Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended July 31, 2019

OR

 

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

 

 Commission File No. 001-38166

 

CONCRETE PUMPING HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

83-1779605

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer identification no.)

 

500 E. 84th Avenue, Suite A-5

Thornton, Colorado 80229

(Address of principal executive offices, including zip code)

 

(303) 289-7497

(Registrant's telephone number, including area code)

None

  

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

BBCP

The Nasdaq Capital Market

 

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

 

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

 

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

 

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging growth company

 

 

 

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

 

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

 

As of September 13, 2019, the registrant had 58,199,720 shares of common stock outstanding. 

 

 

 

 

CONCRETE PUMPING HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED JULY 31, 2019

 

 

 

Page

Part I. Financial Information

 

 

 

        Item 1.

Unaudited Consolidated Financial Statements:

3

 

Consolidated Balance Sheet

3

 

Consolidated Statement of Operations and Comprehensive Income

4

 

Statement of Changes in Stockholders’ Equity

6

 

Consolidated Statement of Cash Flows

7

 

Notes to Unaudited Consolidated Financial Statements

9

        Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

        Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

        Item 4.

Controls and Procedures

46

 

 

 

Part II. Other Information

 

 

 

 

        Item 1.

Legal Proceedings

47

        Item 1A.

Risk Factors

47

        Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

        Item 3.

Defaults Upon Senior Securities

47

        Item 4.

Mine Safety Disclosures

47

        Item 5.

Other Information

47

        Item 6.

Exhibits

48

 

 

 

        Signatures

49

 

 

 

 

PART I

 

ITEM 1.     Unaudited Consolidated Financial Statements 

 

Concrete Pumping Holdings, Inc.

Consolidated Balance Sheet

 

   

Successor

   

Predecessor

 
   

(Unaudited)

         
   

July 31,

   

October 31,

 

(in thousands, except per share amounts)

 

2019

   

2018

 

ASSETS

               
                 

Current assets:

               

Cash and cash equivalents

  $ 4,529     $ 8,621  

Trade receivables, net

    43,904       40,118  

Inventory

    4,195       3,810  

Prepaid expenses and other current assets

    4,561       3,947  

Total current assets

    57,189       56,496  
                 

Property, plant and equipment, net

    297,085       201,915  

Intangible assets, net

    230,676       36,429  

Goodwill

    277,051       74,656  

Other non-current assets

    2,302       -  

Deferred financing costs

    1,058       648  

Total assets

  $ 865,361     $ 370,144  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Current liabilities:

               

Revolving loan

  $ 31,331     $ 62,987  

Term loans, current portion

    20,888       -  

Current portion of capital lease obligations

    89       85  

Accounts payable

    6,788       5,192  

Accrued payroll and payroll expenses

    7,329       6,705  

Accrued expenses and other current liabilities

    18,936       18,830  

Income taxes payable

    1,046       1,152  

Deferred consideration

    1,372       1,458  

Total current liabilities

    87,779       96,409  
                 

Long term debt, net of discount for deferred financing costs

    365,164       173,470  

Capital lease obligations, less current portion

    500       568  

Deferred income taxes

    71,179       39,005  

Total liabilities

    524,622       309,452  
                 

Redeemable preferred stock, $0.001 par value, 2,342,264 shares issued and outstanding as of October 31, 2018 (liquidation preference of $11,239,060)

    -       14,672  

Zero-dividend convertible perpetual preferred stock, $0.0001 par value, 2,450,980 shares issued and outstanding as of July 31 2019

    25,000       -  
                 

Stockholders' equity

               

Common stock, $0.001 par value, 15,000,000 shares authorized, 7,576,289 shares issued and outstanding as of October 31, 2018

            8  

Common stock, $0.0001 par value, 500,000,000 shares authorized, 58,199,620 shares issued and outstanding as of July 31, 2019

    6       -  

Additional paid-in capital

    348,856       18,724  

Accumulated other comprehensive income

    (6,441 )     584  

(Accumulated deficit) retained earnings

    (26,682 )     26,704  

Total stockholders' equity

    315,739       46,020  
                 

Total liabilities and stockholders' equity

  $ 865,361     $ 370,144  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

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Concrete Pumping Holdings, Inc.

Consolidated Statement of Income (Loss)

(Unaudited)

 

   

Successor

   

Predecessor

   

Successor

   

Predecessor

 

(in thousands, except share and per share amounts)

 

Three Months Ended July 31, 2019

   

Three Months Ended July 31, 2018

   

December 6, 2018 through July 31, 2019

   

November 1, 2018 through December 5, 2018

   

Nine Months Ended July 31, 2018

 
                                         

Revenue

  $ 78,655     $ 66,649     $ 174,613     $ 24,396     $ 175,854  

Cost of operations

    39,665       36,467       98,396       14,027       98,430  

Gross profit

    38,990       30,182       76,217       10,369       77,424  
                                         

General and administrative expenses

    28,159       16,798       63,693       4,936       42,887  

Transaction costs

    176       1,395       1,458       14,167       2,520  

Income (loss) from operations

    10,655       11,989       11,066       (8,734 )     32,017  
                                         

Other income (expense):

                                       

Interest expense

    (9,843 )     (5,477 )     (24,753 )     (1,644 )     (15,690 )

Loss on extinguishment of debt

    -       -       -       (16,395 )     -  

Other income, net

    28       14       59       6       34  

Total other income (expense)

    (9,815 )     (5,463 )     (24,694 )     (18,033 )     (15,656 )
                                         

Income (loss) before income taxes

    840       6,526       (13,628 )     (26,767 )     16,361  
                                         

Income tax expense (benefit)

    (1,922 )     1,701       (3,115 )     (4,192 )     (10,632 )
                                         

Net income (loss) attributable to Concrete Pumping Holdings, Inc.

    2,762       4,825       (10,513 )     (22,575 )     26,993  
                                         

Less preferred shares dividends

    (456 )     (1,050 )     (1,159 )     (126 )     (1,050 )

Less undistributed earnings allocated to preferred shares

    -       (892 )     -       -       (6,127 )
                                         

Undistributed income (loss) available to common shareholders

  $ 2,306     $ 2,883     $ (11,672 )   $ (22,701 )   $ 19,816  
                                         

Weighted average common shares outstanding

                                       

Basic

    49,940,411       7,576,289       37,155,182       7,576,289       7,576,289  

Diluted

    53,122,690       8,510,779       37,155,182       7,576,289       8,510,779  
                                         

Net income (loss) per common share

                                       

Basic

  $ 0.05     $ 0.38     $ (0.31 )   $ (3.00 )   $ 2.62  

Diluted

  $ 0.05     $ 0.34     $ (0.31 )   $ (3.00 )   $ 2.33  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

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Concrete Pumping Holdings, Inc.

Consolidated Statement of Comprehensive Income (Loss)

(Unaudited)

 

   

Successor

   

Predecessor

   

Successor

   

Predecessor

 

(in thousands)

 

Three Months Ended July 31, 2019

   

Three Months Ended July 31, 2018

   

December 6, 2018 through July 31, 2019

   

November 1, 2018 through December 5, 2018

    Nine Months Ended July 31, 2018  
                                         

Net income (loss)

  $ 2,762     $ 4,825     $ (10,513 )   $ (22,575 )   $ 26,993  

Other comprehensive income:

                                       

Foreign currency translation adjustment

    (4,535 )     (2,030 )     (6,441 )     (674 )     (516 )

Total comprehensive income (loss)

  $ (1,773 )   $ 2,795     $ (16,954 )   $ (23,249 )   $ 26,477  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements 

 

5

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Concrete Pumping Holdings, Inc.

