CONCRETE PUMPING HOLDINGS, INC. You should read the following management's discussion and analysis together with
Cautionary Statement Concerning Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, among
other things, statements regarding our business, financial condition, results of
operations, cash flows, strategies and prospects, and the potential impact of
the COVID-19 pandemic on our business. These forward-looking statements may be
identified by terminology such as "likely," "may," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue," or the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements contained in this Report are reasonable, we cannot guarantee future
results.
The forward-looking statements contained in this Report are based on our current
expectations and beliefs concerning future developments and their potential
effects. These statements involve known and unknown risks, uncertainties (some
of which are beyond our control) and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from those expressed or implied by the forward-looking statements. These risks
and uncertainties include, but are not limited to, the items in the following:
? the adverse effects of the coronavirus ("COVID-19") pandemic on our
business, the economy and the markets we serve;
? the length and severity of, and the pace of recovery following, the
COVID-19 pandemic;
? general economic and business conditions, which may affect demand for
commercial, infrastructure, and residential construction;
the adverse impact of recent inflationary pressures, global economic
? conditions and events related to these conditions, such as military
hostilities commenced by Russia in Ukraine and the COVID-19 pandemic, on
our business, including fluctuations in fuel costs;
? our ability to successfully implement our operating strategy;? our ability to successfully identify, manage and integrate acquisitions;
governmental requirements and initiatives, including those related to
? mortgage lending, financing or deductions, funding for public or
infrastructure construction, land usage, and environmental, health, and
safety matters;
? seasonal and inclement weather conditions, which impede the installation of
ready-mixed concrete;
? the cyclical nature of, and changes in, the real estate and construction
markets, including pricing changes by our competitors;
? our ability to maintain favorable relationships with third parties
supply us with equipment and essential supplies;
? our ability to retain key personnel and maintain satisfactory labor
relations;
? disruptions, uncertainties or volatility in the credit markets that may
limit our, our suppliers' and our customers' access to capital;
? personal injury, property damage, results of litigation and other claims
and insurance coverage issues;
? our substantial indebtedness and the restrictions imposed on us by the
terms of our indebtedness;
? the effects of currency fluctuations on our results of operations and
financial condition;
? other factors as described in the section entitled "Risk Factors" in our
Form 10-K filed with the SEC on January 12, 2022 .
Our forward-looking statements speak only as of the date of this report or as of
the date they are made, and we undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, any further disclosures made on related subjects
in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered.
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Table of Contents Business Overview The Company is aDelaware corporation headquartered inDenver, Colorado . The unaudited 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, LP ("Capital"), andCamfaud Group Limited ("Camfaud"), andEco-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 ofRichard O'Brien Companies and its affiliates, which solidified our presence in theColorado andPhoenix, 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 inTexas .U.S. Concrete Pumping All businesses operating within ourU.S Concrete Pumping segment 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 these companies do not contract to purchase, mix, or deliver concrete. This segment collectively has approximately 95 branch locations across 19 states with their corporate headquarters inDenver, Colorado . InNovember 2021 , the Company acquired the assets ofPioneer Concrete Pumping Service, Inc. ("Pioneer") for the purchase consideration of$20.1 million , which added complementary assets in ourGeorgia andTexas markets. InSeptember 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 ourTexas market. In addition, the Company completed its greenfield expansion intoLas Vegas during fiscal 2021.
