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 aDelaware corporation headquartered inThornton, Colorado . The audited consolidated financial statements included herein include the accounts ofConcrete Pumping Holdings, Inc. and its wholly owned subsidiaries includingBrundage-Bone Concrete Pumping, Inc. ("Brundage-Bone"), Capital Pumping ("Capital"), andCamfaud Group Limited ("Camfaud"), andEco-Pan, Inc. ("Eco-Pan"). OnDecember 6, 2018 , the Company, formerly known asConcrete Pumping Holdings Acquisition Corp. , consummated a business combination transaction (the "Business Combination") pursuant to which it acquired (i) the private operating company formerly calledConcrete Pumping Holdings, Inc. ("CPH") and (ii) the former special purpose acquisition company calledIndustrea Acquisition Corp ("Industrea"). In connection with the closing of the Business Combination, the Company changed its name toConcrete 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.U.S. Concrete Pumping InMay 2019 , the Company, through its wholly-owned subsidiary Brundage-Bone, acquiredCapital Pumping, LP and its affiliates, a concrete pumping provider based inTexas for a purchase price of$129.2 million . The closing of this acquisition provided the Company with complementary assets and operations and significantly expanded its footprint and business inTexas . Brundage-Bone and Capital are concrete pumping service providers inthe United States ("U.S."). Their core business is the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Equipment generally returns to a "home base" nightly and neither company contracts to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately 90 branch locations across 22 states with their corporate headquarters inThornton (nearDenver ),Colorado .
In addition, in
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 16 operating locations acrossthe United States with its corporate headquarters inThornton, Colorado .U.K. OperationsCamfaud is a concrete pumping service provider in theUnited Kingdom ("U.K."). Their core business is primarily the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Equipment generally returns to a "home base" nightly and does not contract to purchase, mix, or deliver concrete.Camfaud has 28 branch locations throughout theU.K. , with its corporate headquarters in Epping (nearLondon ),England . In addition, during the third fiscal quarter of 2019, we started concrete waste management operations under our Eco-Pan brand name in theU.K. and currently operate from 1 location. 24
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Table of Contents Results of Operations To reflect the application of different bases of accounting as a result of the Business Combination, the tables provided below separate the Company's results via a black line into two distinct periods as follows: (1) up to and including the Business Combination closing date (labeled "Predecessor") and (2) the period after that date (labeled "Successor"). The periods afterDecember 5, 2018 are the "Successor" periods while the periods beforeDecember 6, 2018 are the "Predecessor" periods. The historical financial information ofIndustrea 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 aSPAC , 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 toDecember 6, 2018 besides CPH's operations as Predecessor. AsIndustrea's historical financial information is excluded from the Predecessor financial information, the business, and thus financial results, of the Successor and Predecessor entities, are expected to be largely consistent, excluding the impact on certain financial statement line items that were impacted by the Business Combination. Management believes reviewing our operating results for the twelve-months endedOctober 31, 2019 by combining the results of the Predecessor and Successor periods ("S/P Combined") is more useful in discussing our overall operating performance when compared to the same period in the prior year. Accordingly, in addition to presenting our results of operations as reported in our consolidated financial statements in accordance with GAAP, the tables below present the non-GAAP combined results for the year. 25
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Table of Contents S/P Combined Successor Predecessor (non-GAAP) Predecessor December 6, 2018 through November 1, 2018 Year Ended October through December October 31, Year Ended (dollars in thousands) 31, 2019 5, 2018 2019 October 31, 2018 Revenue$ 258,565 $ 24,396$ 282,961 $ 243,223 Cost of operations 143,512 14,027 157,539 136,876 Gross profit 115,053 10,369 125,422 106,347 Gross margin 44.5 % 42.5 % 44.3 % 43.7 % General and administrative expenses 91,914 4,936 96,850 58,789 Transaction costs 1,521 14,167 15,688 7,590 Income (loss) from operations 21,618 (8,734 ) 12,884 39,968 Other income (expense): Interest expense, net (34,880 ) (1,644 ) (36,524 ) (21,425 ) Loss on extinguishment of debt - (16,395 ) (16,395 ) - Other income, net 47 6 53 55 (34,833 ) (18,033 ) (52,866 ) (21,370 ) Income (loss) before income taxes (13,215 ) (26,767 ) (39,982 ) 18,598 Income tax expense (benefit) (3,303 ) (4,192 ) (7,495 ) (9,784 ) Net income (loss) (9,912 ) (22,575 ) (32,487 ) 28,382 Less preferred shares dividends (1,623 ) (126 ) (1,749 ) (1,428 ) Less undistributed earnings allocated to preferred shares - - - (6,365 ) Income (loss) available to common shareholders$ (11,535 ) $ (22,701 )$ (34,236 ) $ 20,589