Consolidated Statement of Changes in Stockholders' Equity (Unaudited)

 

(PREDECESSOR)

October 31, 2017 through July 31, 2018

(in thousands)

                                       
   

Common
Stock

   

Additional
Paid-In
Capital

   

Accumulated
Other
Comprehensive
Income

   

Retained Earnings
(Accumulated Deficit)

   

Total

 

Balance at October 31, 2017

  $ 8     $ 18,444     $ 2,381     $ (1,677 )   $ 19,156  

Stock-based compensation

    -       94       -       -       94  

Net income

    -       -       -       17,558       17,558  

Foreign currency translation adjustment

    -       -       2,882       -       2,882  

Balance at January 31, 2018

  $ 8     $ 18,538     $ 5,263     $ 15,881     $ 39,690  

Stock-based compensation

    -       94       -       -       94  

Net income

    -       -       -       4,610       4,610  

Foreign currency translation adjustment

    -       -       (1,367 )     -       (1,367 )

Balance at April 30, 2018

  $ 8     $ 18,632     $ 3,896     $ 20,491     $ 43,027  

Stock-based compensation

    -       94       -       -       94  

Net income

    -       -       -       4,825       4,825  

Foreign currency translation adjustment

    -       -       (2,030 )     -       (2,030 )

Balance at July 31, 2018

  $ 8     $ 18,726     $ 1,866     $ 25,316     $ 45,916  

 

(PREDECESSOR)

October 31, 2018 through December 5, 2018

(in thousands)

                                       
   

Common
Stock

   

Additional
Paid-In
Capital

   

Accumulated
Other
Comprehensive
Income

   

Retained Earnings
(Accumulated Deficit)

   

Total

 

Balance at October 31, 2018

  $ 8     $ 18,724     $ 584     $ 26,704     $ 46,020  

Net loss

    -       -       -       (22,575 )     (22,575 )

Stock-based compensation

    -       27       -       -       27  

Foreign currency translation adjustment

    -       -       (674 )     -       (674 )

Balance at December 5, 2018

  $ 8     $ 18,751     $ (90 )   $ 4,129     $ 22,798  

 

(SUCCESSOR)

December 6, 2018 through July 31, 2019

(in thousands)

 

Common
Stock

   

Additional
Paid-In

   

Accumulated
Other
Comprehensive

   

Retained Earnings
(Accumulated

         
   

Class A

   

Class B

    Capital     Income     Deficit)     Total  

Balance at December 6, 2018

  $ 0       1     $ 12,433     $ -     $ (7,434 )     5,000  

Redemption of Class A common stock

    (0 )     -       (12,433 )     -       (3,577 )     (16,010 )

Issuance of Class A common stock

    1       -       96,900       -       -       96,901  

Rollover of Class A common stock as a result of the Business Combination

    1       -       164,908       -       -       164,909  

Conversion of Class B common stock

    1       (1 )     -       -       -       -  

Net income (loss)

    -       -       -       -       (3,630 )     (3,630 )

Foreign currency translation adjustment

    -       -       -       (557 )     -       (557 )

Balance at January 31, 2019

  $ 3     $ -     $ 261,808     $ (557 )   $ (14,641 )   $ 246,613  

Shares issued to acquire business

    -       -       1,150       -       -       1,150  

Stock based compensation expense

    -       -       361       -       -       361  

Shares issued upon exercise of stock options and warrants

    -       -       1,370       -       -       1,370  

Shares issued upon awards of restricted stock

    1       -       (1 )     -       -       -  

Issuance of shares in exchange for warrants

    -       -       5,158       -       (5,158 )     -  

Net income (loss)

    -       -       -       -       (9,645 )     (9,645 )

Foreign currency translation adjustment

    -       -       -       (1,349 )     -       (1,349 )

Balance at April 30, 2019

  $ 4     $ -     $ 269,846     $ (1,906 )   $ (29,444 )   $ 238,500  

Shares issued upon public offering Class A common stock

    2       -       77,385       -       -       77,387  

Stock based compensation expense

    -       -       1,625       -       -       1,625  

Net income (loss)

    -       -       -       -       2,762       2,762  

Foreign currency translation adjustment

    -       -       -       (4,535 )     -       (4,535 )

Balance at July 31, 2019

  $ 6     $ -     $ 348,856     $ (6,441 )   $ (26,682 )   $ 315,739  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

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Concrete Pumping Holdings, Inc.

Consolidated Statement of Cash Flows

(Unaudited) 

 

         

Successor

   

Predecessor

 

(in thousands)

 

December 6, 2018
through
July 31, 2019

   

November 1, 2018
through
December 5,
2018

   

Nine Months Ended July 31, 2018

 

Net income (loss)

  $ (10,513 )   $ (22,575 )   $ 26,993  

Adjustments to reconcile net income to net cash provided by operating activities:

                       
 

Depreciation

    14,125       2,060       12,956  
 

Deferred income taxes

    (2,983 )     (4,355 )     (11,722 )
 

Amortization of deferred financing costs

    1,385       152       1,233  
 

Write off deferred debt issuance costs

    -       3,390       -  
 

Prepayment penalty on early extinguishment of debt

    -       13,004       -  
 

Amortization of debt premium

    -       (11 )     33  
 

Amortization of intangible assets

    22,235       653       5,720  
 

Stock-based compensation expense

    1,986       27       281  
 

(Gain) / loss on the sale of property, plant and equipment

    420       (166 )     (2,264 )
 

Net changes in operating assets and liabilities (net of acquisitions):

                       
  Changes in fair value of contingent consideration     -       -       734  
   

Trade receivables, net

    (4,346 )     485       (5,751 )
   

Inventory

    (143 )     (294 )     (845 )
   

Prepaid expenses and other current assets

    (4,209 )     (1,283 )     (2,075 )
   

Income taxes payable, net

    (279 )     203       863  
   

Accounts payable

    (7,666 )     (654 )     (2,041 )
   

Accrued payroll, accrued expenses and other current liabilities

    (8,587 )     17,280       6,739  
     

Net cash provided by (used in) operating activities

    1,425       7,916       30,854  
                               

Cash flows from investing activities:

                       

Purchases of property, plant and equipment

    (29,700 )     (503 )     (21,106 )

Proceeds from sale of property, plant and equipment

    1,546       364       1,910  

Cash withdrawn from Industrea Trust Account

    238,474       -       -  

Acquisition of net assets, net of cash acquired - CPH acquisition

    (449,434 )     -       -  

Acquisition of net assets, net of cash acquired - Atlas acquisition

    (2,257 )     -       -  

Acquisition of net assets, net of cash acquired - Capital acquisition

    (129,218 )     -       -  

Acquisition of net assets, net of cash acquired - O'Brien acquisition

    -       -       (21,000 )
     

Net cash provided by (used in) investing activities

    (370,589 )     (139 )     (40,196 )
                               

Cash flows from financing activities:

                       

Proceeds on long term debt

    417,000       -       15,600  

Payments on long term debt

    (9,747 )     (20,056 )     -  

Proceeds on revolving loan

    161,123       4,693       129,951  

Payments on revolving loan

    (128,932 )             (135,086 )

Redemption of common shares

    (231,415 )     -          

Payment of debt issuance costs

    (23,708 )     -          

Payment of underwriting fees

    (8,050 )     -          

Payments on capital lease obligations

    (56 )     (7 )     (123 )

Issuance of preferred shares

    25,000       -       -  

Issuance of common shares - Dec 2018

    96,900       -       -  

Issuance of common shares - May 2019

    77,387       -       -  

Proceeds on exercise of rollover incentive options

    1,370       -       -  
     

Net cash provided by (used in) financing activities

    376,872       (15,370 )     10,342  

Effect of foreign currency exchange rate on cash

    (3,183 )     (70 )     (516 )
     

Net increase (decrease) in cash

    4,525       (7,663 )     484  

Cash:

                         

Beginning of period

    4       8,621       6,925  

End of period

  $ 4,529     $ 958     $ 7,409  

 

 The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

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Concrete Pumping Holdings, Inc.

