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spk00: quarter 2021 earnings conference call. Please note this conference call is being recorded. After today's market close, Custom Truck issued a press release announcing NESCO's first quarter results available on Custom Truck's investor relations website at investors.customtruck.com. Management's comments on today's call regarding first quarter results will pertain to the pre-merger performance of NESCO. I would 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 the company's filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during the call in the press release issued today. I will now turn the call over to Fred Ross, Chief Executive Officer of Custom Truck OneSource. Please go ahead.
spk04: Thank you everyone for joining us on Custom Truck's first quarter earnings call. I'd like to extend a special welcome to the employees, customers, and investors of Nesco. We completed the transformational combination of Custom Truck with Nesco on April 1st, creating a leading one-stop shop provider of specialty equipment, serving attractive and growing end markets. Our timing is favorable, following unprecedented disruption from a global pandemic with our industry now entering a recovery phase benefiting from pen of demand, powerful secular growth drivers, and further potential tailwinds with proposed infrastructure legislation. I'll focus the majority of my remarks today on the merger and compelling opportunities it created. I will then turn over the call to Ryan McMoneagle, our President and Chief Operating Officer, to provide an update on the positive industry trends we are seeing. Our merger integration and our plans to drive further growth. Then Brad Meter, our chief financial officer, will briefly review the first quarter results. We are extremely excited to be bringing these two companies together. Both Custom Truck and ESCO have strong teams that perform very well during the years past pandemic. Keeping their focus on business operations, taking care of customers. We are energized and acting with tremendous collaborative spirit as we integrate these two great companies. As I have gotten to know the Nesco organization better, my respect has only grown for the quality of their team and the impressive operations they've built over the years. Both organizations are already learning from one another, leveraging best practices and targeting significant growth and cost synergies. As we unlock the enormous potential of the combined enterprise, I would especially like to call out the contributions and proven adaptability of all custom truck and Nesco employees as we work through this transition. 2020 was a challenging year for everyone, but that requires tremendous adaptability due to COVID, and both teams proved resilient. Our given similar cultures has been easy to arrive at a guiding principle beyond all of our decisions, and our focus is quite simple. Take care of our customers. This has been true through COVID, and it's been true now as we join forces to provide even better service in the future. I'm pleased to say that our collaborative teams very efficiently used the four months between merger announcement and completion. We put detailed integration plans in place, which enabled us to hit the ground running. The team is executing well, and service levels have remained at the high level our customers have come to expect. Our customer feedback has been very encouraging as well. customers understand how they will benefit from our broader geographic footprint, our expanded rental fleet, and our enhanced one-stop shop capabilities. Our rental fleets were of similar size, so we're now able to effectively draw on double the fleet, adding both flexibility and scale. In addition, each company added breadth of products and services, so we're able to solve more customers' problems and capture greater wallet share. Specifically, Nesco customers will benefit from larger fleet size, and greater financial flexibility that will allow for better responsiveness and flexibility than ever before. The custom truck customers will benefit from increased parts of distribution service and network. Customers like what they see so far and have already entered into the multiple cross-selling contracts under which we are selling existing customers' products that were previously unavailable. As a combined company, we're positioned extremely well to capitalize on the robust tailwinds and our core markets. With NESCO meeting first quarter expectations and CTAS experiencing strong year-over-year growth, we feel confident in our outlook. With that, I will turn it over to Ryan McMonigle to provide commentary on industry outlooks, merger integrations, and capital plannings. Ryan?
spk06: Thank you, Fred. Customer demand and the industry outlook are robust. Customers eager to play catch-up following COVID project delays were strong renters and buyers of whole goods during the first quarter. Rental demand is also strong, with both legacy custom truck and legacy Nesco fleets achieving over 78% utilization during the first quarter and seeing further utilization gains into the second quarter. Our customers are communicating that there is pent-up demand and a need to make up last year's project delays. and they increasingly feel well prepared to operate safely. So far this quarter, we have continued to see increases in equipment on rent and unit sales as new projects are being started by our customers. At its core, our role is to provide, repair, and maintain specialty equipment for essential utility, telecom, and other critical projects. The proposed infrastructure bill could add additional tailwinds as the recovery accelerates. With $100 billion dedicated to the electric grid, $100 billion to the broadband network, and $174 billion to increase reliance on electric vehicles, spending on new construction that would utilize our equipment could see a significant boost. Even prior to any proposed infrastructure bill, industry fundamentals are strong. The power outages in Texas earlier this year highlight the need for upgrades to our nation's transmission and distribution systems in a highly publicized way. Our customers continue to have record or near-record backlogs. Multi-billion dollar capital projects in transmission and distribution have been announced to support grid maintenance, fire hardening, and alternative energy. Likewise, multi-billion dollar capital projects have been announced in telecom to increase connectivity and for the rollout of 5G. Secular trends towards rental away from ownership continue amongst our customers. I will now turn to the merger of Custom Truck with Nesco. Integration teams at both companies went above and beyond preparing for the combination that took place on April 1st. This enabled us to coordinate very quickly to have a unified customer calling effort and to be able to draw on a unified fleet almost immediately after the merger was completed. From a synergy perspective, we have spent many months planning the integration. We are confident that we can meet the $50 million synergy target by the end of 2022, as outlined when the merger was announced. And we expect to achieve $20 to $25 million of this on a run rate basis by the end of 2021. From a capital allocation perspective, we will continue to make targeted investments in our fleet to drive revenue and earnings while maintaining the proper balance with debt reduction. With strong near and long-term demand fundamentals and a strong balance sheet with ample liquidity, we are well positioned to make prudent and strategic investments. We will maintain a disciplined, analytical approach to ensure we invest in assets that are core to our business and that will drive strong shareholder returns. We may also look opportunistically to expand through bulk on acquisitions or fleet purchases should attractive opportunities arise, always in a disciplined manner. As part of our capital allocation framework, we will also seek to opportunistically deleverage through a combination of EBITDA expansion and utilizing our positive cash flows to reduce debt. In closing, echoing Fred's remarks, I too would like to recognize the dedication and professionalism of our employees. Their ability to adapt to new conditions and adhere to new safety protocols enabled us to keep every branch operational for our customers during the pandemic, and I look forward to seeing what these teams will accomplish together in the months ahead. I will now turn our call over to Brad Meter, our CFO, for a more detailed discussion of our financial performance. Brad?
