $12.4 million. Our income tax provision was mostly impacted by the following factors during fiscal 2021:

[[GREPCENT_TABLE]]
[["","(1)","Of the $9.9 million expense that was recorded related to the revaluation of warrant liabilities, no amount was deductible for tax purposes; and"],["","(2)","As a result of an increase in the corporation tax rate in the U.K. from 19% to 25% that goes into effect on April 1, 2023, the Company adjusted the value of its net deferred tax liability, resulting in an increase to income tax expense of $2.1 million."]]
[[/GREPCENT_TABLE]]

For the twelve-months ended October 31, 2020, the Company recorded an income tax benefit of $5.0 million on a pretax loss of $66.0 million. Our income tax provision was mostly impacted by the following factors during fiscal 2020:

[[GREPCENT_TABLE]]
[["","(1)","Of the $57.9 million of impairments recorded for goodwill and intangibles by the Company during the second quarter of fiscal 2020, only $11.2 million was deductible for tax purposes ($2.7 million tax benefit to the Company) as the remaining impairment was related to nondeductible goodwill;"],["","(2)","We recorded a tax benefit of $1.4 million in fiscal 2020 related to write-up in the carrying value of certain net operating losses (\u201cNOL\u201d) carryforwards as it was determined that those NOLs would be carried back to prior years pursuant to the provisions included in the CARES Act; and"],["","(3)","As a result of the increase in the deferred statutory U.K. corporate tax rate from 17% to 19% in fiscal 2020, we recorded $0.9 million of tax expense."]]
[[/GREPCENT_TABLE]]

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Adjusted EBITDA1 and Net Loss

[[GREPCENT_TABLE]]
[["","","Net Loss","","","Adjusted EBITDA"],["","","Year Ended October 31,","","","Year Ended October 31,","","","Change"],["(in thousands)","","2021","","","2020","","","2021","","","2020","","","$","","","%"],["U.S. Concrete Pumping","","$","(10,959",")","","$","(50,140",")","","$","68,091","","","$","74,886","","","$","(6,795",")","","","-9.1","%"],["U.K. Operations","","","(1,028",")","","","(16,620",")","","","15,339","","","","12,228","","","","3,111","","","","25.4","%"],["U.S. Concrete Waste Management Services","","","5,500","","","","4,404","","","","18,411","","","","17,686","","","","725","","","","4.1","%"],["Corporate","","","(8,586",")","","","1,105","","","","2,501","","","","2,501","","","","-","","","","0.0","%"],["Total","","$","(15,073",")","","$","(61,251",")","","$","104,342","","","$","107,301","","","$","(2,959",")","","","-2.8","%"]]
[[/GREPCENT_TABLE]]

1 Please see “Non-GAAP Measures (EBITDA and Adjusted EBITDA)” below for reconciliation of Net Income (Loss) to EBITDA to Adjusted EBITDA.

U.S. Concrete Pumping 

Adjusted EBITDA for our U.S. Concrete Pumping segment was $68.1 million for the twelve-months ended October 31, 2021, down 9.1% from $74.9 million for the twelve-months ended October 31, 2020. The year-over-year decline 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 $15.3 million for the twelve-months ended October 31, 2021, up 25.4% from $12.2 million for the twelve-months ended October 31, 2020. The year-over-year increase was primarily attributable to the year-over-year improvement in revenue discussed previously.

U.S. Concrete Waste Management Services

Adjusted EBITDA for our U.S. Concrete Waste Management Services segment was $18.4 million for the twelve-months ended October 31, 2021, up 4.1% from $17.7 million for the twelve-months ended October 31, 2020. The increase was primarily attributable to the year-over-year change in revenue discussed previously.

Corporate

There was no change in Adjusted EBITDA for our Corporate segment for the periods presented.

