This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk08: Ladies and gentlemen, thank you for standing by, and welcome to Custom Truck OneSource's second quarter 2021 earnings compass call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. Please note this conference call is being recorded and management will be referring to slides currently available in the investor relations section of the company's website. I would now like to hand the conference call over to your host today, Brian Perman, Vice President of Investor Relations for Custom Trucks.
spk03: Thank you and good afternoon. Before we begin, we would like to remind you that management's commentary and responses to questions on today's 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 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 at the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during the call and the press release issued today. The press release we issued this afternoon and the presentation for today's call are posted on the investor relations section of our website. Management will be referencing slides from the presentation during the call. We will be filing our 2021 second quarter 10Q with the SEC on Monday, August 16th. Today's discussion of our results of operations for Q2 2021 for Custom Truck OneSource Inc. or Custom Truck is presented on a historical basis as of or for the three months ended June 30th, 2021 required periods. While our reported results can only include Custom Truck OneSource LP for the period since the merger date, April 1st, we have presented and will be discussing today combined results as if NESCO and Custom Truck had operated together for all periods. We believe this is a better representation of how the combined company has performed over time. Joining me today are Fred Ross, CEO, Brian McConigle, President and COO, and Brad Meter, CFO. I will now turn the call over to Fred.
spk02: Thanks, Brian. I'd like to welcome everyone to the company's second quarter 2021 earnings call. It's been exactly 133 days since we closed the transaction between Custom Truck and Nesco. I couldn't be happier with the progress that we've made in integrating the two organizations. I'd like to extend my thanks and appreciation to all our employees, customers, and suppliers who have supported us during this process helped us achieve such strong results in our past quarter. I'd like to take a moment to touch on a few highlights and outline the key attributes that support our truly unique business model. Our strong second quarter results highlight the incredible performance by our team and demonstrate the continued strength of our strategically selected end markets. Compared to the second quarter last year, our combined revenue was up 27% and our adjusted EBITDA including certain charges was up 23%. Our truck and equipment sales business performing at record levels with revenue up 56% and backlog growing by 169% versus June of 2020 and at 89% versus June of 2019. Rental continues to perform very well with utilization holding at 81% for the quarter compared to 71% last year. In addition, we continue to see real opportunities to improve rental pricing, which Ryan will discuss in more detail. With existing high levels of utilization, we need to continue to grow our fleet to meet current strong rental demand. While our scale and supply relationships afford us excellent access to the chassis, attachments, and other items, we need to manufacture our trucks and grow our fleet. Our ability to fully take advantage of current level demands is being somewhat limited by our supply chain availability. We're working closely with our suppliers and are hopeful that any issues will be resolved in the coming quarters and allow us to grow our fleet to fully take advantage of continued strong demand. Our results are quite remarkable when you consider the ongoing custom truck Nesco integration efforts and the supply chain challenges and inflationary pressures most companies, including us, are facing these days. Please turn to page three. Our strong results reflect the unique business model we have developed over the years. We have intentionally focused our efforts on end markets that are resilient through the cycle and currently enjoy very strong tailings. Even before any potential benefits from the new infrastructure bill, a one-stop shop model provides us the speed to market needed to meet our customers' rental and sales demands, providing us with the maximum opportunity capture customer share of wallet and achieve very strong returns on capital. In addition, the model provides excellent flexibility, downside protection when market shifts. The combination of custom truck and Nesco has provided us with multiple avenues to capture both revenue and cost synergies, which we have already started to monetize. We have spent this last quarter, the first since the transaction closed, closely examining both businesses, which has uncovered new opportunities for growth, as well as highlighting parts of the business that we can further enhance. The combined businesses also provide additional scale, making CTAS the largest independent provider of vocational trucks in North America. That scale provides us the opportunity to have deep and meaningful relationships with our suppliers, which is incredibly important in today's environment. Our coast-to-coast network of 35 branches allows us to have a very flexible rental fleet and provide continuous and consistent service to our customers. And finally, we continue to maintain a very strong balance sheet and generate strong cash flow, providing us the resources to invest in additional capital and opportunities that are accretive to the business and long-term shareholder value. In summary, I could not be more excited about the future of our company. With that, I will turn it over to Ryan.