Consolidated Statement of Cash Flows (Continued)

(Unaudited)

 

   

Successor

   

Predecessor

 

(in thousands)

 

December 6,

2018
through

July 31,

2019

   

November 1,

2018
through
December 5,
2018

   

Nine months

ended July 31,

2018

 

Supplemental cash flow information:

                       

Cash paid for interest

  $ 20,696     $ 201     $ 12,745  

Cash paid (refunded) for income taxes

  $ 1,860     $ -     $ 120

 

                         

Non-cash investing and financing activities:

                       

Fair value of rollover equity for Business Combination

  $ 164,909     $ -     $ -  

Equipment purchases included in accrued expenses

  $ 7,658     $ -     $ 152  

Shares issued to acquire a business

  $ 1,150     $ -     $ -  

Holdbacks related to the acquisition of a business

  $ 181     $ -     $ -  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements

 

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Note 1. Organization and Description of Business

 

Organization

 

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

 

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

 

Nature of business

 

Brundage-Bone and Capital are concrete pumping service providers in the United States ("U.S.") and Camfaud is a concrete pumping service provider in the United Kingdom (“U.K.”). Their core business is the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Most often equipment returns to a “home base” nightly and neither company contracts to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately 90 branch locations across 22 states, with its corporate headquarters in Thornton (near Denver), Colorado. Camfaud has 29 branch locations throughout the U.K., with its corporate headquarters in Epping (near London), England.

 

Eco-Pan provides industrial cleanup and containment services, primarily to customers in the construction industry. Eco-Pan uses containment pans specifically designed to hold waste products from concrete and other industrial cleanup operations. Eco-Pan has 19 operating locations across the U.S. with its corporate headquarters in Thornton, Colorado.

 

Seasonality

 

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

 

 

Note 2. Summary of Significant Accounting Policies

 

Basis of presentation

 

The accompanying Unaudited Consolidated Financial Statements have been prepared, without audit, in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. The enclosed statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company at July 31, 2019 and for all periods presented. 

 

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

 

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

 

9

 

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

 

As a result of the application of the acquisition method of accounting as of the Closing Date of the Business Combination, the accompanying Consolidated Financial Statements include a black line division which indicates that the Predecessor and Successor reporting entities shown are presented on a different basis and are therefore, not comparable. These statements should be read in conjunction with the Predecessor’s Consolidated Financial Statements and Notes thereto as of October 31, 2018 and 2017, and for the years ended October 31, 2018, 2017 and 2016, included as Exhibit 99.3 in the Company’s Form 8-K/A (Amendment No.1) filed with the SEC on January 29, 2019.

 

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

 

Principles of consolidation

 

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

 

Use of estimates

 

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

 

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

 

Trade receivables

 

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

 

Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. As of July 31, 2019 and October 31, 2018, the allowance for doubtful accounts was $0.5 million and $0.7 million, respectively. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.

 

10

 

Inventory

 

Inventory consists primarily of replacement parts for concrete pumping equipment. Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. The Company evaluates inventory and records an allowance for obsolete and slow-moving inventory to account for cost adjustments to net realizable value. Based on management’s analysis, no allowance for obsolete and slow-moving inventory was required as of July 31, 2019 and October 31, 2018.

 

Fair Value Measurements

 

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

 

This standard establishes three levels of inputs that may be used to measure fair value:

 

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

 

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

 

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

 

Deferred financing costs

 

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

 

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

 

Goodwill

 

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

 

As a result of the stock price of the Company declining substantially, management concluded this qualified as a triggering event requiring a step one goodwill impairment analysis in accordance with ASU 2017-04, Intangibles — Goodwill and Other (ASC 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).  Refer to the Note 8 for further discussion.

 

11

 

Property, plant and equipment

 

Property, plant and equipment are recorded at acquired cost (or their estimated fair value when acquired through a business combination) less accumulated depreciation. Expenditures for additions and betterments are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred; however, maintenance and repairs that improve or extend the life of existing assets are capitalized. The carrying amount of assets disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains or losses from property and equipment disposals are recognized in the year of disposal. Property, plant and equipment is depreciated using the straight line method over the following estimated useful lives:

 

   

in years

 

Buildings and improvements

  15 to 40  

Capital lease assets—buildings

  40  

Furniture and office equipment

  2 to 7  

Machinery and equipment

  3 to 25  

Transportation equipment

  3 to 7  

 

Capital lease assets are depreciated over the estimated useful life of the asset.

 

Intangible assets

 

Intangible assets are recorded at cost or their estimated fair value when acquired through a business combination less accumulated amortization (if finite-lived).

 

Intangible assets with finite lives, except for customer relationships, are amortized on a straight-line basis over their estimated useful lives. Customer relationships are amortized on an accelerated basis over their estimated useful lives. Intangible assets with indefinite lives are not amortized but are subject to annual reviews for impairment.

 

Impairment of long-lived assets

 

ASC 360, Property, Plant and Equipment (ASC 360) requires other long-lived assets to be evaluated for impairment when indicators of impairment are present. If indicators are present, assets are grouped to the lowest level for which identifiable cash flows are largely independent of other asset groups and cash flows are estimated for each asset group over the remaining estimated life of each asset group. If the undiscounted cash flows estimated to be generated by those assets are less than the asset’s carrying amount, impairment is recognized in the amount of the excess of the carrying value over the fair value. No indicators of impairment were identified as of July 31, 2019.

  

Revenue recognition

 

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

 

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

 

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

 

12

 

Stock-based compensation

 

The Company follows ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors. The value of the vested portion of the award is recognized as expense in the consolidated statement of income over the requisite service periods when applicable. Compensation expense for all share-based awards is recognized using the straight-line method. The Company will account for forfeitures as they occur in accordance with the early adoption of ASU No. 2016-09, Compensation—Stock Compensation (ASC 718): Improvements to Employee Share-Based Payment Accounting.

 

Income taxes

 

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

 

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

 

Camfaud files income tax returns in the U.K. Camfaud’s national statutes are generally open for one year following the statutory filing period.

 

Foreign currency translation

 

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

 

Business combinations

 

The Company applies the principles provided in ASC 805, Business Combinations (“ASC 805”), when a business is acquired. Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any differences between the price of the acquisition and the fair value determination. The Company estimates all purchase costs and other related transactions on the acquisition date. Transaction costs for the acquisitions are expensed as incurred in accordance with ASC 805.

 

13

 

Concentrations

 

As of July 31, 2019 and October 31, 2018, there were three significant vendors that the Company relied upon to purchase concrete pumping boom equipment. However, should the need arise, there are alternate vendors who can provide concrete pumping boom equipment.

 

Cash balances held at financial institutions may, at times, be in excess of federally insured limits. It is management’s belief that the Company places its temporary cash balances in high-credit quality financial institutions.

 

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

 

 

Note 3. New Accounting Pronouncements

 

We have opted to take advantage of the extended transition period available to emerging growth companies pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) for new accounting standards.