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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 ABL Facility, which provides for aggregate borrowings of up to $125.0 million, subject to a borrowing base limitation. As of October 31, 2021, we had $9.3 million of cash and cash equivalents and $120.6 million of available borrowing capacity under the ABL Facility, providing total available liquidity of $129.9 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 agreements in place governing such debt could provide for operating and financing covenants that could restrict our operations.

Senior Notes and ABL Facility

On January 28, 2021, Brundage-Bone (the “Issuer”) (i) completed a private offering of $375.0 million in aggregate principal amount of its 6.000% Senior Notes issued pursuant to an indenture, among the Issuer, the Company, the other Guarantors (as defined below), Deutsche Bank Trust Company Americas, as trustee and as collateral agent (the "Indenture") and (ii) entered into an amended and restated ABL Facility (the "ABL Facility") by and among the Company, certain subsidiaries of the Company, Wells Fargo Bank, National Association, as agent, sole lead arranger and sole bookrunner and the other Lenders party thereto, which provided up to $125.0 million of asset-based revolving loan commitments to the Company and the other borrowers under the ABL Facility. The proceeds from the Senior Notes, along with certain borrowings under the ABL Facility, were used to repay all outstanding indebtedness under the Company’s then-existing Term Loan Agreement (see discussion below), dated December 6, 2018, and pay related fees and expenses. Summarized terms of these facilities are included below.

Term Loan Agreement and ABL Credit Agreement

As part of the Business Combination, 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 (as amended, the “Term Loan Agreement”) and (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”). As noted above, the Term Loan Agreement was repaid and the ABL Credit Agreement was amended on January 28, 2021.

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Senior Notes

Summarized terms of the Senior Notes are as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","Provides for an original aggregate principal amount of $375.0 million;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The Senior Notes will mature and be due and payable in full on February 1, 2026;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The Senior Notes bear interest at a rate of 6.000% per annum, payable on February 1st and August 1st each year;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The Senior Notes are jointly and severally guaranteed on a senior secured basis by the Company, Concrete Pumping Intermediate Acquisition Corp. and each of the Issuer\u2019s domestic, wholly-owned subsidiaries that is a borrower or a guarantor under the ABL Facility (collectively, the \"Guarantors\"). The Senior Notes and the guarantees are secured on a second-priority basis by all the assets of the Issuer and the Guarantors that secure the obligations under the ABL Facility, subject to certain exceptions. The Senior Notes and the guarantees will be the Issuer\u2019s and the Guarantors\u2019 senior secured obligations, will rank equally with all of the Issuer\u2019s and the Guarantors\u2019 existing and future senior indebtedness and will rank senior to all of the Issuer\u2019s and the Guarantors\u2019 existing and future subordinated indebtedness. The Senior Notes are structurally subordinated to all existing and future indebtedness and liabilities of the Company\u2019s subsidiaries that do not guarantee the Senior Notes;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The Indenture includes certain covenants that limit, among other things, the Issuer\u2019s ability and the ability of its restricted subsidiaries to: incur additional indebtedness and issue certain preferred stock; make certain investments, distributions and other restricted payments; create or incur certain liens; merge, consolidate or transfer all or substantially all assets; enter into certain transactions with affiliates; and sell or otherwise dispose of certain assets."]]
[[/GREPCENT_TABLE]]

The outstanding principal amount of Senior Notes as of October 31, 2021 was $375.0 million and as of that date, the Company was in compliance with all covenants under the Indenture.