OurU.S. ConcreteWaste Management Services segment consists of ourU.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 theU.S. with its corporate headquarters inDenver, Colorado .U.K. Operations OurU.K. Operations segment consists of ourCamfaud , Premier andU.K. based Eco-Pan businesses.Camfaud is a concrete pumping service provider in theU.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 theU.K. , with its corporate headquarters in Epping (nearLondon ),England . In addition, we have concrete waste management operations under our Eco-Pan brand name in theU.K. and currently operate from a sharedCamfaud location. Corporate
Our Corporate segment is primarily related to the intercompany leasing of real
estate to certain of our
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Table of Contents Impacts of COVID-19 InMarch 2020 , theWorld 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. As of the first quarter of fiscal 2022, revenue volumes have largely recovered in a number of our markets; however, the lingering impact from COVID-19 remains an issue for qualified labor resources in certain markets. Despite recent progress in the administration of vaccines, both the outbreak, and impact from various variants, including Delta and Omicron and the containment and mitigation measures have had and are likely to continue to have a serious adverse impact on the global economy, the severity and duration of which are uncertain. To date, the COVID-19 pandemic has negatively impacted revenue volumes primarily in theU.K. and certain markets in theU.S. The full extent to which the COVID-19 pandemic will impact the Company's business, financial condition, and results of operations in the future is highly uncertain and will be affected by a number of factors. These include the duration and extent of the pandemic; the duration and extent of imposed or recommended containment and mitigation measures; the extent, duration, and effective execution of government stabilization and recovery efforts, including those from the successful distribution of an effective vaccine; the impact of the pandemic on economic activity, including on construction projects and the Company's customers' demand for its services; the Company's ability to effectively operate, including as a result of travel restrictions and mandatory business and facility closures; the ability of the Company's customers to pay for services rendered; any further closures of the Company's and the Company's customers' offices and facilities; and any additional project delays or shutdowns. Customers 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.
No impairments were identified through
Notes Offering InJanuary 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, along with approximately$15.0 million of borrowings under the ABL Facility, were used to repay all outstanding indebtedness under our existing Term Loan Agreement, datedDecember 6, 2018 , and pay related fees and expenses. 32
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Results of Operations
Three Months Ended January 31,
(dollars in thousands) 2022 2021
Revenue $ 85,448 $ 70,421
Cost of operations 51,321 40,558
Gross profit 34,127 29,863
Gross margin 39.9 % 42.4 %
General and administrative expenses 26,721 22,388
Transaction costs 21 29
Income from operations 7,385 7,446
Other income (expense):
Interest expense, net (6,261 ) (6,900 )
Loss on extinguishment of debt - (15,510 )
Change in fair value of warrant liabilities - -
Other income, net 37 26
Total other expense (6,224 ) (22,384 )
Income (loss) before income taxes 1,161 (14,938 )
Income tax expense (benefit) (22 ) (2,648 )
Net income (loss) 1,183 (12,290 )
Less accretion of liquidation preference on preferred stock (441 ) (507 )
Income (loss) available to common shareholders $ 742 $ (12,797 )
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Table of Contents
Three Months Ended
For the three months endedJanuary 31, 2022 , our net income was$1.2 million , as compared to a net loss of$12.3 million in same period a year ago. The improvement was due to (1) a 21.3% year-over-year increase in revenue and (2) a$15.5 million loss on extinguishment of debt recorded in the fiscal 2021 first quarter. These amounts were offset by a$4.3 million increase in general and administrative expenses ("G&A expense") and a lower income tax benefit of$2.6 million . Total Assets Total assets increased from$792.7 million as ofOctober 31, 2021 to$806.1 million as ofJanuary 31, 2022 . The increase was primarily due to the acquisition of Pioneer. January 31, October 31, (in thousands) 2022 2021 Total Assets U.S. Concrete Pumping$ 607,949 $ 591,820 U.K. Operations 107,862 109,631 U.S. Concrete Waste Management Services 147,342 145,199 Corporate 27,062 26,648 Intersegment (84,099 ) (80,633 )$ 806,116 $ 792,665 Revenue Three Months Ended January 31, Change (in thousands) 2022 2021 $ % Revenue U.S. Concrete Pumping$ 63,069 $ 52,316 $ 10,753 20.6 % U.K. Operations 12,022 9,780 2,242 22.9 % U.S. Concrete Waste Management Services 10,457 8,422 2,035 24.2 % Corporate 625 625 - 0.0 % Intersegment (725 ) (722 ) (3 ) 0.4 % Total revenue$ 85,448 $ 70,421 $ 15,027 21.3 % 34
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Table of ContentsU.S. Concrete Pumping Revenue for ourU.S. Concrete Pumping segment increased by 20.6%, or$10.8 million , from the fiscal 2021 first quarter to the fiscal 2022 first quarter. The increase in revenue was primarily attributable to the acquisitions of Hi-Tech and Pioneer, which contributed$6.7 million of the increase, as well as, organic improvements in most of our other markets as a result of higher volumes and rate per hour increases in a number of markets.U.K. Operations Revenue for ourU.K. Operations segment increased by 22.9%, or$2.2 million , from the fiscal 2021 first quarter to the fiscal 2022 first quarter. Excluding the impact from foreign currency translation, revenue was up 22.8% year over year. The increase in revenue was attributable to the recovery from the impact from COVID-19 on the fiscal 2021 first quarter and rate per job increases across theU.K. region.