 

Recently issued accounting pronouncements not yet effective

 

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

 

Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for entities other than public business entities in annual reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019 and is to be adopted using either a full retrospective or modified retrospective transition method. The Company expects to adopt the guidance under the modified retrospective approach for the fiscal year ending October 31, 2020. The Company is currently evaluating the impact of the pending adoption of the new standard on the consolidated financial statements. 

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (ASC 805): Clarifying the Definition of a Business (“ASU 2017-01”), which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs to be further evaluated against the framework. The new standard will be applied prospectively to any transactions occurring within the period of adoption and is effective for entities other than public business entities for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company plans to adopt this standard in the first quarter of the fiscal year ending October 31, 2020.

 

14

 

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

 

The new standard is effective for emerging growth companies for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company plans to adopt the new standard effective for the year ending October 31, 2021. The Company is currently evaluating the impact of the pending adoption of the new standard on the consolidated financial statements. 

 

 

Note 4. Business Combinations

 

May 2019 Acquisition of Capital Pumping

 

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

 

The following table represents the preliminary allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values:

 

Consideration paid:

  $ 129,218  
         

Net assets acquired:

       

Current assets

  $ 81  

Intangible assets

    45,000  

Property and equipment

    56,467  

Liabilities assumed

    (63

)

Total net assets acquired

    101,485  
         

Goodwill

  $ 27,733  

 

 

Identifiable intangible assets acquired consist of customer relationships of $39.5 million and a trade name valued at $5.5 million. The customer relationships were valued using the multi-period excess earnings method. The Company determined the useful life of the customer relationships to be 15 years. The trade name was valued using the relief-from-royalty method and the Company determined the trade name associated with Capital to be indefinite.

 

April 2019 Acquisition of Atlas Concrete Pumping

 

On April 15, 2019, the Company acquired Atlas Concrete Pumping, Inc., a concrete pumping provider based in Boise, Idaho, for a purchase price of $3.4 million, which was paid using a combination of $2.3 million in cash and $1.1 million in common stock. This acquisition qualified as a business combination under ASC 805. The Company has preliminarily recorded all assets acquired and liabilities assumed at their acquisition-date fair values, with $1.6 million being allocated to equipment, $0.3 million allocated to working capital assets, $0.8 million being allocated to finite-lived intangible assets, less $0.6 million being allocated to deferred tax liabilities, and the remaining unallocated purchase consideration of $1.4 million being recognized as goodwill. Goodwill represents expected synergies from combining operations and the assembled workforce.

 

15

 

December 2018 Acquisition of CPH

 

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

 

The following table represents the preliminary allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values:

 

Cash

  $ 445,386  

Fair value of rollover equity

    164,908  

Net working capital adjustment

    4,048  

Total consideration paid

  $ 614,342  
         
         

Current assets

  $ 49,112  

Intangible assets

    208,063  

Property and equipment

    219,467  

Liabilities assumed

    (112,048 )

Total net assets acquired

    364,594  
         

Goodwill

  $ 249,748  

 

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

 

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

 

During the three months ended July 31, 2019, as part of a measurement period adjustment, the Company adjusted the valuation of its property and equipment by $3.7 million and the valuation of its intangible assets by $12.6 million, with a corresponding offset to goodwill and a net change to deferred tax liabilities of $3.5 million. In addition, the Company recorded an out of period adjustment related to the reduction of sales tax accrual of $3.4 million that resulted in changes to goodwill and liabilities assumed in the transaction. The impact of the adjustment was not considered material to the Company's previously issued financial statements.

 

CPH incurred transaction costs of $14.2 million and debt extinguishment costs of $16.4 million independently prior to the Business Combination. Industrea incurred transaction costs of $18.8 million independently prior to the Business Combination (i.e. before December 5, 2018), $8.1 million of which was related to the payment of deferred underwriting commissions. Industrea’s pre-Business Combination financial results are not consolidated with the Predecessor (Note 2) and so these costs are not reflected in the Predecessor Financial Statements.

 

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

 

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

 

16

 

April 2018 acquisition of O’Brien (Predecessor)

 

In April 2018, Brundage-Bone entered into an asset purchase agreement to acquire substantially all of the assets of Richard O’Brien Companies, Inc., O’Brien Concrete Pumping-Arizona, Inc., O’Brien Concrete Pumping-Colorado, Inc. and O’Brien Concrete Pumping, LLC (collectively, “O’Brien” or the "O’Brien Companies”) for cash.

 

This acquisition qualified as a business combination under ASC 805. Accordingly, the Predecessor recorded all assets acquired and liabilities assumed at their acquisition-date fair values, with any excess recognized as goodwill. Goodwill represents expected synergies from combining operations and the assembled workforce. The acquisition was part of the Predecessor’s strategic plan to expand their presence in the Colorado and Arizona markets. 

 

The following table represents the total consideration transferred and its allocation to the assets acquired and liabilities assumed at their acquisition-date fair values:

 

Consideration paid:

       

Cash, net of cash acquired

  $ 21,000  

Total consideration paid

  $ 21,000  
         

Net assets acquired:

       

Inventory

  $ 140  

Property, plant and equipment

    16,163  

Intangible assets

    2,810  

Total net assets acquired

    19,113  
         

Goodwill

  $ 1,887  

 

Acquisition-related expenses incurred by the Predecessor amounted to $1.1 million, all of which were recognized in the consolidated statement of income during the nine months ended July 31, 2018 (Predecessor).

 

Unaudited Pro Forma Financial Information

 

The following unaudited pro forma financial information presents the combined results of operations for the Company and gives effect to the CPH, Capital and O’Brien business combinations discussed above as if they had occurred on November 1, 2017. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the CPH, Capital and O’Brien business combinations had been completed on November 1, 2017, nor does it purport to project the results of operations of the combined company in future periods. The unaudited pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.

 

17

 

The unaudited pro forma financial information is as follows:

 

   

Successor and

Predecessor

   

Predecessor

 

(in thousands)

 

Nine months

ended July 31,

2019

   

Nine months

ended July 31,

2018

 

Revenue

  $ 24,396     $ 175,854  

Pro forma revenue adjustments by Business Combination

               

O'Brien

    -       6,990  

Capital

    26,829       34,449  

CPH

    174,613       -  

Total pro forma revenue

  $ 225,838     $ 217,293  

 

   

Successor and

Predecessor

   

Predecessor

 
   

Nine months

ended July 31,

2019

   

Nine months

ended July 31,

2018

 

Net (loss) income

  $ (22,575 )   $ 26,993  

Pro forma net income adjustments by Business Combination

               

O'Brien

    -       (1,013 )

Capital

    2,868       2,054  

CPH

    (10,513 )     -  

Total pro forma net (loss) income

  $ (30,220 )   $ 28,034  

 

 

Note 5.     Fair Value Measurement

 

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

 

The Company's long-term debt instruments are recorded at their carrying values in the consolidated balance sheet, which may differ from their respective fair values. The fair values of the long-term debt instruments are derived from Level 2 inputs.  The fair value amount of the Long-term debt instruments at July 31, 2019 for the Successor and at October 31, 2018 for the Predecessor is presented in the table below based on the prevailing interest rates and trading activity of the Notes.