Asset Based Revolving Lending Facility

Summarized terms of the ABL Facility are as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","Borrowing availability in USD and GBP up to a maximum aggregate principal amount of $125.0 million and an accordion feature under which the Company can increase the ABL Facility by up to an additional $75.0 million;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Up to $7.5 million of the borrowing capacity available for standby letters of credit;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","All loans advanced will mature and be due and payable, and the facility will terminate, in full on January 28, 2026;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Amounts borrowed may be repaid and reborrowed at any time, subject to the terms and conditions of the agreement;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Borrowings in USD and GBP (through September 30, 2021 for GBP borrowings) bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at 2.0% and 1.00% per annum, respectively. After September 30, 2021, borrowings in GBP bear interest at the SONIA rate plus an applicable margin currently set at 2.0326%. The applicable margin with respect to the ABL Facility is subject to a step-down of 0.25% based on excess availability levels;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The unused line fee percentage is 25 basis points if the quarterly average amount drawn is greater than 50% of the borrowing availability; 50 basis points if the quarterly average amount drawn is less than 50% of borrowing availability;"],["","\u25cf","US ABL Facility obligations will be secured by a first-priority perfected security interest in substantially all the assets of the US ABL Guarantors, subject to certain exceptions;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","UK ABL Facility obligations will be secured by a first priority perfected security interest in substantially all assets of the US ABL Guarantors and the UK ABL Guarantors, subject to certain exceptions; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The ABL Facility also includes (i) a springing financial covenant (fixed charges coverage ratio) based on excess availability levels that the Company must comply with on a quarterly basis during required compliance periods and (ii) certain non-financial covenants."]]
[[/GREPCENT_TABLE]]

The outstanding balance under the ABL Facility as of October 31, 2021 was $1.0 million and the Company was in compliance with all debt covenants thereunder.

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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 twelve-months ended October 31, 2021 was $75.8 million. The Company had a net loss of $15.1 million that included a decrease of $2.5 million in our net deferred income taxes, a gain on sale of assets of $1.2 million and significant non-cash charges, net totaling $90.2 million as follows: (1) depreciation of $28.8 million, (2) amortization of intangible assets of $27.1 million, (3) amortization of deferred financing costs of $2.3 million (4) loss on extinguishment of debt expense of $15.5 million, (5) stock-based compensation expense of $6.6 million, and (6) a $9.9 million increase in the fair value of warrant liabilities. In addition, we had cash inflows related to the following activity: (1) an increase of $4.0 million in accounts payable, (2) an increase of $1.0 million in accrued payroll, accrued expenses and other current liabilities and (3) an increase of $0.5 million in income taxes payable. These amounts were partially offset by outflows related to the following activity: (1) an increase of $4.2 million in trade receivables, and (2) an increase of prepaid expenses and other current assets of $1.8 million.

We used $56.6 million to fund investing activities during the twelve-months ended October 31, 2021. The Company used $62.8 million for the purchase of property, plant and equipment and $0.8 million for the purchase of intangible assets. These amounts were partially offset by $7.0 million in proceeds from the sale of property, plant and equipment.

Net cash used in financing activities was $16.0 million for the twelve-months ended October 31, 2021. Financing activities during this period included $0.9 million in net payments under the Company’s ABL Facility, $375.0 million in proceeds from the issuance of Senior Notes, $381.2 million in payments made to extinguish the Company's Term Loan Agreement and $8.5 million in the payment of debt issuance costs.

Net cash provided by operating activities during the twelve-months ended October 31, 2020 was $79.0 million. The Company had a net loss of $61.3 million that included an increase of $1.0 million in our net deferred income taxes, a gain on sale of assets of $1.5 million and significant non-cash charges, net totaling $132.4 million as follows: (1) goodwill and intangibles impairment of $57.9 million, (2) depreciation of $28.3 million, (3) amortization of intangible assets of $33.4 million, (4) amortization of deferred financing costs of $4.1 million (5) stock-based compensation expense of $11.5 million and (6) change in fair value of warrant liabilities of $0.3 million. In addition, we had cash inflows related to the following activity: (1) a decrease of $1.6 million in trade receivables, (2) a decrease of prepaid expenses and other current assets of $1.7 million, and (3) an increase of $5.8 million in accrued payroll, accrued expenses and other current liabilities. These amounts were partially offset by outflows related to the following activity: (1) a decrease of $1.0 million in income taxes payable, (2) a decrease of $0.8 million in accounts payable, and (3) a $0.5 million payment of contingent consideration in connection with the acquisition of Camfaud in excess of amounts established in purchase accounting.