Twelve Months Ended
For the S/P Combined twelve months endedOctober 31, 2019 , our net loss was$32.5 million , a decrease of$60.9 million compared to net income of$28.4 million in the same period a year ago, primarily as a result of higher depreciation expense, amortization expense, interest expense, transaction costs, and debt extinguishment costs, all of which were predominantly the result of the Business Combination. We had a 16.3% improvement in revenue year-over-year, driven mostly by the acquisition of Capital. Net income in the S/P Combined twelve months endedOctober 31, 2019 was negatively impacted by higher depreciation expense of$4.6 million , amortization expense of$25.1 million , interest expense, net of$15.1 million , transaction costs of$8.1 million , and debt extinguishment costs of$16.4 million , all of which were predominantly the result of the Business Combination. In addition to the impact from the Business Combination, we incurred an additional$4.1 million in general and administrative ("G&A") expenses on a year-over-year basis resulting from various costs related to being a newly public company, which included legal, accounting, and director-related costs. Approximately$1.6 million of such expenses are expected to be non-recurring. Furthermore, as a result of the enactment of the Tax Cuts and Jobs Act inDecember 2017 (the "2017 Tax Act"), we revalued our deferred tax assets and liabilities in the fiscal 2018 first quarter, resulting in the realization of a$14.6 million tax benefit whereas no such benefit was realized in fiscal 2019. These amounts were slightly offset by positive contributions to net income from the acquisition of Capital, which occurred inMay 2019 . 26
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Table of Contents Total Assets Total assets increased from$370.1 million as ofOctober 31, 2018 to$871.4 million as ofOctober 31, 2019 . The primary driver of the increase in assets for all segments was the Business Combination, which resulted in a step-up in the value of certain assets, primarily goodwill and intangibles, coupled with the Capital acquisition inMay 2019 , which added$129.2 million in net assets to the balance sheet. Successor Predecessor October 31, October 31, (in thousands) 2019 2018 Total Assets U.S. Concrete Pumping$ 637,384 $ 277,936 U.K. Operations 138,435 39,167 U.S. Concrete Waste Management Services 137,646 32,782 Corporate 24,223 20,259 Intersegment (66,323 ) -$ 871,365 $ 370,144 Revenue S/P Combined Successor Predecessor (non-GAAP) Predecessor Change December 6, 2018 through November 1, 2018 Year Ended October through December October 31, Year Ended (in thousands) 31, 2019 5, 2018 2019 October 31, 2018 $ % Revenue U.S. Concrete Pumping$ 187,031 $ 16,659 $
203,690$ 164,306 $ 39,384 24.0 % U.K. Operations 44,021 5,143 49,164 50,448 (1,284 ) -2.5 %U.S. Concrete Waste Management Services 27,779 2,628 30,407 28,469 1,938 6.8 % Corporate 2,258 242 2,500 - 2,500 0.0 % Intersegment (2,524 ) (276 ) (2,800 ) - (2,800 ) 0.0 %$ 258,565 $ 24,396$ 282,961 $ 243,223 $ 39,738 16.3 %U.S. Concrete Pumping For the S/P Combined twelve months endedOctober 31, 2019 for ourU.S. Concrete Pumping segment, revenue was up 24.0%, or$39.4 million , year-over-year to$203.7 million . The incremental benefits from (1) the O'Brien acquisition inApril 2018 , which strengthened our presence in theColorado andArizona markets, and (2) the Capital acquisition inMay 2019 , which added additional pumping capacity in ourTexas market, drove$7.3 million and$25.2 million of the increase in revenue, respectively. We also had notable improvements in revenue in ourOklahoma market, where we worked on several special projects utilizing placing booms, and in ourIdaho market, where we experienced an increase in billable hours. These amounts were slightly offset by approximately$1.5 million of delayed revenue due to a severe, early winter storm that delivered snow and rain fromIdaho toTexas that caused nearly 40% of our operations to be shut down for the final week of the fourth fiscal quarter of 2019. 27
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Table of ContentsU.K. Operations For the S/P Combined twelve months endedOctober 31, 2019 , revenue was down 2.5% year-over-year to$49.2 million . Excluding any impact from foreign exchange rates, revenue for this segment was up 2.4% year-over-year as a result of more favorable weather conditions in theU.K. for most of the fiscal year, which resulted in improved equipment utilization rates of our operating assets. This includes the revenue from the Eco-Pan business that began in the third fiscal quarter of 2019, which amounted to$0.1 million and was immaterial overall to the segment.
