Concrete Pumping Holdings Inc

Note1. Organization and Description of Business

Organization

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

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 these service providers donot contract to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately100 branch locations across approximately 21 states, with its corporate headquarters in Thornton, Colorado. Camfaud has approximately 30 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 20 operating locations across the U.S. with its corporate headquarters in Thornton, Colorado. In addition, we have concrete waste management operations under our Eco-Pan brand name in the U.K. and currently operate from a shared Camfaud location.

Seasonality

The Company’s sales are historically seasonal, with lower revenue in thefirst quarter and higher revenue in thefourth 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.

Note2. Summary of Significant Accounting Policies

We describe our significant accounting policies in Note2 of the notes to consolidated financial statements in our annual report on Form10-K for the year ended* October 31, 2023 ("Annual Report"). During thethree* months ended* January 31, 2024*, there wereno changes to those accounting policies.

Basis of presentation

Our condensed consolidated balance sheet as of* October 31, 2023,which was derived from our audited consolidated financial statements and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form10*-Q. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they donot 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 a fair statement of the interim periods. The consolidated results of operations and cash flows for thefirst**three months of the year arenot necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form10-K for the year ended* October 31, 2023.*

Certain prior period amounts have been reclassified in order to conform to the current year presentation.

During thefirst quarter of fiscal year2024, certain assets and associated revenues and expenses previously part of the Company's Other activities has now been aggregated into its U.S. Concrete Pumping segment in order to better align its placement with the manner in which the Company now allocates resources and measures performance. As a result, segment results for prior periods have been reclassified to conform to current period presentation. For further discussion, see Note18.

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Use of estimates

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

Revenue recognition

The Company generates revenues primarily from (1) concrete pumping services in both the U.S. and U.K and (2) the Company’s concrete waste services business, both of which are discussed below. In addition, the Company generates an immaterial amount of revenue from the sales of replacement parts to customers. The Company’s delivery terms for replacement part sales are FOB shipping point. Revenue is disaggregated betweentwo accounting standards: (1) ASC606, Revenue Recognition("ASC606") and (2) ASC842, Leases("ASC842").

Leases as Lessor

Our Eco-Pan business involves contracts with customers whereby we are a lessor for the rental component of the contract and therefore, such rental components of the contract are recorded as lease revenue. We account for such rental contracts as operating leases. We recognize revenue from pan rentals in the period earned, regardless of the timing of billing to customers. The lease component of the revenue is disaggregated by a base price that is based on the number of contractual days and a variable component that is based on days in excess of the number of contractual days.

The table below summarizes our revenues as presented in our unaudited consolidated statements of operations for the periods ended* January 31, 2024and2023* by revenue type:

Receivables and contract assets and liabilities

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 doesnot require collateral for their accounts receivable; however, the Company* mayfile statutory liens or take other appropriate legal action when necessary on construction projects in which collection problems arise. A receivable is typically considered to be past due if any portion of the receivable balance is outstanding for more than30* days. The Company doesnot typically charge interest on past-due receivables.

Pursuant to CECL (defined below), Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts, Management’s understanding of the current economic circumstances within the Company’s industry, reasonable and supportable forecasts and Management’s judgment as to the likelihood of ultimate payment based upon available data. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. Our estimate of doubtful accounts could change based on changing circumstances, including changes in the economy or in particular circumstances of individual customers. Accordingly, the Company* may*be required to increase or decrease the allowance for doubtful accounts.

The Company doesnot have contract liabilities associated with contracts with customers. The Company’s contract assets and impairment losses associated therewith arenot significant. Contracts with customers donot result in amounts billed to customers in excess of recognizable revenue.