We used $35.9 million to fund investing activities during the twelve-months ended October 31, 2020. The Company used $39.3 million for the purchase of property, plant and equipment, which was partially offset by $3.5 million in proceeds from the sale of property, plant and equipment.

Net cash used in financing activities was $43.9 million for the twelve-months ended October 31, 2020. Financing activities during this period included $21.7 million in net payments under the Company’s ABL Credit Agreement, $20.9 million in payments on the Company's Term Loan Agreement, and the payment of the contingent consideration in connection with the acquisition of Camfaud of $1.2 million.

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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, 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 provide a tool for investors to use in evaluating our ongoing operating results and trends and in comparing our financial measures with competitors who also present similar non-GAAP financial measures. In addition, these measures (1) are used in quarterly and annual financial reports prepared for management and our board of directors and (2) help management to 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 make. 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 reversal of intercompany allocations (in consolidation these net to zero), severance expenses, director fees, expenses related to being a newly publicly-traded company and other non-recurring costs, which includes the $2.0 million charge recorded during fiscal 2020 related to a settlement with the Company's prior shareholders.

[[GREPCENT_TABLE]]
[["","","Year Ended October 31,"],["(in thousands)","","2021","","","2020"],["Consolidated"],["Net loss","","$","(15,073",")","","$","(61,251",")"],["Interest expense, net","","","25,190","","","","34,408"],["Income tax expense (benefit)","","","2,642","","","","(4,977",")"],["Depreciation and amortization","","","55,906","","","","61,655"],["EBITDA","","","68,665","","","","29,835"],["Transaction expenses","","","312","","","","-"],["Loss on debt extinguishment","","","15,510","","","","-"],["Stock-based compensation","","","6,591","","","","11,455"],["Change in fair value of warrant liabilities","","","9,894","","","","261"],["Other income, net","","","(117",")","","","(169",")"],["Goodwill and intangibles impairment","","","-","","","","57,944"],["Other adjustments","","","3,487","","","","7,975"],["Adjusted EBITDA","","$","104,342","","","$","107,301"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","Year Ended October 31,"],["(in thousands)","","2021","","","2020"],["U.S. Concrete Pumping"],["Net loss","","$","(10,959",")","","$","(50,140",")"],["Interest expense, net","","","22,031","","","","31,452"],["Income tax benefit","","","(956",")","","","(5,955",")"],["Depreciation and amortization","","","37,381","","","","41,717"],["EBITDA","","","47,497","","","","17,074"],["Transaction expenses","","","312","","","","-"],["Loss on debt extinguishment","","","15,510","","","","-"],["Stock-based compensation","","","6,591","","","","11,455"],["Other income, net","","","(42",")","","","(37",")"],["Goodwill and intangibles impairment","","","-","","","","43,500"],["Other adjustments","","","(1,777",")","","","2,894"],["Adjusted EBITDA","","$","68,091","","","$","74,886"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Year Ended October 31,"],["(in thousands)","","2021","","","2020"],["U.K. Operations"],["Net loss","","$","(1,028",")","","$","(16,620",")"],["Interest expense, net","","","3,159","","","","2,955"],["Income tax expense","","","1,759","","","","80"],["Depreciation and amortization","","","8,238","","","","8,422"],["EBITDA","","","12,128","","","","(5,163",")"],["Transaction expenses","","","-","","","","-"],["Loss on debt extinguishment","","","-","","","","-"],["Stock-based compensation","","","-","","","","-"],["Other income, net","","","(53",")","","","(132",")"],["Goodwill and intangibles impairment","","","-","","","","14,444"],["Other adjustments","","","3,264","","","","3,079"],["Adjusted EBITDA","","$","15,339","","","$","12,228"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","Year Ended October 31,"],["(in thousands)","","2021","","","2020"],["U.S. Concrete Waste Management Services"],["Net income","","$","5,500","","","$","4,404"],["Interest expense, net","","","-","","","","-"],["Income tax expense","","","1,486","","","","593"],["Depreciation and amortization","","","9,447","","","","10,687"],["EBITDA","","","16,433","","","","15,684"],["Transaction expenses","","","-","","","","-"],["Loss on debt extinguishment","","","-","","","","-"],["Stock-based compensation","","","-","","","","-"],["Other income, net","","","(22",")","","","-"],["Goodwill and intangibles impairment","","","-","","","","-"],["Other adjustments","","","2,000","","","","2,002"],["Adjusted EBITDA","","$","18,411","","","$","17,686"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Year Ended October 31,"],["(in thousands)","","2021","","","2020"],["Corporate"],["Net income (loss)","","$","(8,586",")","","$","1,105"],["Interest expense, net","","","-","","","","1"],["Income tax expense","","","353","","","","305"],["Depreciation and amortization","","","840","","","","829"],["EBITDA","","","(7,393",")","","","2,240"],["Transaction expenses","","","-","","","","-"],["Loss on debt extinguishment","","","-","","","","-"],["Stock-based compensation","","","-","","","","-"],["Change in fair value of warrant liabilities","","","9,894","","","","261"],["Other income, net","","","-","","","","-"],["Goodwill and intangibles impairment","","","-","","","","-"],["Other adjustments","","","-","","","","-"],["Adjusted EBITDA","","$","2,501","","","$","2,501"]]
[[/GREPCENT_TABLE]]

