Custom Truck One Source, Inc.

conference operator. Welcome to the NESCO Holdings third quarter 2020 earnings call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press the 1 followed by the 4 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I would now like to turn the call over to Mr. Preston Parnell of Nesco Investor Relations. Sir, you may begin.

Thank you, Operator, and welcome, everyone, to Nesco's third quarter 2020 earnings conference call. Yesterday afternoon, we issued a press release announcing our third quarter results and filed an earnings presentation to accompany our prepared remarks, both of which are available on Nesco's Investor Relations website at investors.nescospatialty.com. I'd like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of our filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call and the press release issued yesterday. I will now turn the call over to NESCO's Chief Executive Officer, Lee Jacobson. Lee?

Thank you, Preston. Welcome, everyone, to NESCO's third quarter earnings call. I am pleased to announce that the third quarter marked the beginning of a recovery for NESCO. While the effects of COVID have lasted longer than we would have liked, our team has performed extraordinarily during these challenging times. I would like to highlight the contributions of our workforce who kept us operational with virtually no interruptions to any of our locations throughout this pandemic. Their adaptability to new safety protocols and operating procedures and uncertainty in the business environment enabled us to deliver essential services to our customers, further strengthening our relationships as a trusted specialty equipment partner. Our culture focused on quality, reliability, and safety was reinforced through this time of crisis. We were measured in our response to evolving conditions, and NESCO is well positioned for success both in the short term and the long term. We executed disciplined cost cutting and reduced capital investments to preserve liquidity and provide flexibility through economic and market uncertainty, but were careful not to cut so far that it would impact our ability to pivot quickly as demand recovered. With improving market conditions and a strong demand outlook, we are focused on executing for our customers and investing for the future growth of Nesco. We reported solid financial results in the third quarter despite a challenging operating environment for the first two months of the quarter. Compared with the same quarter last year, our revenue increased 11% to $69.3 million, and our adjusted EBITDA decreased 9% to $28 million. Our revenue increased as a result of improved equipment sales and the acquisition of truck utilities, but the profits earned on these revenues were not high enough to offset the impact of the decline in our higher margin core rental revenue. ERS rental revenue declined 9% or $4.3 million as a result of lower fleet utilization caused by COVID-related project delays. OEC on rent and utilization hit yearly lows in July before beginning to improve in late August. OEC on rent recovered by the end of September to $489 million, up more than 10% from the start of the quarter, approaching pre-COVID levels. NESCO capitalized on positive trends, experiencing the typical seasonal uptick in August, in addition to a release of some of the pent-up demand from the second and early third quarters, as some projects previously delayed due to COVID resumed. In addition to delayed projects coming back online and normal seasonal factors, we also benefited from increased storm activity in late August and early September, further increasing demands. These trends resulted in a significant ramp-up in new projects and demand in the distribution, transmission, and telecom end markets. Rail was relatively stable throughout the quarter. These positive trends have continued into the start of the fourth quarter with current OECM rent of $512 million. As we progress through the year, Nesco and our customers have gotten smarter about operating safely in a COVID environment. While this year has taught us that we cannot take anything for granted, We are cautiously optimistic that the worst of COVID is now behind our company and industry. Our customers have not canceled many projects, only put them on hold. Those delays are expected to provide incremental future demand as these projects continue to ramp up. As we look longer term, our customers continue to have record or near-record backlogs. In-market demand drivers remain intact. As significant capital projects and transmission distribution are in the pipeline, which will support grid maintenance, fire hardening, and alternative energy, and in telecom to increase connectivity and roll out of 5G. During the quarter, we continued to improve our financial flexibility through cash management and cost discipline. We generated positive free cash flow for the second consecutive quarter and maintained liquidity of approximately $69 million. Our operational focus continues to be adapting to rapidly changing business conditions. I credit the entire NESCO team and our company culture for the successful implementation of these initiatives and the ongoing adherence to safety protocols. We learned to adapt to a hybrid way of working with our customers and with each other, utilizing technology to meet virtually. We continue to manage expenses, working capital, and curtail capital expenditures. In the late second and early third quarters, we reduced fleet repair expenditures by servicing the limited numbers of units required to meet demand. As we progressed through the third quarter and market conditions improved, we pivoted quickly to rapidly get units rent-ready and deployed to meet increasing demand. Even as activity returns, we are seeking to maintain much of the savings from cost-cutting actions taken to address COVID. The cumulative effect of these initiatives undertaken would be approximately $5 million per year. While some of these cost savings are temporary, related to lower rental activity and the elimination of most travel, we are targeting maintaining at least 50% of these cost savings indefinitely. We also expect to reduce our net capital spending for 2020 to approximately $30 to $35 million as we slowed capital outlays and focused on selling underutilized units in our fleet to preserve flexibility and maximize returns. We are currently engaged in a returns-based capital planning exercise to develop a 2021 capital expenditure plan that will maximize our growth and cash flow. By focusing our investments on in-demand units with attractive economics, we expect to drive top-line growth, EBITDA margin growth, and free cash flow growth through calculated capital allocation decisions. With many customer projects expected to come online in 2021, we expect there will be plenty of opportunities to deploy capital with high returns. In summary, COVID has not impacted our fundamental business strategy or the positive growth outlook for our end markets. we will continue to focus on critical infrastructure in markets, offering a young, specialized fleet of rental units. We expect continued strong in-market tailwinds with an increasing number of capital projects in each of our markets, bolstered by the ongoing secular shift from ownership and toward rental among Nesco's North American customers. We believe Nesco is the market-leading pure-play rental company in the electric transmission and distribution, telecom, and rail construction in markets. We operate in very attractive in-markets with significant growth ahead. Nesco has created significant barriers to entry with its young and broad fleet of specialty rental equipment, a national service network, the hard-earned trust of our customers, and a reputation for reliability. With recent additions to our management team, we have the right team in place to make the most of near-term and longer-term opportunities. This is a very exciting time to be at Nesco. With that, I will turn it over to our CFO, Josh Boone, for a more detailed discussion of our financial performance. Josh?