Revenue for theU.S. ConcreteWaste Management Services segment increased by 24.2%, or$2.0 million , from the fiscal 2021 first quarter to the fiscal 2022 first quarter. The increase in revenue was primarily due to organic growth, pricing improvements and further recovery from the impacts of the pandemic. Corporate There was no change in revenue for our Corporate segment for the periods presented. All activity in our Corporate segment is related to the intercompany leasing of real estate to certain of ourU.S Concrete Pumping branches. This revenue is eliminated in consolidation through the Intersegment line included above. Gross Margin
Gross margin for the fiscal 2022 first quarter declined 250 basis points from
42.4% in the fiscal 2021 first quarter to 39.9% in the fiscal 2022 first
quarter. While we have seen improvements in pricing per hour, inflationary
pressures seen throughout the US and
General and Administrative Expenses
G&A expenses for the fiscal 2022 first quarter were$26.7 million , up 19.4% from$22.4 million in the fiscal 2021 first quarter. As a percent of revenue, G&A expenses were 31.3% for the fiscal 2022 first quarter compared to 31.8% in the fiscal 2021 first quarter. The primary drivers of the increase in our G&A expenses were increased labor expense of$2.2 million and stock-based compensation expense of$0.8 million . The higher labor expense is the result of additional headcount following recent acquisitions in addition to inflationary pressures on wages. The increase in stock-based compensation expense was due to additional stock awards granted over the past twelve months. Excluding non-cash G&A expenses related to depreciation expense, amortization of intangible assets and stock-based compensation expense, G&A expenses were$18.9 million for the fiscal 2022 first quarter (22.2% of revenue), versus$14.3 million for the fiscal 2021 first quarter (20.4% of revenue). 35
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Change in Fair Value of Warrant Liabilities
There was no change in the fair value remeasurement of our liability-classified warrants during the first quarters of fiscal 2022 and 2021.
Transaction Costs & Debt Extinguishment Costs
Transaction costs include expenses for legal, accounting, and other professionals that were engaged in connection with an acquisition. There were no significant transaction costs incurred during the first quarters of fiscal 2022 and 2021. OnJanuary 28, 2021 , we (1) closed on our private offering of$375.0 million in aggregate principal amount of senior secured second lien notes due 2026, (2) amended and restated our existing ABL Facility to provide up to$125.0 million (previously$60.0 million ) of commitments and (3) repaid all outstanding indebtedness under our then-existing term loan agreement, datedDecember 6, 2018 . The$15.5 million in debt extinguishment costs incurred relate to the write-off of all unamortized deferred debt issuance costs that were related to the term loan. Interest Expense, Net Interest expense, net for the three-month period endedJanuary 31, 2022 was$6.3 million , down$0.6 million from$6.9 million in the fiscal 2021 first quarter as a result of the refinance of our term debt discussed in Note 9.