 

   

Successor

   

Predecessor

 
   

July 31,

   

October 31,

 
   

2019

   

2018

 

(in thousands)

 

Carrying Value

   

Fair Value

   

Carrying Value

   

Fair Value

 

Senior secured notes

  $ -     $ -     $ 167,553     $ 178,025  

Seller notes

    -       -       8,292       8,292  

Term loans

    407,316       400,952       -       -  

Capital lease obligations

    589       589       653       653  

 

18

 

In connection with the acquisition of Camfaud in November 2016, former Camfaud shareholders were eligible to receive earnout payments (“deferred consideration”) of up to $3.1 million if certain Earnings before interest, taxes, depreciation, and amortization ("EBITDA") targets were met. In accordance with ASC 805, the Company reviewed the deferred consideration on a quarterly basis in order to determine its fair value. Changes in the fair value of the liability are recorded within general and administrative expenses in the consolidated statement of income in the period in which the change was made. The Company estimated the fair value of the deferred consideration based on its probability assessment of Camfaud’s EBITDA achievements during the 3 year earnout period. In developing these estimates, the Company considered its revenue and EBITDA projections, its historical results, and general macro-economic environment and industry trends. This fair value measurement was based on significant revenue and EBITDA inputs not observed in the market, which represents a Level 3 measurement.

 

The fair value of the deferred consideration was $1.4 million and $1.5 million at July 31, 2019 (Successor) and October 31, 2018 (Predecessor), respectively. The change in the fair value measurement of the deferred consideration was not significant to either the Predecessor or Successor periods.

 

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

 

 

 Note 6. Prepaid Expenses and Other Current Assets

 

The significant components of prepaid expenses and other current assets at July 31, 2019 for the Successor and at October 31, 2018 for the Predecessor are comprised of the following:

 

   

Successor

   

Predecessor

 
   

July 31,

   

October 31,

 

(in thousands)

 

2019

   

2018

 

Prepaid insurance

  $ 2,643     $ 348  

Prepaid licenses and deposits

    234       236  

Prepaid rent

    455       326  

Prepaid sponsor fees

    -       667  

Other prepaids

    1,229       2,370  

Total prepaid expenses and other current assets

  $ 4,561     $ 3,947  

 

 

Note 7. Property, Plant and Equipment

 

The significant components of property, plant and equipment at July 31, 2019 for the Successor and at October 31, 2018 for the Predecessor are comprised of the following:

 

   

Successor

   

Predecessor

 
   

July 31,

   

October 31,

 

(in thousands)

 

2019

   

2018

 

Land, building and improvements

  $ 26,582     $ 22,244  

Capital leases—land and buildings

    828       909  

Machinery and equipment

    280,085       237,094  

Transportation equipment

    2,230       3,297  

Furniture and office equipment

    742       1,486  
      310,467       265,030  

Less accumulated depreciation

    (13,382 )     (63,115 )

Property, plant and equipment, net

  $ 297,085     $ 201,915  

 

19

 

Depreciation expense for the Successor for the three-month period ended July 31, 2019 and the period from December 6, 2018 to July 31, 2019 was $5.5 million and $14.1 million, respectively. Depreciation expense for the Predecessor from November 1, 2018 to December 5, 2018 and for the three and nine-month periods ended July 31, 2018 was $2.1 million, $4.5 million, $13.0 million, respectively. Depreciation expense related to revenue producing machinery and equipment is recorded in cost of operations and an immaterial amount of depreciation expense related to our capital leases and furniture and fixtures is included in general and administrative expenses. In conjunction with the Business Combination, the basis of all property, plant and equipment was recognized at fair value in purchase accounting and as such, there is a significant decline in the accumulated depreciation balances as of July 31, 2019 when compared to October 31, 2018. 

 

 

Note 8. Goodwill and Intangible Assets

 

The Company recognized goodwill and certain intangible assets in connection with business combinations (see Note 4 - Business Combinations). The following table summarizes the composition of intangible assets at July 31, 2019 for the Successor and at October 31, 2018 for the Predecessor:

 

   

Successor

   

Predecessor

 
   

July 31,

   

October 31,

 
   

2019

   

2018

 
   

Gross

                   

Net

   

Gross

           

Net

 
   

Carrying

   

Accumulated

      Foreign Currency    

Carrying

   

Carrying

   

Accumulated

   

Carrying

 

(in thousands)

 

Value

   

Amortization

   

Translation Adjustment

   

Amount

   

Value

   

Amortization

   

Amount

 

Customer relationship

  $ 191,918     $ (21,871 )   $ 143     $ 170,190     $ 47,641     $ (23,093 )   $ 24,548  

Trade name

    5,133       (352 )     17       4,798       15,412       (3,540 )     11,872  

Trade name (indefinite life)

    55,500       -       -       55,500       -       -       -  

Non-compete agreements

    200       (12 )     -       188       495       (486 )     9  
Balance at period end   $ 252,751     $ (22,235 )   $ 160     $ 230,676     $ 63,548     $ (27,119 )   $ 36,429  

 

Amortization expense for the Successor for the three-month period ended July 31, 2019 and the period from December 6, 2018 to July 31, 2019 was $10.4 million and $22.2 million, respectively. Amortization expense for the Predecessor from November 1, 2018 to December 5, 2018 and for the three and nine-month periods ended July 31, 2018 was $0.7 million, $1.9 million, and $5.7 million, respectively. The estimated aggregate amortization expense for intangible assets over the next five fiscal years ending October 31 and thereafter is as follows:

 

(in thousands)

       

2019 (excluding the period from December 6, 2018 to July 31, 2019)

  $ 9,907  

2020

    33,312  

2021

    27,233  

2022

    21,852  

2023

    17,283  

Thereafter

    65,590  
Total   $ 175,177  

 

The changes in the carrying value of goodwill by reportable segment for the quarter ended July 31, 2019 are as follows:

 

(in thousands)

 

U.S. Concrete Pumping

   

U.K. Concrete Pumping

   

Eco-Pan

   

Corporate

   

Total

 

Balance at April 30, 2019

  $ 165,919     $ 22,804     $ 46,258     $ 2,459     $ 237,440  

Measurement-period adjustments

    (1,887 )     18,158       2,875       (2,459)       16,687  
Prior period adjustment of sales tax accrual     (3,400 )     -       -       -       (3,400 )

Acquired goodwill

    27,733       -       -       -       27,733  

Foreign currency translation

    -       (1,409 )     -       -       (1,409 )

Balance at July 31, 2019

  $ 188,365     $ 39,553     $ 49,133     $ -     $ 277,051  

 

As discussed in Note 4 – Business Combinations, the Company recorded an out of period adjustment related to the reduction of sales tax accrual of $3.4 million that resulted in changes to goodwill and liabilities assumed in the transaction. The impact of the adjustment was not considered material to the Company's previously issued financial statements. A significant decline in the Company's price per share as of July 31, 2019 triggered a step one goodwill impairment analysis for the quarter ended July 31, 2019. The results of this test indicated that no impairment was required.

 

20

 

 

Note 9. Long Term Debt and Revolving Lines of Credit

Successor

 

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

 

Term Loan Agreement

 

Summarized terms of the Term Loan Agreement are as follows:

 

 

Provides for an original aggregate principal amount of $357.0 million. This amount was increased in May 2019 by $60.0 million in connection with the acquisition of Capital;
 

The initial term loans advanced will mature and be due and payable in full seven years after the Closing Date, with principal amortization payments in an annual amount equal to 5.00% of the original principal amount;

 

Borrowings under the Term Loan Agreement, will bear interest at either (1) an adjusted LIBOR rate or (2) an alternate base rate, plus an applicable margin of 6.00% or 5.00%, respectively;

 

The Term Loan Agreement is secured by (i) a first priority perfected lien on substantially all of the assets of the Company and certain of its subsidiaries that are loan parties thereunder to the extent not constituting ABL Credit Agreement priority collateral and (ii) a second priority perfected lien on substantially all ABL Credit Agreement priority collateral, in each case subject to customary exceptions and limitations;

 

The Term Loan Agreement includes certain non-financial covenants.