spk06: Thanks, Fred, and good afternoon, everyone. First, I want to echo Fred's comments regarding the tremendous efforts of our employees over the last quarter. The milestones achieved related to the custom truck and Nesco integration while delivering such a fantastic quarter of financial results is truly remarkable. I want to spend a few minutes providing additional color on some of the key aspects of our performance. On slide four, we highlight the four primary end markets that we focus on, transmission and distribution, or T&D, telecom, rail, and infrastructure. We intentionally focus on these markets because they provide strong long-term growth opportunities and are far less cyclical than other truck-related end markets such as freight. D&D accounted for 50% of our combined revenues year-to-date and 78% of our rental revenues, and the underlying fundamentals couldn't be stronger. First, demand for new renewable energy is spurring the development of new transmission lines, In addition, the advanced age of the transmission and distribution grids requires significant investment to replace existing lines and poles. Next, the increasing impact of severe weather is driving grid hardening across the country. And finally, the electrification of everything will accelerate and amplify the magnitude of the required upgrades. T&D capital spend has been on the rise for several years. and we do not see signs of slowing, as evidenced by the growing backlogs of T&D contractors, which are a key customer base for us. Telecom, and specifically 5G, has been a hot topic for several years. The opportunity is significant, and we have finally started to see some real movement over the last 12 to 18 months. While this market only accounts for about 6% of our revenue year to date, many of our existing T&D-related contractor customers are the ones who are expected to deliver. The rollout in our existing equipment portfolio aligns well with the needs of this market. Rail investment, both in the freight and commuter markets, remains strong. Similar to T&D, the existing rail infrastructure is quite aged and in need of constant maintenance. Such required maintenance work is not heavily correlated to fluctuations in freight or commuter volume, making it very predictable and consistent. Finally, infrastructure, which we generally defined as road, bridge, and waste and refuse, accounts for 26% of our combined year-to-date revenue and has been strong for several years. We've all experienced driving through a major city and sitting in traffic caused by major road and bridge maintenance work. Several airports are in various stages of significant expansion or rebuild. Waste and refuse also continues to be a very steady performer, regardless of how the economy is performing. As Fred noted, the underlying fundamentals for these end markets are incredibly strong today, and that is without considering the potential benefit from the $1 trillion infrastructure bill approved by the Senate. In that bill, more than $400 billion would directly impact the core end markets we serve. Because project backlogs are already quite substantial, Our view is the benefit from any bill will take some time to materialize. Assuming the bill is passed, the eventual benefit to us would be an extension of our already positive multi-year outlook and further strengthening of our business fundamentals. Slide 5 highlights meaningful opportunities to grow market share and expand rental penetration beyond the growth in the underlying end markets. We believe we are the largest independent distributor of vocational trucks in the U.S. but we still only have roughly 4.5% market share. Our revenue growth in Q2 clearly indicates that we are growing that share, but we are still in the early stages. We also believe the continued shift towards rental is real. Increased rental penetration is being driven by two key factors. First, T&D and telecom work is being performed increasingly by contractors rather than the utilities themselves. The contractors have a different capital allocation model, which leans more heavily on rental than IOUs. As that outsourcing trend continues, we believe more and more T&D equipment will be rented. Second, more companies are implementing flexible asset-light models that reduce permanent outlays of capital. Rental is clearly the natural evolution. Turning to slide six, Our one-stop shop business model is designed to maximize our unit economics and share of customer wallet. Our integrated production capability is one of the key drivers of our superior unit economics. We are the final stage assembler for more than 90% of the units we sell or add to the rental fleet. That process includes us taking a chassis and attaching a body and or some other attachment like a bucket or a crane. By doing this work in-house, we eliminate the markup that would be applied by a third party and instead capture that incremental profit ourselves. In addition, we are more efficient in the assembly or upfitting process than the OEMs of the attachment. That efficiency plus the cost advantage we have from purchasing at volume allows us to produce units at a cost well below that of our competition and deliver best-in-class returns for both rental and sales. Our revenue model is based on providing equipment to a customer regardless of whether they want to rent or buy. Very few of our customers operate a rental-only or purchase-only model. In addition, their preference of rent versus own fluctuates over time. We believe this mixed revenue model provides more stability across rent and buy cycles, enhances our stickiness with customers, provides greater opportunity to deliver aftermarket parts and services, and maximizes our ability