Income Tax (Benefit) Provision
For the first fiscal quarter endedJanuary 31, 2022 , the Company recorded an income tax benefit of$ 0.0 million on pretax income of$ 1.2 million . For the same quarter a year ago, the Company recorded an income tax benefit of$ 2.6 million on a pretax loss of$ 14.9 million . The effective tax rate for the three-month period endedJanuary 31, 2022 , was impacted by (1) the excess tax benefit from vestings and exercises of stock-based awards of$0.1 million and (2) a change in unremitted earnings deferred tax liability due to foreign rate fluctuations of$0.2 million . 36
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Adjusted EBITDA(1) and Net Income (Loss)
Net Income (Loss) Adjusted EBITDA
Three Months Ended January 31, Three Months Ended January 31, Change
(in thousands, except
percentages) 2022 2021 2022 2021 $ %
U.S. Concrete Pumping $ (701 ) $ (12,676 ) $ 15,156 $ 15,287 $ (131 ) -0.9 %
U.K. Operations (172 ) (532 ) 3,287 2,746 541 19.7 %
U.S. Concrete Waste
Management Services 1,749 616 4,911 3,700 1,211 32.7 %
Corporate 307 302 625 625 - 0.0 %
Total $ 1,183 $ (12,290 ) $ 23,979 $ 22,358 $ 1,621 7.3 %
(1) Please see "Non-GAAP Measures (EBITDA and Adjusted EBITDA)" below
U.S. Concrete Pumping Adjusted EBITDA for ourU.S. Concrete Pumping segment was$15.2 million for the three-month period endedJanuary 31, 2022 and$15.3 for the first quarter of fiscal 2021. The year-over-year decline seen for the three-month period, despite revenue increasing by 20.6% over the same period, was primarily attributable to the higher fuel and labor costs due to inflation.U.K. Operations
Adjusted EBITDA for our
Adjusted EBITDA for ourU.S. ConcreteWaste Management Services segment was$4.9 million for the three-month period endedJanuary 31, 2022 , up 32.7% as compared to$3.7 million for the same period in fiscal 2021. The year-over-year increase was primarily attributable to the strong year-over-year revenue growth. Corporate
There was no movement in Adjusted EBITDA for our Corporate segment for both periods presented. Any year-over-year changes for our Corporate segment is primarily related to the allocation of overhead costs.
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Table of Contents
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 ofJanuary 31, 2022 , we had$2.8 million of cash and cash equivalents and$105.2 million of available borrowing capacity under the ABL Facility, providing total available liquidity of 108.0 million. Capital Resources Our capital structure is primarily a combination of (1) permanent financing, represented by stockholders' equity; (2) zero-dividend convertible perpetual preferred stock; (3) long-term financing represented by our Senior Notes and (4) short-term financing under our ABL Facility. We may from time to time seek to retire or pay down borrowings on the outstanding balance of our ABL Facility or Senior Notes using cash on hand. Such repayments, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We believe our existing cash and cash equivalent balances, cash flow from operations and borrowing capacity under our ABL Facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, potential acquisitions and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity could result in dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Senior Notes and ABL Facility 38
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Table of Contents Senior Notes
Summarized terms of the senior secured notes are as follows:
? Provides for an original aggregate principal amount of
? The Senior Notes will mature and be due and payable in full on
2026;
? The Senior Notes bear interest at a rate of 6.000% per annum, payable on
February 1st and August 1st each year;? The Senior Notes are jointly and severally guaranteed on a senior secured
basis by the Company,
each of the Issuer's 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's and the Guarantors' senior secured
obligations, will rank equally with all of the Issuer's and the Guarantors'
existing and future senior indebtedness and will rank senior to all of the
Issuer's and the Guarantors' existing and future subordinated indebtedness.
The Senior Notes are structurally subordinated to all existing and future
indebtedness and liabilities of the Company's subsidiaries that do not
guarantee the Senior Notes;
? The Indenture includes certain covenants that limit, among other things, the
Issuer's ability and the ability of its restricted subsidiaries to: incur
additional indebtedness and issue certain preferred stock; make certain
investments, distributions and other restricted payments; create or incur
certain liens; merge, consolidate or transfer all or substantially all
assets; enter into certain transactions with affiliates; and sell or
otherwise dispose of certain assets.
The outstanding principal amount of Senior Notes as of
Asset Based Revolving Lending Credit Agreement
Summarized terms of the ABL Facility, as amended, are as follows:
? Borrowing availability in
principal amount of
Company can increase the ABL Facility by up to an additional
? Borrowing capacity available for standby letters of credit of up to
million and for swing loan borrowings of up to
of letters of credit or making of a swing loan will reduce the amount
available under the ABL Facility;
? All loans advanced will mature and be due and payable in full on January
28, 2026;
? Amounts borrowed may be repaid at any time, subject to the terms and
conditions of the agreement;
? Borrowings in
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 2.25%
and 1.25%, respectively. After
interest at the SONIA rate plus an applicable margin currently set at
2.0326%. The ABL Facility is subject to a step down of 0.25% based on
excess availability levels;
? 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;
? US ABL Facility obligations will be secured by a first-priority perfected
security interest in substantially all the assets of the Issuer, together
with
LP (collectively, the "US ABL Borrowers") and each of the Company's
wholly-owned domestic subsidiaries (the "US ABL Guarantors"), subject to
certain exceptions;
?