 

The outstanding balance under the Term Loan Agreement as of July 31, 2019 was $407.3 million and as of that date, the Company was in compliance with all debt covenants. The Company’s interest on borrowings under the Term Loan Agreement bear interest using the London Inter-bank Offered Rate (LIBOR) as the base rate plus an applicable margin in line with the summarized terms of the Term Loan Agreement as described above.

 

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

 

Years ended October 31:

 

(in thousands)

 

2019 (excluding period from December 6, 2018 to July 31, 2019)

  $ 5,222  

2020

    20,888  

2021

    20,888  

2022

    20,888  

2023

    20,888  

Thereafter

    318,542  
Total   $ 407,316  

 

21

 

ABL Credit Agreement

 

Summarized terms of the ABL Credit Agreement are as follows:

 

 

Borrowing availability in U.S. Dollars and GBP up to a maximum of $60.0 million;

 

Borrowing capacity available for standby letters of credit of up to $7.5 million and for swingline loan borrowings of up to $7.5 million. Any issuance of letters of credit or making of a swingline loan will reduce the amount available under the ABL Facility;

 

All loans advanced will mature and be due and payable in full five years after the Closing Date;

 

Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement;

 

Borrowings in U.S. Dollars and GBP under the ABL Credit Agreement will bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at 2.25% and 1.25%, respectively. The ABL Credit Agreement is subject to two step-downs of 0.25% and 0.50% based on excess availability levels;

 

U.S. ABL Credit Agreement obligations will be secured by (i) a perfected first priority security interest in substantially all personal property of the Company and certain of its subsidiaries that are loan parties thereunder consisting of all accounts receivable, inventory, cash, intercompany notes, books and records, chattel paper, deposit, securities and operating accounts and all other working capital assets and all documents, instruments and general intangibles related to the foregoing (the “U.S. ABL Priority Collateral”) and (ii) a perfected second priority security interest in substantially all Term Loan Agreement priority collateral, in each case subject to customary exceptions and limitations;

 

U.K. ABL Credit Agreement obligations will be secured by (i) a perfected first-priority security interest in (A) the U.S. ABL Priority Collateral, (B) all of the stock (or other ownership interests) in, and held by, the U.K. borrower subsidiaries of the Company, and (C) all of the current and future assets and property of the U.K subsidiaries of the Company that are loan parties thereunder, including a first-ranking floating charge over all current and future assets and property of each U.K. subsidiary of the Company that is a loan party thereunder; and (ii) a perfected, second-priority security interest in substantially all Term Loan Agreement priority collateral, in each case subject to customary exceptions and limitations; and

 

The ABL Credit Agreement also includes (i) a springing financial covenant (fixed charges coverage ratio) based on excess availability levels that the Company must comply with on a quarterly basis during required compliance periods and (ii) certain non-financial covenants.

 

The outstanding balance under the ABL Credit Agreement as of July 31, 2019 was $31.3 million and as of that date, the Company was in compliance with all debt covenants.

 

Predecessor

 

Revolving line of credit

 

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

 

 

Maximum borrowing capacity of $65.0 million with a maturity date of September 8, 2022;

 

Borrowings bear interest at the LIBOR rate plus an applicable margin that resets quarterly and is (a) 2.00%, (b) 2.25% or (c) 2.50% if the quarterly average excess availability is (a) at least 66.67%, (b) less than 66.67% and at least 33.33% and (c) less than 33.33%, respectively;

 

Interest is due monthly and the outstanding principal balance was due upon maturity;

 

On October 2, 2017, $35.0 million of the Revolver balance was transferred to a 3-month line of credit with a separate LIBOR interest rate; and

 

Required Predecessor to maintain a maximum ratio of total fixed charges.

 

As of October 31, 2018, the outstanding balance of the Revolver was $48.7 million and the Predecessor was in compliance with all debt covenants.

 

U.K. Revolver

 

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

 

As of October 31, 2018, the outstanding balance of the U.K. Revolver was $14.3 million and the Predecessor was in compliance with all debt covenants.

 

22

 

Senior secured notes

 

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

 

Summarized terms of the Senior Notes were as follows:

 

 

Maturity date on September 1, 2021. Principal due upon maturity.

 

Interest rate of 10.375% per annum, payments due every March 1 and September 1 commencing March 1, 2015

 

The Senior Notes were secured by substantially all of the assets of the Company and contain various non-financial covenants.

 

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

 

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

 

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

 

The outstanding balance of the original Senior Notes outstanding as of October 31, 2018 was nil. The outstanding balance of the New Senior Notes as of October 31, 2018 was $167.6 million. 

 

Seller notes

 

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

 

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

 

The table below is a summary of the composition of the Company’s long-term debt balances at July 31, 2019 for the Successor and at October 31, 2018 for the Predecessor. Note that the term loan is combined for short term and long term balances.

 

   

Successor

   

Predecessor

 
   

July 31,

   

October 31,

 

(in thousands)

 

2019

   

2018

 

Term loan

  $ 407,316     $ -  

Senior secured notes

    -       167,553  

Seller notes

    -       8,292  
      407,316       175,845  

Plus unamortized premium on debt

    -       540  

Less unamortized deferred financing costs

    (21,264 )     (2,915 )

Total long term debt

  $ 386,052     $ 173,470  

 

23

 

 

Note 10. Accrued Payroll and Payroll Expenses

 

The following table summarizes accrued payroll and expenses at July 31, 2019 for the Successor and at October 31, 2018 for the Predecessor:

 

   

Successor

   

Predecessor

 
   

July 31,

   

October 31,

 

(in thousands)

 

2019

   

2018

 

Accrued vacation

  $ 4,186     $ 3,482  

Accrued bonus

    2,421       1,766  

Other accrued

    722       1,457  

Total accrued payroll and payroll expenses

  $ 7,329     $ 6,705  

  

 

Note 11. Accrued Expenses and Other Current Liabilities

 

The following table summarizes accrued expenses and other current liabilities at July 31, 2019 for the Successor and at October 31, 2018 for the Predecessor: 

 

   

Successor

   

Predecessor

 
   

July 31,

   

October 31,

 

(in thousands)

 

2019

   

2018

 

Accrued insurance

  $ 6,321     $ 4,743  

Accrued interest

    2,497       3,092  

Accrued equipment purchases

    4,780       -  

Accrued sales and use tax

    323       4,145  

Accrued property taxes

    728       865  

Accrued professional fees

    1,288       3,579  

Other

    2,999       2,406  

Total accrued expenses and other liabilities

  $ 18,936     $ 18,830  

 

 

Note 12. Income Taxes

 

In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act significantly revised the U.S. corporate income tax regime by, among other things, the following items:

 

 

Lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. In accordance with ASC Topic 740, Income Taxes, the Predecessor recognized the income tax effects of the 2017 Tax Act in its financial statements in the period the 2017 Tax Act was signed into law;

 

Provides for a 100 percent deduction for foreign-source portion of dividends received from specified 10 percent owned foreign corporations by U.S. corporate shareholders. The deduction is unavailable for hybrid dividends;

 

Creates a requirement that certain income earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFC's U.S. shareholder; and

 

The Global Intangible Low Tax Income (“GILTI”) provisions are effective for tax years beginning on or after January 1, 2018. In FASB staff Q&A Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, the FASB staff noted that ASC 740 was not clear with respect to the appropriate accounting for GILTI, and accordingly, an entity may either: (1) elect to treat taxes on GILTI as period costs similar to special deductions, or (2) recognize deferred tax assets and liabilities when basis differences exist that are expected to affect the amount of GILTI inclusion upon reversal (the deferred method). The Company has not yet adopted an accounting policy related to GILTI.