to buy in bulk. The goal really is to be the one-stop-shop solution for our customers' fleet over their entire lifecycle, whether it's a fleet of several hundred utility trucks or five boom trucks. Another important component of our business model is the coast-to-coast branch network. We rent and sell units across the U.S. and Canada, so our ability to quickly respond to customer service needs is vital to maintain fleet utilization and customer satisfaction. We currently have 35 branches, most of which have full service and parts capabilities. In addition, we have more than 80 mobile techs who can be deployed to address in-field service needs. Those service capabilities are supported by a best-in-class 24-7 call center staffed by certified technicians. The call center allows us to respond immediately to a customer's problems, whether it be deploying one of our technicians, a third-party provider, or addressing the issue right over the phone. As you can see from the map on slide seven, there are regions of the country where we could expand our market presence, including the Pacific Northwest, Northern California, New York and New Jersey Metro, the Carolinas, and the Southwest. While we currently have assets in those regions, establishing a permanent physical presence will significantly increase our growth and market share potential. We expect to add several new locations through a combination of both acquisitions and greenfield sites over the next three years. The existing footprint and planned investments will provide an excellent foundation from which to expand our aftermarket parts and service platform. Turning to slide eight, the integration of Custom Truck and Nesco is progressing well and is ahead of plan. The teams have worked tirelessly to integrate and make it as seamless as possible for our customers. I am very proud of what we have accomplished in our first quarter as one company, and we are proving that we truly are better together. Prior to the closing, we communicated a $50 million annual synergy target to be accomplished over a 24-month time period. I am happy to say that we have now identified more than $55 million in annual cost synergies. Additionally, we communicated that we anticipated $25 million of annual run rate synergies in the first 12 months. We believe now that that number will be closer to $40 million. So the integration is ahead of plan. We have identified more cost synergies than originally forecasted, and we are realizing these synergies more quickly than we had originally anticipated. Please turn to slide nine. Starting this corner, CTOS will report the business under three segments, Equipment Rental Solutions, or ERS, Truck and Equipment Sales, or TES, and Aftermarket Parts and Service, or APS. We develop these segments based on how we manage our operations, our go-to-market strategies, and how we allocate capital. The reported results of our ERS business will include core rental revenue, the sale of rental assets, and the ancillary revenues related to those activities, such as freight. The key metrics for ERS will be consistent with those included in our recent filings, which are utilization, OEC on rent, and on-rent yield, or ORY. The TES business will focus on new and used non-rental sales and related activities. We will be presenting our new sales backlog on a quarterly basis as well. We define that as future sales supported with a fully executed retail buyer's order or similar formal documentation. Our final segment, APS, will capture most of the legacy NESCO parts, tools, and accessories business. in the legacy custom truck parts and service activities. Slide 10 presents the revenue and gross profit results from the ERS business for Q2 2021 and on a combined basis for Q2 2020 and their respective year-to-date periods. Rental revenue excluding asset sales was up 3% versus Q2 2020 or 10% when you exclude the impact bad debt charges that are now mapped to revenue versus SG&A historically. Revenue growth was driven by strong improvement in utilization. Gross profit excluding depreciation grew 4% or 12% when you exclude the bad debt charges. Margins continue to be impacted by the deferred maintenance on the legacy NESCO fleet. Those costs and the challenge condition of the legacy NESCO fleet was greater than we initially expected. While we have a much clearer line of sight on the issue, it will continue to impact our ability to meaningfully improve margins over the balance of the year. We have also experienced higher freight costs, most of which we have been able to pass through to our customers, but these cost increases have had a negative impact on margin. Utilization was 81% for the quarter, up 10 percentage points compared to last year, and OEC on rent was also up $128 million over the same period. The limited growth in OEC on rent relative to the improvement in utilization is a function of the overall fleet size. Demand for additional rental equipment remains strong as evidenced by the fact that we added $115 million to the fleet year to date, but that has largely been offset by the sale of $114 million in OEC during the same period. most of which occurred in Q1. The sale of rental assets is primarily driven by customer requested buyouts, the demand for which was high in Q1 and reflects the positive outlook they have for their own businesses. Additionally, we have seen that the most supply chain disruption in product categories primarily focused on rental. We are working closely with our suppliers to ensure sufficient supply to allow us to meet more customer demand for rental equipment. On-rent yield was 38% for the quarter, flat compared to last year. This is an area where we see real opportunity for growth. During