Newly adopted accounting pronouncements

ASU2016-13, Financial Instruments Credit Losses (Topic326) (“ASU2016-13”) - In* June 2016,the FASB issued ASUNo.* 2016-13, which, along with subsequently issued related ASUs, requires financial assets (or groups of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected, among other provisions (known as the current expected credit loss (“CECL”) model). Under the new guidance, the Company recognizes an allowance for its estimate of expected credit losses over the entire contractual term of its receivables from the date of initial recognition of the financial instrument. Measurement of expected credit losses are based on relevant forecasts that affect collectability. The Company’s receivables are in scope for CECL. At the point that these receivables are recorded, they become subject to the CECL model and estimates of expected credit losses over their contractual life are recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. This ASU is effective for smaller reporting companies with fiscal years beginning after* December 15, 2022,with early adoption permitted. The Company adopted CECL as of November 1, 2023for fiscal year ending October 31, 2024.The adoption of CECL didnot* have a material impact on the condensed consolidated financial statements and related disclosures or the existing internal controls because the Company’s accounts receivable are of short duration and there isnot a material difference between incurred losses and expected losses.

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Recently issued accounting pronouncementsnot yet effective**

ASU2023-07, Improvements to Reportable Segment Disclosures (“ASU2023-07”) - In* November 2023,the FASB issued ASUNo.* 2023-07, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. This ASU is effective for public companies with annual periods beginning after* December 15, 2023,and interim periods within annual period beginning after December 15, 2024,*with early adoption permitted. The Company is currently evaluating the effects adoption of this guidance will have on its consolidated financial statements.

ASU2023-09, Improvements to Income Tax Disclosures (“ASU2023-09”) - In* December 2023,the FASB issued ASUNo.* 2023-09, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. This ASU is effective for public companies with annual periods beginning after* December 15, 2024,*with early adoption permitted. The Company is currently evaluating the effects adoption of this guidance will have on its consolidated financial statements.

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Note3. 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 asset-backed loan ("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. There wereno changes since* October 31, 2023*in the Company's valuation techniques used to measure fair value.

Long-term debt instruments

The Company's long-term debt instruments are recorded at their carrying values in the consolidated balance sheet, which* maydiffer from their respective fair values. The fair values of the long-term debt instruments are derived from Level2* inputs. The fair value amount of the long-term debt instruments as of* January 31, 2024* and* October 31, 2023* is presented in the table below based on the prevailing interest rates and trading activity of the Senior Notes.

Warrants

At* October 31, 2023*, there were 13,017,677 public warrants andno private warrants outstanding. The warrants expired on* December 6, 2023and there wereno amounts outstanding as of January 31, 2024.*

All other non-financial assets

The Company's non-financial assets, which primarily consist of property and equipment, goodwill and other intangible assets, arenot 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.

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Note4. Prepaid Expenses and Other Current Assets

The significant components of prepaid expenses and other current assets as of* January 31, 2024* and* October 31, 2023* are comprised of the following:

Note5. Property, Plant and Equipment

The significant components of property, plant and equipment as of* January 31, 2024* and* October 31, 2023* are comprised of the following:

For thethree months ended* January 31, 2024* and2023 depreciation expense were as follows:

Note6. Goodwill and Intangible Assets

The Company has recognized goodwill and certain intangible assets in connection with prior business combinations.

There wereno triggering events during thethree months ended* January 31, 2024*. The Company will continue to evaluate its goodwill and intangible assets in future quarters.

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The following table summarizes the composition of intangible assets as of* January 31, 2024* and* October 31, 2023*:

Amortization expense for thethree months ended* January 31, 2024* and2023 was $3.9 million and $4.8 million, respectively.

The changes in the carrying value of goodwill by reportable segment for thethree months ended* January 31, 2024* are as follows:

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Note7. Other Non-Current Assets

The significant components of other non-current assets as of* January 31, 2024* and* October 31, 2023* are comprised of the following:

Note8. Long Term Debt and Revolving Lines of Credit

The table below is a summary of the composition of the Company’s debt balances as of* January 31, 2024* and* October 31, 2023:*

On* January 28, 2021,Brundage-Bone Concrete Pumping Holdings Inc., a Delaware corporation (the “Issuer”) and a wholly-owned subsidiary of the Company (i) completed a private offering of $375.0 million in aggregate principal amount of its 6.000% senior securedsecond* lien notes due2026 (the “Senior Notes”) issued pursuant to an indenture, among the Issuer, the Company, the other Guarantors (as defined below), Deutsche Bank Trust Company Americas, as trustee and as collateral agent (the "Indenture") and (ii) entered into an amended and restated ABL Facility (as subsequently amended, the "ABL Facility") by and among the Company, certain subsidiaries of the Company, Wells Fargo Bank, National Association, as agent, sole lead arranger and sole bookrunner, the other lenders party thereto, which provided up to $125.0 million of asset-based revolving loan commitments to the Company and the other borrowers under the ABL Facility. The Senior Notes are jointly and severally guaranteed on a senior secured basis by the Company, Concrete Pumping Intermediate Acquisition Corp. and each of the Issuer’s domestic, wholly-owned subsidiaries that is a borrower or a guarantor under the ABL Facility (collectively, the "Guarantors").