 

For the third quarter ended July 31, 2019, we recorded an income tax benefit of $1.9 million on pretax income of $0.8 million, resulting in an effective tax rate that is not meaningful. The primary items impacting the change in our effective tax rate from the prior quarter include (1) a change in our estimated full year effective tax rate due to a change in our estimated full year income before tax and (2) a change in our estimated full year foreign income inclusion. The change in estimated full year effective tax rate resulted in a true-up to income tax expense in the current quarter. For the same Predecessor quarter in the prior year, we recorded income tax expense of $1.7 million on pretax income of $6.5 million, resulting in an effective tax rate of 26.1%.

 

For the Successor period from December 6, 2018 to July 31, 2019, the Company recorded an income tax benefit of $3.1 million on a pretax loss of $13.6 million, resulting in an effective tax rate of 22.8%. The effective tax rate for this period was heavily affected by the income tax expense activity discussed above for the successor quarter ended July 31, 2019.

 

24

 

For the Predecessor period from November 1, 2018 to December 5, 2018, the Company recorded an income tax benefit of $4.2 million on a pretax loss of $26.8 million, resulting in an effective tax rate of 15.7%. For the Predecessor period for the nine months ended July 31, 2018, the Company recorded an income tax benefit of $10.6 million on pretax income of $16.4 million, resulting in an effective tax rate that was not meaningful.

 

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

 

 

(1)

The net impact from the enactment of the 2017 Tax Act, which reduced the U.S. federal corporate income tax rate from 35% to 21%;

 

(2)

The Predecessor recording a tax benefit of $14.74 million in the nine months ended July 31, 2018 related to the re-measurement of deferred tax assets and liabilities to reflect the reduction in the U.S. corporate income tax rate from 35% to 21% percent;

 

(3)

The Predecessor recording a provisional tax expense of $0.5 million in the nine months ended July 31, 2018 related to the deemed repatriation of earnings from its foreign subsidiaries;

 

(4)

The Predecessor recording a provisional tax benefit of $0.5 million in the nine months ended July 31, 2018 related to the reduction of the deferred tax liability on unrepatriated foreign earnings due to the 100 percent dividends received deduction;

 

(5)

The Predecessor recording tax expense of $1.4 million for the period ended December 5, 2018 related to nondeductible transaction related costs;

 

(6)

The Successor including $0.6 million of tax expense in the estimated annual effective rate for the period ended July 31, 2019 related to GILTI; and

  (7) The Successor including $0.8 million of tax benefit in the estimated annual effective tax rate for the period ended July 31, 2019 related to a reduction in liability of foreign income.

 

At July 31, 2019 and October 31, 2018, we had deferred tax liabilities, net of deferred tax assets, of $71.2 million and $39.0 million, respectively. The increase in our net deferred tax liability is primarily due to deferred tax liabilities recorded in purchase accounting related to the fair value adjustments to fixed assets and other identifiable intangible assets.  The Company has a valuation allowance of $0.1 million as of both July 31, 2019 and October 31, 2018 related to foreign tax credit carryforwards where realization is more uncertain at this time due to the limited carryforward periods that exist.

 

The Company had no liability for uncertain tax positions at July 31, 2019 and October 31, 2018.

 

Note 13. Commitments and Contingencies

 

Insurance

 

As of July 31, 2019 and October 31, 2018, the Company was partially insured for automobile, general and worker's compensation liability with the following deductibles:

 

   

Deductible

 

General liability

  $ 250,000  

General liability (in the case of accident and driver has completed NBIS driver training)

  $ 125,000  

Automobile

  $ 100,000  

Workers’ compensation

  $ 250,000  

The Successor and Predecessor had accrued $4.8 million and $3.2 million, as of July 31, 2019 and October 31, 2018, respectively, for claims incurred but not reported and estimated losses reported, which is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheet.

The Company offers employee health benefits via a partially self-insured medical benefit plan. Participant claims exceeding certain limits are covered by a stop-loss insurance policy. As of July 31, 2019 and October 31, 2018, the Company had accrued $1.5 million and $1.0 million, respectively, for health claims incurred but not reported based on historical claims amounts and average lag time. These accruals are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheet. The Company contracts with a third party administrator to process claims, remit benefits, etc. The third party administrator requires the Company to maintain a bank account to facilitate the administration of claims. The account balance was $0.3 million and $0.3 million, as of July 31, 2019 and October 31, 2018, respectively, and is included in cash and cash equivalents in the accompanying consolidated balance sheet.

Litigation

 

The Company is currently involved in certain legal proceedings and other disputes with third parties that have arisen in the ordinary course of business. Management believes that the outcomes of these matters will not have a material impact on the Company’s financial statements and does not believe that any amounts need to be recorded for contingent liabilities in the Company’s consolidated balance sheet.

 

25

 

Letters of credit

 

The ABL Credit Agreement provides for up to $7.5 million of standby letters of credit. As of July 31, 2019, total outstanding letters of credit totaled $1.5 million, the vast majority of which had been committed to the Company’s general liability insurance provider.  

 

 

Note 14. Stockholders’ Equity

 

In conjunction with the Business Combination, all common and preferred shares that were in existence for the Predecessor were settled and no longer outstanding subsequent to December 5, 2018.

 

Successor

 

The Company’s amended and restated certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock, par value $0.0001, and 10,000,000 shares of preferred stock, par value $0.0001. Immediately following the Business Combination, there were:

 

 

28,847,707 shares of common stock issued and outstanding;

 

34,100,000 warrants outstanding, each exercisable for one share of common stock at an exercise price of $11.50 per share; and

 

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

 

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

 

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

 

The Company’s Series A Preferred Stock does not pay dividends and is convertible (effective June 6, 2019) into shares of the Company’s common stock at a 1:1 ratio (subject to customary adjustments). The Company has the right to elect to redeem all or a portion of the Series A Preferred Stock at its election after December 6, 2022 for cash at a redemption price equal to the amount of the principal investment plus an additional cumulative amount that will accrue at an annual rate of 7.0% thereon. In addition, if the volume weighted average price of shares of the Company’s common stock equals or exceeds $13.00 for 30 consecutive days, then the Company will have the right to require the holder of the Series A Preferred Stock to convert its Series A Preferred Stock into Company common stock, at a ratio of 1:1 (subject to customary adjustments).

 

Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. The preferred stock contains a redemption feature contingent upon a change in control which is not solely within the control of the Company, and as such, the preferred stock is presented outside of permanent equity.

 

Warrant Exchange

 

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

 

26

 

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

 

Predecessor

 

Pursuant to the Predecessor’s articles of incorporation, as amended, the Predecessor was authorized to issue 15,000,000 shares of $0.001 par value common stock and 2,423,711 shares of $0.001 par value preferred stock.

 

As of October 31, 2018, the Predecessor had 7,576,289 shares of common stock issued and outstanding and 2,342,264 preferred shares issued and outstanding. The preferred shares had a liquidation preference of $11.2 million.

 

Note 15. Stock-Based Compensation

Successor

 

The Company rolled forward certain vested options from the Predecessor (see discussion below) to 2,783,479 equivalent vested options in the Successor. No incremental compensation costs were recognized on conversion as the fair value of the options issued were equivalent to the fair value of the vested options of the Predecessor. Exercise prices for those options range from $0.87 to $6.09.