spk05: Thanks, Ryan. Good evening, everyone. As mentioned at the opening of the call, with the transaction closing after the end of Q1, our discussion of financial performance at this time is limited to Nesco. Custom trucks first quarter results are currently being reviewed with our external auditor, and we'll release those as soon as they're available. Nesco's standalone financials track closely with management's expectations, with total revenue of $78.3 million compared to $81.7 million in the first quarter of 2020. Adjusted EBITDA declined 14.1% to $27.5 million, and the margin contracted 400 basis points as mixed favored sales over rental revenue. Net loss was $27.9 million compared with $16 million in the first quarter of 2020. The $27.9 million loss includes $10.4 million of transaction-related expenses, as well as a non-cash charge of $7.6 million related to privately placed warrants stemming from NESCO's 2019 merger with Capital Investment Corp. Equipment rental and sales revenue declined 1.6% to $62.7 million. ERS rental revenue was down 4.9% to $44.7 million. At $499.7 million, OEC on rent was in line with the 2020 OEC on rent. However, OEC on rent yield was down, primarily as a result of mix of higher yield transmission projects ramped up at a slower pace compared to distribution projects and therefore made up a smaller proportion of rentals. While mix had a negative impact on yield, we did see rate growth at the product category level during the quarter. All good sales were up 7.9% from 2020 at 18 million as a result of strong demand for equipment purchases given limited supply in the market in an upward demand trajectory. The parts, tools, and accessories business saw a revenue decline of 13.5% to $15.6 million. The decline in PTA was driven by a decline in the truck utilities upfitting business due to a focus on rental fleet maintenance, but partially offset by year-on-year growth in the core parts, tools, and accessories. Gross profit decreased 5.5% to $20.2 million this year, primarily as a result of deferred repair and maintenance costs carrying over from the COVID slowdown in 2020. SG&A remained just below 2020 levels at $11.3 million. The debt refinancing that took place concurrent with the acquisition on April 1st resulted in a much stronger balance sheet for Custom Truck than Legacy Nesco had at the end of the first quarter. This includes $920 million of senior secured notes and $415 million drawn on our senior secured asset-based credit facility. On a pro forma basis, the refinancing resulted in a reduction in the weighted interest rate on debt from 7.7% to 4.4% post-merger. As Ryan said, we will continue to maintain a disciplined focus on managing cash and will seek to deleverage the business through a combination of cash generation and EBITDA growth. I share Fred and Ryan's excitement and optimism for the newly combined Custom Truck OneSource. The merger has put us in a unique position to benefit from favorable in-market demand trends and secular growth drivers in our quest to create long-term shareholder value. With that, operator, if you could please open the lines, we'd be happy to take questions.
spk00: Certainly. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question is from Scott Schneeberger from Oppenheimer. Please go ahead.
spk01: Thank you very much. Good afternoon everyone. For my first question, I'd like to ask just, it sounds like from your comments, a nice momentum from March into April and now May. Just curious if you could delve into the end markets a little bit and what you're seeing maybe contrast with the past few quarters as well, since it looks like we've had a progression during the pandemic to better. And then one last part to this question, Given that there was a little mixed dynamic between transmission and distribution in the quarter for NESCO, if you could just speak to the trends you're seeing, those two vis-a-vis each other as we're moving into the second quarter and looking to the summer season. Thank you.