For the S/P Combined twelve months endedOctober 31, 2019 , revenue was up$1.9 million or 6.8% year-over-year to$30.4 million . Improved volume in many of our markets was offset by slight declines in certain of ourWest Coast operations due to adverse weather conditions experienced during the first two quarters of fiscal 2019. Specifically, aggregate revenue from operations in theWest Coast was down$0.8 million for the S/P combined twelve months endedOctober 31, 2019 as compared to the prior year period. Corporate There was limited movement in revenue for our Corporate segment for the periods presented. Any year-over-year changes for our Corporate segment was primarily related to the leasing of real estate to the differentU.S Concrete Pumping facilities. Gross Margin Gross margin for the S/P Combined twelve months endedOctober 31, 2019 was 44.3%, up 60 basis points from the prior fiscal year. The increase in gross margin was primarily due to the post-acquisition contribution from the Capital acquisition, more favorable fuel pricing and improvement in the Company's procurement costs. The gross margin improvement was partially offset by the step-up in depreciation related to the Business Combination, as depreciation expense related to pumping equipment is included in the Company's cost of operations.
General and Administrative Expenses
G&A expenses for the S/P Combined twelve months endedOctober 31, 2019 were$96.9 million , up$38.1 million as compared to$58.8 million in the fiscal year endedOctober 31, 2018 . As a percentage of revenue, G&A expenses were 34.2% as compared to 24.2% in the prior fiscal year. The increase was largely due to$25.1 million of higher amortization expense caused by the step-up in fair value of certain intangible assets mostly related to the Business Combination, a$4.1 million increase in legal, accounting, and director-related costs as a result of being a publicly traded company (approximately$1.6 million of these expenses are expected to be non-recurring) and a$3.3 million increase in stock-based compensation expense as a result of a stock grant made by the Company in April of 2019. The remaining increase is largely attributable to incremental G&A expenses from both the O'Brien and Capital acquisitions.
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 and debt extinguishment costs for the S/P Combined twelve months endedOctober 31, 2019 were$15.7 million and$16.4 million , respectively. Of those amounts, the Predecessor incurred$14.2 million of the S&P Combined transaction costs and all of the S&P Combined debt extinguishment costs, all of which were related to the Business Combination. The remaining transaction costs incurred during the Successor period were predominantly related to the acquisition of Capital inMay 2019 . Transaction costs incurred during the fiscal year endedOctober 31, 2018 were primarily related to the O'Brien acquisition. 28
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Table of Contents Interest Expense, Net Interest expense, net for the S/P Combined twelve-months endedOctober 31, 2019 was$36.5 million up$15.1 million from fiscal 2018. As part of the Business Combination, the Company extinguished all previous outstanding debt and entered into a new Term Loan Agreement (as defined below) and ABL Credit Agreement (as defined below). 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 inMay 2019 . The increased interest expense, net, was the result of higher average debt amounts outstanding during the twelve months endedOctober 31, 2019 when compared to fiscal year endedOctober 31, 2018 , coupled with interest rates on both new financial instruments being higher than the previous debt instruments.