JOBS Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. As we are an emerging growth company, we have qualified for and have previously elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. The Company will no longer be an emerging growth company as of October 31, 2022 and will have to adopt and comply with accounting and legal standards for non-emerging growth companies as of fiscal 2022. 

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Critical Accounting Policies and Estimates

In presenting our financial statements in conformity with U.S. GAAP, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material impact to our consolidated and combined results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our business activities are in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.

Listed below are those estimates that we believe are critical and require the use of complex judgment in their application.

Goodwill and Intangible Assets

In accordance with ASC Topic 350, Intangibles–Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment annually, generally as of August 31st, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating fair value of individual reporting units and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions including those relating to the duration and severity of COVID-19. These assumptions and estimates include projected revenue, trade name royalty rates, discount rate, tax amortization benefit and other market factors outside of our control.

During the second quarter of fiscal year 2020, the Company identified a triggering event from the recent decline in its stock price and deterioration in general economic conditions resulting from the COVID-19 pandemic. As a result, the Company performed an interim step one goodwill impairment analysis in accordance with Accounting Standards Update ("ASU") 2017-04, Intangibles — Goodwill and Other (ASC 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) and recorded a goodwill and intangibles impairment charge of $57.9 million. The Company elects to perform a qualitative assessment for the other quarterly reporting periods throughout the fiscal year. No such impairment was required during fiscal 2021.

When we perform a quantitative goodwill impairment test, the estimated fair value of our reporting units are determined using an income approach that utilizes a discounted cash flow (“DCF”) model and a market approach that utilizes the guideline public company method (“GPC”), both of which are weighted for each reporting unit and are discussed below in further detail. In accordance with ASC 820, we evaluated the methods for reasonableness and reliability and assigned weightings accordingly. A mathematical weighting is not prescribed by ASC 820, rather it requires judgement. As such, each of the valuation methods were weighted by accounting for the relative merits of each method and considered, among other things, the reliability of the valuation methods and the inputs used in the methods. In addition, in order to assess the reasonableness of the fair value of our reporting units as calculated under both approaches, we also compare the Company’s total fair value to its market capitalization and calculate an implied control premium (the excess sum of the reporting unit’s fair value over its market capitalization). We evaluate the implied control premium by comparing it to control premiums of recent comparable market transactions, as applicable.