spk06: Sure. Thanks, Scott, for the question. I'll start by saying you're right. We have seen very good trends coming out of Q1 into Q2. I'd highlight maybe a couple of numbers that we previously mentioned, but utilization for the quarter was just over 78%, and as we said, finished north of 82% at the end of March, and we're seeing that trend continue into Q2. And I think, Scott, your question's right, because I think it highlights really strong demand in all four of our end markets, so we are seeing Good demand on both the transmission and distribution side of things We've got there are several new projects that have been announced on the transmission side where we are seeing equipment out on rent And on the distribution side, we're seeing really good demand for both rental and for sales And then I would highlight telecom also Scott we're seeing 5g is now materializing so we're seeing good demand for rental equipment there and we're seeing a lot of requests to purchase equipment also and And then rail is continuing to perform very well. And then I'd highlight infrastructure too. So we are not assuming that there's an infrastructure bill passed as we talk about the balance of this year, but we would think that it would be a very strong tailwind if it were to pass. And I'd say as we are looking at backlog on some of our specially vocational equipment in particular, we're seeing a lot of demand there also.
spk01: Excellent, thanks. Yeah, I did hear the commentary on the utilization. Sounds good. I also heard you speak that it sounds like all asset classes, regardless of size or absolute level of rental, are seeing rates improve. So that's good to hear. And correct me if I'm wrong, but I think that's what you said. So I'm going to move on to my next question, which is, You guys discussed cost synergies. I think it would be early to see activity there, but you reiterated what you expect at the end of this year and next year. Sounds good. Revenue synergies. Sounds like you're getting started and maybe even seeing some initial progress there. So I'd love if you could elaborate a little bit more on that. Maybe the PTA business with custom truck customers, custom truck equipment sales with Nesco customers. Just anything you could elaborate there would be great. Thank you.
spk06: Sure. Yeah, no, I'd echo your comment on the cost side, right? We're feeling really good. about the $50 million plan that we've committed to. We think we're ahead of plan in terms of what we realized this year. And then yes, we are seeing early wins on the revenue side also, Scott. So we've seen some really quick wins of selling whole goods to some of Nesco's legacy customers. And then we've also seen a good cross-selling of the PTA equipment. So we're happy with the progress on both of those initiatives and we're seeing We already have some wins on the board on both sides, which we feel really good about, 45 days into the integration.
spk01: Great. Glad to hear that. I'm just going to sneak one more in here, and it's on the integration. There are a lot of systems that need to be combined, the ERP, the rental system, the CRM. Just if you could give us an update on how that's going, any issues you maybe see arising, or is it seamless and you're tracking well and on plan on that front? Thank you.
spk05: Yes, Scott, this is Brad. We are tracking on plan or ahead of plan. We're in kind of the middle of the rollout from the legacy custom sites. It's going incredibly smooth. I've got to give a lot of credit to our IT and back office teams making that work really across the organization. and starting to develop the plans to bring in the NESCO team. We should have kind of their rental ops in our rental system in the next couple months, and then the balance towards the end of the year heading into Q1 of next year. So certainly on plan with our expectations and all going well as of right now.
spk01: Excellent. Appreciate that. Thanks. I'll turn it over.
spk00: The next question is from Stephanos Christ from CJS Securities. Please go ahead.
spk02: Hi, thanks for taking my question. First, you touched on rental rates a little bit. Could you go into a little more detail there and how you expect those to trend going forward?
spk05: Yeah, we did see, you know, on a combined fleet basis, rate growth in the quarter. I mean, the demand right now is very, very strong, and it creates a good environment for us to drive price. So we've seen kind of month on month that rate going up kind of across the asset categories, whether it's distribution or transmission. And we're also seeing from a pricing standpoint on sales the same thing. So we expect to see that continue through Q2 as given kind of the demand and supply dynamic that exists right now.
spk02: Great, thanks. And then in terms of CapEx, can we go over CapEx goals over the next two years and then also how much CapEx is dedicated towards the PTA segment?
spk05: I'll say from a core rental, what we have talked about before, you know, during the proxy and kind of pre-close was a fleet net maintenance CapEx number of $50 to $70 million, somewhat dictated by customer buyouts. And we're defining that as the OEC we're putting in less the proceeds. So that's one component. And then from a growth standpoint, our base case right now, we're running mid to upper single-digit growth. We think that the market demand will be above that, though, and we'll look to making sure that we're making a prudent investment where rates are good, utilization is good, but I could see us going a bit above that if the demand stays where it is. right now. From a PTA segment, you know, the investment on rental there is probably going to be, you know, in the low millions range, consistent with where it has been in the past. It's still something that, as a team, we're bringing together and we think about the integration piece. We see a lot of upside, right, from PTA and bringing that to the custom trucks. It's certainly going to change that investment need, and we're still evaluating that right now.
spk02: Great. Thanks for taking my questions. I'll jump back.
spk00: As a reminder, it is star one to ask a question. This concludes the question and answer session. I would like to turn the conference back over to Fred Ross for any closing remarks.
spk03: Thank you. Well, this concludes our call today. Thanks, everyone, for the interest in Custom Truck. Look forward to speaking with you on our next quarterly earnings call. In the meantime, please don't hesitate to reach out with any questions. Thank you again. Good night.
spk00: This concludes today's conference call. You may disconnect your lines. Thank you.
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