On* June 1, 2023,the ABL Facility was amended to, among other changes, (1) increase the maximum revolver borrowings available to be drawn thereunder to $225.0 million, (2) increase the letter of credit sublimit to $22.5 million and (3) extend the maturity of the ABL Facility to the earlier of (a) June 1, 2028or (b) the date that is180* days prior to (i) the final stated maturity date of the Senior Notes or (ii) the date the Senior Notes become due and payable. The ABL Facility also provides for an uncommitted accordion feature under which the borrowers under the ABL Facility can, subject to specified conditions, increase the ABL Facility by up to an additional $75.0 million. The amended ABL Facility was treated as a debt modification. The Company capitalized an additional $0.5 million of debt issuance costs related to the* June 1, 2023,ABL Facility amendment. The preexisting unamortized deferred costs of $1.4 million and the additional costs of $0.5 million will be amortized from June 1, 2023through June 1, 2028.*

The outstanding principal amount of the Senior Notes as of* January 31, 2024* was $375.0 million and as of that date, the Company was in compliance with all covenants under the Indenture.

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The outstanding balance under the ABL Facility as of* January 31, 2024* was $13.0 million and as of that date, the Company was in compliance with all debt covenants. Borrowings are generally in the form of short-term fixed rate loans that can be extended to mature on the earlier of (a)* June 1, 2028or (b) the date that is180* days prior to (i) the final stated maturity date of the Senior Notes or (ii) the date the Senior Notes become due and payable. Amounts borrowed* may*be repaid at any time, subject to the terms and conditions of the agreement.

The Company utilizes the ABL Facility to support its working capital arrangement.

In addition, as of* January 31, 2024* the Company had $1.1 million in credit line reserves and a letter of credit balance of $8.5 million.

As of* January 31, 2024* we had $202.3 million of available borrowing capacity under the ABL Facility. Debt issuance costs related to revolving credit facilities are capitalized and reflected as an asset in deferred financing costs in the accompanying consolidated balance sheets. The Company had debt issuance costs related to the revolving credit facilities of $1.7 million as of* January 31, 2024*.

As of* January 31, 2024* and* October 31, 2023*, the weighted average interest rate for borrowings under the ABL Facility was 7.1% and 7.9% respectively.

Note9. Accrued Payroll and Payroll Expenses

The following table summarizes accrued payroll and expenses as of* January 31, 2024* and* October 31, 2023*:

Note10. Accrued Expenses and Other Current Liabilities

The following table summarizes accrued expenses and other current liabilities as of* January 31, 2024* and* October 31, 2023*:

Note11. Other Liabilities, Non-Current

The following table summarizes other non-current liabilities as of* January 31, 2024* and* October 31, 2023*:

Note12. Income Taxes

The following table summarizes income (loss) before income taxes and income tax expense (benefit) for thethree months ended* January 31, 2024* and2023:

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The effective tax rate for thethree months ended* January 31, 2024* and2023 was primarily impacted by the change in fair value of warrant liabilities.

As of* January 31, 2024* and* October 31, 2023*, the Company had deferred tax liabilities, net of deferred tax assets, of $79.4 million and $80.8 million, respectively. Included in deferred tax assets as of* January 31, 2024* and* October 31, 2023* were net operating loss carryforwards of $15.7 million and $18.6 million, respectively. The Company has a valuation allowance of $0.2 million as of* January 31, 2024* and* October 31, 2023*, related to foreign and U.S. state tax credit carryforwards where realization is more uncertain at this time due to the limited carryforward periods that exist and state net operating losses that are expected to expire before they can be utilized.