security interest in substantially all assets of Camfaud Concrete Pumps
Limited and
wholly-owned
US ABL Guarantors, subject to certain exceptions;
? The ABL Facility also includes (i) a springing financial covenant (fixed
charges coverage ratio) based on excess availability levels that the
Company must comply with on a quarterly basis during required compliance
periods and (ii) certain non-financial covenants.
The outstanding balance under the ABL Facility as of
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Table of Contents Cash Flows Cash generated from operating activities typically reflects net income, as adjusted for non-cash expense items such as depreciation, amortization and stock-based compensation, and changes in our operating assets and liabilities. Generally, we believe our business requires a relatively low level of working capital investment due to low inventory requirements and customers paying the Company as invoices are submitted daily for many of our services. Net cash provided by operating activities generally reflects the cash effects of transactions and other events used in the determination of net income or loss. Net cash provided by operating activities during the three-month period endedJanuary 31, 2022 was$13.2 million . The Company had a net income of$1.2 million that included a decrease of$0.2 million in our net deferred income taxes, a gain on sale of assets of$0.4 million , and non-cash charges totaling$16.0 million as follows: (1) depreciation of$8.3 million , (2) amortization of intangible assets of$5.7 million , (3) amortization of deferred financing costs of$0.5 million and (4) stock-based compensation expense of$1.5 million . In addition, we had cash inflows primarily related to the following activity: (1) a decrease of$0.7 million in trade receivables and (2) an increase of$4.4 million in accrued payroll, accrued expenses and other current liabilities. These amounts were partially offset by net cash outflows primarily related to (1) a$4.8 million increase in prepaid expenses and other current assets and (2) a decrease of$3.5 million in accounts payable. We used$34.5 million to fund investing activities during the three-month period endedJanuary 31, 2022 . The Company used$35.4 million for the purchase of property, plant and equipment and$1.1 million for the purchase of intangible assets, which was partially offset by proceeds from the sale of property, plant and equipment of$2.0 million . Net cash provided by financing activities was$14.7 million for the three-month period endedJanuary 31, 2022 . Financing activities during this period primarily included$15.2 million in net borrowings under the Company's ABL Facility that were partially offset by$0.5 million in outflows from the purchase of shares into treasury stock in order to fund the employee tax obligations for certain stock award vestings. Net cash provided by operating activities during the first quarter of fiscal 2021 was$12.6 million . The Company had a net loss of$12.3 million that included an increase of$2.9 million in our net deferred income taxes, a gain on sale of assets of$0.6 million , and significant non-cash charges totaling$31.0 million as follows: (1) depreciation of$6.9 million , (2) amortization of intangible assets of$6.9 million , (3) amortization of deferred financing costs of$1.0 million , (4) loss on extinguishment of debt expense of$15.5 million and (5) stock-based compensation expense of$0.7 million . In addition, we had cash inflows from a decrease of$5.7 million in trade receivables. These amounts were partially offset by net cash outflows related to the following activity: (1) a decrease of$2.4 million in accrued payroll, accrued expenses and other current liabilities, (2) a$4.3 million increase in prepaid expenses and other current assets, (3) a decrease of$1.2 million in accounts payable and (4) a decrease in income taxes payable of$0.5 million . We used$7.5 million to fund investing activities during the first quarter of fiscal 2021. The Company used$9.4 million for the purchase of property, plant and equipment, which was partially offset by proceeds from the sale of property, plant and equipment of$1.9 million . Net cash used in financing activities was$9.2 million for the first quarter of 2021. Financing activities during this period included$5.8 million in net borrowings 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 Term Loan Agreement and$8.5 million in debt issuance costs. 40
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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, goodwill and intangibles impairment and other adjustments. We believe these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends related to our financial condition and results of operations, and as a tool for investors to use in evaluating our ongoing operating results and trends and in comparing our financial measures with competitorswho 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 publicly-traded company and other non-recurring costs.
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