Income Tax (Benefit) Provision
For the S/P Combined twelve months endedOctober 31, 2019 , the Company recorded an income tax benefit of$7.5 million on a pretax loss of$40.0 million , resulting in an effective tax rate of 18.7%. Our income tax benefit was negatively impacted mostly by$1.4 million of transaction expenses that were not deductible and$0.3 million in deferred taxes on undistributed foreign earnings. For the fiscal year endedOctober 31, 2018 , we had an income tax benefit of$9.8 million on pretax income of$18.6 million . InDecember 2017 , the Tax Cuts and Jobs Act (the "2017 Tax Act") was enacted. The 2017 Tax Act significantly revised theU.S. corporate income tax regime by, among other things, lowering theU.S. corporate tax rate from 35 percent to 21 percent effectiveJanuary 1, 2018 . In accordance with Staff Accounting Bulletin No. 118, which providesSEC staff guidance for the application of ASC Topic 740, the Company recognized the income tax effects of the 2017 Tax Act in its consolidated financial statements in the period the 2017 Tax Act was signed into law. As such, the Company's consolidated financial statements for the period endedOctober 31, 2018 reflect the income tax effects of the 2017 Tax Act for which the accounting is complete and provisional amounts for those specific income tax effects for which the accounting is incomplete but a reasonable estimate could be determined. All provisional amounts have been finalized for theOctober 31, 2019 financial statements as required by Staff Accounting Bulletin No. 118. Such finalization had no impact on the tax provision for 2018. 29
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Table of Contents Adjusted EBITDA1 S/P Combined Successor Predecessor (non-GAAP) Predecessor Change December 6, 2018 through November 1, 2018 Year Ended (in thousands, except October 31, through December October 31, Year Ended percentages) 2019 5, 2018 2019 October 31, 2018 $ % U.S. Concrete Pumping$ 56,069 $ 6,752$ 62,821 $ 46,793$ 16,028 34.3 % U.K. Operations 14,034 1,660 15,694 16,752 (1,058 ) -6.3 %U.S. Concrete Waste Management Services 13,178 999 14,177 13,238 939 7.1 % Corporate 2,625 177 2,802 2,367 435 18.4 %$ 85,906 $ 9,588$ 95,494 $ 79,150$ 16,344 20.6 %
1Please see "Non-GAAP Measures (EBITDA and Adjusted EBITDA)" below
U.S. Concrete Pumping Adjusted EBITDA for ourU.S. Concrete Pumping segment was$62.8 million for the S/P Combined twelve months endedOctober 31, 2019 as compared to$46.8 million for the fiscal year endedOctober 31, 2018 . The 34.3% year-over-year increase was primarily attributable to the Capital acquisition, improved gross margins, and volume growth across the majority of theU.S. markets.U.K. Operations Adjusted EBITDA for ourU.K. Operations segment was$15.7 million for the S/P Combined twelve months endedOctober 31, 2019 as compared to$16.8 million for the fiscal year endedOctober 31, 2018 . The 6.3% decline was primarily attributable to the reduced revenue previously discussed.
Adjusted EBITDA for our
Corporate
There was limited movement in Adjusted EBITDA for our Corporate segment for the periods presented. Any year-over-year changes for our Corporate segment was primarily related to the allocation of overhead costs.
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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 Asset-Based Lending Credit Agreement (the "ABL Credit Agreement"), which provides for aggregate borrowings of up to$60.0 million , subject to a borrowing base limitation. As ofOctober 31, 2019 , we had$7.5 million of cash and cash equivalents and$29.2 million of available borrowing capacity under the ABL Credit Agreement, providing total available liquidity of$36.7 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 Term Loan Agreement (defined below) and (4) short-term financing under our ABL Credit Agreement. We may from time to time seek to retire or pay down borrowings on the outstanding balance of our ABL Credit Agreement or Term Loan Agreement 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 Credit Agreement will be sufficient to meet our working capital and capital expenditure needs for the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, potential acquisitions and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity could result in dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. 31
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Term Loan Agreement and ABL Credit Agreement
As part of the Business Combination, the Company entered into (i) a Term Loan Agreement, datedDecember 6, 2018 , among the Company, certain subsidiaries of the Company, Credit Suisse AG,Cayman Islands Branch as administrative agent andCredit Suisse Loan Funding LLC ,Jefferies Finance LLC andStifel 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, datedDecember 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"). Summarized terms of those debt agreements are included below. Term Loan Agreement
Summarized terms of the Term Loan Agreement are as follows:
? Provides for an original aggregate principal amount of
amount was increased in
acquisition of Capital;
? The initial term loans advanced will mature and be due and payable in full
seven years after the issuance, 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 ofOctober 31, 2019 was$402.1 million and 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. 32
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Asset Based Revolving Lending Credit Agreement
Summarized terms of the ABL Credit Agreement are as follows:
? Borrowing availability inU.S. Dollars and GBP up to a maximum of$60.0 million ;
? Borrowing capacity available for standby letters of credit of up to
million and for swingline loan borrowings of up to
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 issuance; ? Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement;
? Interest on borrowings in
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;
?