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Under the income approach, the DCF model is based on expected future after-tax operating cash flows of the reporting unit, discounted to a present value using a risk-adjusted discount rate. Estimates of future cash flows require management to make significant assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amount and timing of cash flows and the probability of achieving the estimated cash flows, (ii) the probability of regulatory approvals, and (iii) future economic conditions, including the extent and duration of the COVID-19 pandemic, all of which may differ from actual future cash flows. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rate, which is intended to reflect the risks inherent in future cash flow projections, used in the DCF model, is based on estimates of the weighted average cost of capital (“WACC”) of market participants relative to our reporting unit. Financial and credit market volatility can directly impact certain inputs and assumptions used to develop the WACC. Any changes in these assumptions may affect our fair value estimate and the result of an impairment test. The discount rates and other inputs and assumptions are consistent with those that a market participant would use.

The GPC method provides an estimate of value using multiples derived from the stock prices of publicly traded companies. This method requires a selection of comparable publicly-traded companies on major exchanges and involves a certain degree of judgment, as no two companies are entirely alike. These companies should be engaged in the same or a similar line of business as the reporting units be evaluated. Once comparable companies are selected, the application of the GPC method includes (i) analysis of the guideline public companies' financial and operating performance, growth, intangible asset's value, size, leverage, and risk relative to the respective reporting unit, (ii) calculation of valuation multiples for the selected guideline companies, and (iii) application of the valuation multiples to each reporting unit's selected operating metrics to arrive at an indication of value. Market multiples for the selected guideline public companies are developed by dividing the business enterprise value of each guideline public company by a measure of its financial performance (e.g., earnings). The business enterprise value is calculated taking the market value of equity (share price times fully-diluted shares outstanding) plus total interest bearing debt net of cash, preferred stock and minority interest. The market value of equity is based upon the stock price of equity as of the valuation date, and the debt figures are taken from the most recently available financial statements as of the valuation date. In selecting appropriate multiples to apply to each reporting unit, we perform a comparative analysis between the reporting units and the guideline public companies. In making a selection, we consider the revenue growth, profitability and the size of the reporting unit compared to the guideline public companies, and the overall EBITDA multiples implied from the transaction price. In addition, we consider a control premium for purposes of estimating the fair value of our reporting units as we believe that a market participant buyer would be required to pay a premium for control of our business. The control premium utilized is based on control premiums observed in recent comparable market transactions.

The impairment charges were primarily due to COVID-19, which negatively impacted our market capitalization, drove an increase in the discount rate that is utilized in our DCF models, and negatively impacted near-term cash flow expectations.

Income Taxes

We are subject to income taxes in the U.S., U.K. and other jurisdictions. Significant judgment is required in determining our provision for income tax, including evaluating uncertainties in the application of accounting principles and complex tax laws.

Income taxes include federal, state and foreign taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the differences between the financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized.

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Stock-Based Compensation. 

ASC Topic 718, Compensation—Stock Compensation (“ASC 718”) requires that share-based compensation expense be measured and recognized at an amount equal to the fair value of share-based payments granted under compensation arrangements. The fair value of each restricted stock award or stock option awards (with an exercise price of $0.01) that only contains a time-based vesting condition is equal to the market value of our common stock on the date of grant. A substantial portion of the Company's stock awards contain a market condition. For those awards, we estimate the fair value using a Monte Carlo simulation model whereby the fair value of the awards is fixed at grant date and amortized over the longer of the remaining performance or service period. The Monte Carlo Simulation valuation model incorporates the following assumptions: expected stock price volatility, the expected life of the awards, a risk-free interest rate and expected dividend yield. Significant judgment is required in determining the expected volatility of our common stock. Due to the limited history of trading of the Company’s common stock, the Company determined expected volatility based on a peer group of publicly traded companies.

The Company accounts for forfeitures as they occur.

Recently Issued Accounting Standards

For a detailed description of recently adopted and new accounting pronouncements refer to Note 3 to the Company’s audited financial statements included elsewhere in this Annual Report.