 

In April 2019, pursuant to the Concrete Pumping Holdings, Inc. 2018 Omnibus Incentive Plan, the Company granted stock awards to certain employees in the United States and United Kingdom. All awards in the United States are restricted stock awards while awards granted to employees in the United Kingdom are stock options with exercise prices of $0.01. Regardless of where the awards were granted, the awards vest pursuant to one of the following four conditions:

 

 

1.

Time-based only – Awards vest in equal installments over a five-year period

 

2.

$13 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $13.00 for 30 consecutive days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

3.

$16 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $16.00 for 30 consecutive days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

4.

$19 market-based and time-based vesting – Awards will vest as to first condition once the Company’s stock reaches a closing price of $19.00 for 30 consecutive days. Once the first vesting condition is achieved, the stock award will then vest 1/3 annually over a three-year period.

 

27

 

Included in the table below is a summary of the awards granted, including the location, type of award, fair value of awards, and the date that expense will be recognized through. In accordance with ASC 718, the market-based awards were assigned the fair values in the table below using a Monte Carlo simulation model.  In addition, while the table below provides a date through which expense will be recognized on a straight-line basis, if at such time these market-based stock awards vest under both vesting conditions, expense recognition will be accelerated. Stock-based compensation expense for the three-month period ended July 31, 2019 and the period from December 6, 2018 to July 31, 2019 was $1.6 million and $2.0 million, respectively.

 

Location

 

Type of Award

 

Shares Awarded

   

Individual Fair

Value of Awards

   

Total Fair Value of Awards

 

Date Expense will be

Recognized Through

(Straight-Line Basis)

US

 

Time Based Only

    1,156,630     $ 6.67     $ 7,714,722  

12/6/2023

US

 

$13 Market/Time- Based

    1,543,044     $ 4.47     $ 6,904,032  

5/4/2024

US

 

$16 Market/Time- Based

    1,543,044     $ 3.85     $ 5,940,038  

8/27/2024

US

 

$19 Market/Time- Based

    1,543,091     $ 3.34     $ 5,149,194  

11/19/2024

UK

 

Time Based Only

    164,744     $ 6.67     $ 1,098,842  

12/6/2023

UK

 

$13 Market/Time- Based

    238,808     $ 4.46     $ 1,066,272  

5/4/2024

UK

 

$16 Market/Time- Based

    238,808     $ 3.84     $ 917,096  

8/27/2024

UK

 

$19 Market/Time- Based

    238,833     $ 3.33     $ 794,772  

11/19/2024

Total

    6,667,002             $ 29,584,968    

 

Predecessor

 

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

  

 

Note 16. Earnings Per Share

 

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

 

Successor

 

At July 31, 2019 (Successor), the Company had outstanding (1) 13.0 million warrants to purchase shares of common stock, (2) 6.7 million outstanding unvested stock awards, (3) 1.2 million outstanding vested stock options and 2.5 million shares of Series A Preferred Stock, all of which could potentially be dilutive. For all periods presented, the weighted-average dilutive impact, if any, of these shares was excluded from the calculation of diluted earnings (loss) per common share because their inclusion would have been anti-dilutive. As a result, dilutive earnings (loss) per share is equal to basic earnings (loss) per share. 

 

28

 

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

 

   

Successor

 

(in thousands, except share and per share amounts)

 

Three Months Ended July 31, 2019

   

December 6, 2018
through
July 31,
2019

 

Net income (loss) attributable to Concrete Pumping Holdings, Inc.

  $ 2,762     $ (10,513 )

Less: Undistributed earnings allocated to participating securities

    (53 )     -  

Less: Preferred stock - cumulative dividends

    (456 )     (1,159 )

Net income (loss) attributable to common stockholders (numerator for basic earnings per share)

  $ 2,253     $ (11,672 )

Add back: Undistributed earnings allocated to participating securities

    53       -  

Less: Undistributed earnings reallocated to participating securities

    (51 )     -  
Add back: Preferred stock - cumulative dividends     456       -  

Numerator for diluted earnings per share

  $ 2,711     $ (11,672 )
                 

Weighted average shares (denominator):

               

Weighted average shares - basic

    49,940,411       37,155,182  

Weighted average shares - diluted

    53,122,690       37,155,182  
                 

Basic earnings (loss) per share

  $ 0.05     $ (0.31 )

Diluted earnings (loss) per share

  $ 0.05     $ (0.31 )

 

Predecessor

 

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

 

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

 

The table below shows our basic and diluted EPS calculations for the Predecessor periods from November 1, 2018 through December 5, 2018 and from November 1, 2017 through July 31, 2018:

 

   

Predecessor

 

(in thousands)

 

November 1, 2018
through
December 5,
2018

   

Three Months Ended

July 31, 2018

   

Nine Months

Ended July 31,

2018

 

Net (loss) income attributable to Concrete Pumping Holdings, Inc

  $ (22,575 )   $ 4,825     $ 26,993  

Less: Preferred stock - cumulative dividends

    (126 )     (1,050 )     (1,050 )

Less: Undistributed earnings allocated to preferred shares

    -       (892 )     (6,127 )

Net (loss) income available to common shareholders

  $ (22,701 )   $ 2,883     $ 19,816  
                         

Weighted average shares (denominator):

                       

Weighted average shares - basic

    7,576,289       7,576,289       7,576,289  

Weighted average shares - diluted

    7,576,289       8,510,779       8,510,779  
                         

Antidilutive stock options

  $ 932,746     $ -     $ -  
                         

Basic income (loss) per share

  $ (3.00 )   $ 0.38     $ 2.62  

Diluted income (loss) per share

  $ (3.00 )   $ 0.34     $ 2.33  

 

29

 

 

Note 17. Segment Reporting

 

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

 

 

U.S. Concrete Pumping – Consists of concrete pumping services sold to customers in the U.S. Business in this segment is primarily performed under the Brundage-Bone and Capital tradenames.

 

U.K. Concrete Pumping – Consists of concrete pumping services and leasing of concrete pumping equipment to customers in the U.K. Business in this segment is primarily performed under the Camfaud Concrete Pumps and Premier Concrete Pumping tradenames. This represents the Company’s foreign operations.

 

Concrete Waste Management Services ("Eco-Pan") – Consists of pans and containers rented to customers in the U.S and the disposal of the concrete waste material services sold to customers in the U.S. Business in this segment is performed under the Eco-Pan tradename.

 

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

 

   

Successor

   

Predecessor

   

Successor

   

Predecessor

 

(in thousands)

 

Three Months Ended

July 31, 2019

   

Three Months Ended

July 31, 2018

   

December 6, 2018
through
July 31,
2019

   

November 1, 2018
through
December 5,
2018

   

Nine Months

Ended July 31,

2018

 

Revenue

                                       

U.S. Concrete Pumping

  $ 58,354     $ 45,288     $ 124,969     $ 16,659     $ 118,424  

U.K. Concrete Pumping

    12,492       13,877       30,996       5,143       36,705  

Eco-Pan

    7,967       7,548       18,806       2,628       20,885  

Corporate

    626       625       1,634       242       1,875  

Intersegment

    (784 )     (689 )     (1,792 )     (276 )     (2,035 )
    $ 78,655     $ 66,649     $ 174,613     $ 24,396     $ 175,854  
                                         

(Loss) income before income taxes

                                       

U.S. Concrete Pumping

  $ (1,050 )   $ 2,287     $ (14,946 )   $ (27,354 )   $ 5,268  

U.K. Concrete Pumping

    1,353       959       290