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 are secured by (i) a perfected
first-priority security interest in (A) the
all of the stock (or other ownership interests) in, and held by, the
borrower subsidiaries of the Company, and (C) all of the current and future
assets and property of the
parties thereunder, including a first-ranking floating charge over all current
and future assets and property of each
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 charge 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
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. Successor Net cash provided by (used in) 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 period fromDecember 6, 2018 throughOctober 31, 2019 (the "Successor Period") was$22.8 million . The Company had a net loss of$9.9 million that included significant non-cash charges totaling$60.0 million as follows: (1) depreciation of$20.3 million , (2) amortization of intangible assets of$32.4 million , (3) amortization of deferred financing costs of$3.7 million and (4) stock-based compensation expense of$3.6 million . These amounts were partially offset by net cash outflows related to the following activity: (1) an increase of$5.9 million in trade receivables, (2) a$0.5 million increase in inventory, (3) a$1.0 million increase in prepaid expenses and other current assets, (4) an increase of$2.4 million in our net deferred income taxes, (5) a decrease in income taxes payable of$1.4 million , (6) a$7.3 million decrease in accounts payable, and (7) a decrease of$8.3 million in accrued payroll, accrued expenses and other current liabilities. 33
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We used$374.9 million to fund investing activities during the Successor Period. The Company paid$449.2 million to fund the Business Combination,$129.2 million to fund the acquisition of Capital and$2.3 million to fund other business combinations. Additionally,$35.7 million was used to purchase machinery, equipment and other vehicles to service our business. These cash outflows were partially offset by$238.5 million in cash withdrawn fromIndustrea trust account in addition to proceeds from the sale of property, plant and equipment of$3.1 million . Net cash used in financing activities was$361.6 million for the Successor Period. Financing activities during the Successor Period included cash inflows from$402.1 million in net borrowings from our new Term Loan Agreement,$23.3 million in net borrowings under the Company's new ABL Credit Agreement,$174.3 million from the issuance of common shares,$1.4 million in proceeds from the exercise of stock options and an additional$25.0 million from the issuance of preferred stock. All of these cash inflows were used to fund business combinations and other operational activity such as equipment purchases. These cash inflows were offset by payments for redemptions of common stock totaling$231.4 million ,$24.9 million for the payment of debt issuance costs (which are inclusive of any original issuance discounts) that were associated with the Term Loan Agreement and new ABL Credit Agreement, and$8.1 million in payments for underwriting fees. Predecessor Net cash provided by operating activities during the period fromNovember 1, 2018 throughDecember 5, 2018 was$7.9 million . The Company had a net loss of$22.6 million that included significant non-cash charges totaling$18.5 million as follows: (1) depreciation of$2.1 million , (2) prepayment penalty on early extinguishment of debt of$13.0 million , and (3) write off deferred debt issuance costs of$3.4 million . These amounts were partially offset by net cash outflows related to the following activity: (1) an increase of$0.3 million in inventory, (2) a$1.3 million increase in prepaid expenses and other current assets, (3) an increase of$4.4 million in our net deferred income taxes, (4) an increase of$17.3 million in accrued payroll, accrued expenses and other current liabilities, and (5) a$0.7 million decrease in accounts payable. Net cash provided by operating activities for the fiscal year endedOctober 31, 2018 was$39.6 million . The Company had net income of$28.4 million that included significant non-cash charges totaling$27.3 million as follows: (1) depreciation of$17.7 million , (2) amortization of intangible assets of$7.9 million , and (3) amortization of deferred financing costs of$1.7 million . These amounts were partially offset by net cash outflows related to the following activity: (1) an increase of$7.5 million in trade receivables, (2) a$0.7 million increase in inventory, (3) a$1.4 million increase in prepaid expenses and other current assets, (4) an increase of$11.1 million in our net deferred income taxes, (6) an increase of$8.7 million in accrued payroll, accrued expenses and other current liabilities, (7) a decrease in income taxes payable of$0.4 million , and (8) a$1.8 million decrease in accounts payable. We used$0.1 million to fund investing activities for the period fromNovember 1, 2018 throughDecember 5, 2018 . We used$0.5 million to fund purchases of machinery, equipment and other vehicles to service our business. This was offset by$0.4 million in proceeds received from the sale of property, plant and equipment. We used$49.5 million to fund investing activities for the fiscal year endedOctober 31, 2018 . We used$31.7 million to fund purchases of machinery, equipment and other vehicles to service our business. We also used$21.0 million as part of the O'Brien acquisition completed in April of 2018. These were offset by$3.2 million in proceeds received from the sale of property, plant and equipment.
We used
Net cash used in financing activities was$13.0 million for the fiscal year endedOctober 31, 2018 . Financing activities for this period included a$15.6 million cash inflow from a bond offering to finance the O'Brien asset purchase. This was offset by net payments of$2.4 million on our revolving credit facility and$0.2 million in payments on our capital lease obligations. 34
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Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that have had or are reasonably likely to have a material current or future effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources. From time to time, we enter into non-cancellable operating leases that are not reflected on our balance sheet. AtOctober 31, 2019 , we had$1.5 million of undrawn letters of credit outstanding.
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, as 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 severance expenses, director fees, expenses related to being a newly publicly-traded company and other non-recurring costs. S/P Combined Successor Predecessor (non-GAAP) Predecessor December 6, 2018 through November 1, 2018 Year Ended October 31, through December October 31, Year Ended (in thousands) 2019 5, 2018 2019 October 31, 2018 Consolidated Net income (loss)$ (9,912 ) $ (22,575 )$ (32,487 ) $ 28,382 Interest expense, net 34,880 1,644 36,524 21,425 Income tax expense (benefit) (3,303 ) (4,192 ) (7,495 ) (9,784 ) Depreciation and amortization 52,652 2,713 55,365 25,623 EBITDA 74,317 (22,410 ) 51,907 65,646 Transaction expenses 1,521 14,167 15,688 7,590 Loss on debt extinguishment - 16,395 16,395 - Stock-based compensation 3,619 - 3,619 281 Other income, net (47 ) (6 ) (53 ) (55 ) Other adjustments 6,496 1,442 7,938 5,688 Adjusted EBITDA$ 85,906 $ 9,588$ 95,494 $ 79,150 35
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Table of Contents S/P Combined Successor Predecessor (non-GAAP) Predecessor December 6, 2018 through November 1, 2018 Year Ended October through December October 31, Year Ended (in thousands) 31, 2019 5, 2018 2019 October 31, 2018U.S. Concrete Pumping Net income (loss)$ (11,031 ) $ (25,252 )$ (36,283 ) $ 13,955 Interest expense, net 32,173 1,154 33,327 17,247 Income tax expense (benefit) (6,658 ) (2,102 ) (8,760 ) (11,473 ) Depreciation and amortization 32,245 1,635 33,880 15,237 EBITDA 46,729 (24,565 ) 22,164 34,966 Transaction expenses 1,521 14,167 15,688 7,590 Loss on debt extinguishment - 16,395 16,395 - Stock-based compensation 3,619 - 3,619 281 Other income, net (45 ) (6 ) (51 ) (55 ) Other adjustments 4,245 761 5,006 4,011 Adjusted EBITDA$ 56,069 $ 6,752$ 62,821 $ 46,793 S/P Combined Successor Predecessor (non-GAAP) Predecessor December 6, 2018 through November 1, 2018 Year Ended October 31, through December October 31, Year Ended (in thousands) 2019 5, 2018 2019 October 31, 2018 U.K. Operations Net income (loss)$ 1,123 $ 158 $ 1,281 $ 3,018 Interest expense, net 2,705 490 3,195 4,173 Income tax expense (benefit) 538 49 587 503 Depreciation and amortization 8,807 890 9,697 8,060 EBITDA 13,173 1,587 14,760 15,754 Transaction expenses - - - - Loss on debt extinguishment - - - - Stock-based compensation - - - - Other income, net - - - - Other adjustments 861 73 934 998 Adjusted EBITDA$ 14,034 $ 1,660$ 15,694 $ 16,752 36
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Table of Contents S/P Combined Successor Predecessor (non-GAAP) Predecessor December 6, 2018 through November 1, 2018 Year Ended October 31, through December October 31, Year Ended (in thousands) 2019 5, 2018 2019 October 31, 2018U.S. ConcreteWaste Management Services Net income (loss)$ (1,520 ) $ 2,009 $ 489 $ 9,634 Interest expense, net 2 - 2 1 Income tax expense (benefit) 2,485 (1,784 ) 701 846 Depreciation and amortization 10,871 163 11,034 2,078 EBITDA 11,838 388 12,226 12,559 Transaction expenses - - - - Loss on debt extinguishment - - - - Stock-based compensation - - - - Other income, net (2 ) - (2 ) - Other adjustments 1,342 611 1,953 679 Adjusted EBITDA$ 13,178 $ 999$ 14,177 $ 13,238 S/P Combined Successor Predecessor (non-GAAP) Predecessor December 6, 2018 November 1, through 2018 through Year Ended October 31, December 5, October 31, Year Ended (in thousands) 2019 2018 2019 October 31, 2018 Corporate Net income (loss)$ 1,516 $ 510 $ 2,026 $ 1,775 Interest expense, net - - - 4 Income tax expense (benefit) 332 (355 ) (23 ) 340 Depreciation and amortization 729 25 754 248 EBITDA 2,577 180 2,757 2,367 Transaction expenses - - - - Loss on debt extinguishment - - - - Stock-based compensation - - - - Other income, net - - - - Other adjustments 48 (3 ) 45 - Adjusted EBITDA$ 2,625 $ 177 $ 2,802 $ 2,367 Jobs Act OnApril 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. We 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. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act. 37
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Table of Contents
Critical Accounting Policies and Estimates
In presenting our financial statements in conformity withU.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.
We assess potential impairment of our goodwill at least annually, generally as ofAugust 31st . However, as a result of our stock price declining substantially during the fiscal 2019 third quarter, we concluded this qualified as a triggering event and thus performed a step one goodwill impairment analysis as ofJuly 31, 2019 . The results of our analysis indicated no impairment. The fair value of ourU.S. Concrete Pumping ,U.K. Operations andU.S. ConcreteWaste Management Services reporting units exceeded theirJuly 31, 2019 carrying values by approximately 4%, 3% and 4%, respectively. The fact that the fair values of these reporting units were largely in-line with their carrying values was consistent with expectations given the short period of time that had passed since goodwill was initially recorded on the Company's balance sheet, primarily resulting from the Business Combination inDecember 2018 and the Capital acquisition inMay 2019 . 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 out future plans, as well as industry and economic conditions. These assumptions and estimates include projected revenue, royalty rate, discount rate, tax amortization benefit and other market factors outside of our control. Due to the interim quantitative test performed as ofJuly 31, 2019 , a quantitative test on our annual testing date ofAugust 31, 2019 was not considered necessary. As there were no additional impairment indicators present as of year-end, the Company elected to perform a qualitative analysis for the three-month period endingOctober 31, 2019 instead and no triggering events were identified. For further information, refer to Note 8 to the Company's audited financial statements included elsewhere in this Annual Report. Income Taxes We are subject to income taxes in theU.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. 38
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Table of Contents 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 2 to the Company's audited financial statements included elsewhere in this Annual Report.
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