Q2, we implemented a new tiered pricing strategy, which has already started to yield positive results. Between late May and early July, the rental rates on new contracts were up double digits compared to the existing average rate. It will take time for all our contracts to turn over, but we are excited about the long-term opportunities with this strategy. Slide 11 summarizes our TES performance, which has been strong. Revenues were up 56% in the quarter, while still growing backlog 169% versus last year, and 89% relative to Q2 2019, a good pre-COVID comparison. Growth was very broad-based across our entire product portfolio. We believe our growth reflects growing demand for equipment as well as strong market share gains. In addition to revenue growth, we were able to expand margin as a result of strong pricing discipline. We haven't yet felt any material effects from rising supply chain costs, but we do expect some pressure in the back half of the year. We believe any cost increases will be partially offset by expected production efficiency initiatives put in place during Q2 and that any net cost increases can be passed through to our customers. Overall, we couldn't be happier with the performance of the TES business. Turning to slide 12, our APS business posted revenue of $32.3 million compared to $34.6 million last year. APS growth has been lower than the other segments for two reasons. First, the technicians supporting the legacy CTOS service business also support the rental fleet. As we noted, we have seen an increase in repair and maintenance activity, and as a result, we have fewer hours available for external service. Second, the legacy NESCO PTA business has not performed up to our expectations. As Fred noted earlier, we have spent the months since the transaction closed diving deep into the legacy NESCO businesses and identifying some areas that need additional attention. PTA is one of those areas. We know the market opportunity is attractive and we see customer demand for the products and services. In order to realize the potential, we have reset the go-to-market strategy and are actively working on the supply chain and resources necessary to execute a strong, profitable business plan. We have made good progress on this initiative, but it will take time. We will provide more color on the overall APS strategy and outlook over the coming quarters. In summary, we are very proud of the results we have delivered in our first quarter as an integrated company. The tailwinds we are experiencing in our end markets are positive. Customer demand for our equipment remains very strong. We are seeing the benefits of our integrated one-stop shop business model, and we are ahead of our integration timing with additional synergy upside. We know we wouldn't be able to deliver these results were it not for the effort of all of our employees who are working tirelessly together to take care of our customers, and I'd like to extend a sincere thank you. I will now turn it over to Brad.
spk07: Thanks, Ryan, and good afternoon, everyone. Let's jump to slide 13. Q2 was an excellent quarter. Total revenue was $375 million, up 27% versus prior year, and adjusted EBITDA, excluding certain charges, was $79 million, which is an improvement of 23% versus Q2 last year and up 6% versus last quarter. The reported net loss for the quarter was $129 million, but that includes $62 million of charges related to extinguishment of debt, $25 million of transaction-related costs, and $21 million related to the impacts of purchase accounting. Revenue growth was driven by the incredible performance of our TES segment, which is up 56% versus last year. Gross profit, excluding rental depreciation, was 109 million, which includes 8 million of charges incurred primarily to increase certain inventory and AR reserves. Adjusted gross margin for the quarter was 29% compared to the combined Q2 last year of 33%. The change in margin was primarily driven by the change in mix, with new sales accounting for 57% of revenue this year compared to 47% last year. Ryan already covered the revenue and margin drivers for each of the segments, which further explains the change in margin. SG&A was $51.3 million, which includes $7.2 million related to stock compensation charges, of which $5 million related to accelerated vesting of options and grants tied to the custom truck NESCO merger. Slide 14 details the bridge from net income to adjusted EBITDA and highlights certain charges we've taken to fix the balance sheets. Normally, this would be an appendix item, but we felt the magnitude of the items is noteworthy. The three biggest items are the $61.7 million charge related to the extinguishment of NESCA's former debt structure, $24.6 million of transaction and process improvement costs, and $21.4 million of non-cash purchase accounting impact related to the step-up in inventory and rental assets. In addition, we've adjusted for non-cash stock compensation change in fair value derivatives and warrants, and the impact of sales type lease accounting on a portion of a rental business. All of the adjustments are consistent with the requirements in our accredited agreement. As part of our deep dive into the combined business during Q2, we felt it was appropriate to increase some of our AR and inventory reserves, which totaled $4.7 million and $3 million, respectively. The AR reserves primarily relate to balances owed to us in connection with rental assets that were sent to Puerto Rico in 2018 to support the rebuild effort after Hurricane Maria. While we have valid contracts in place, recent developments in the litigation related to those accounts raised concerns about collectability. Therefore, we felt it prudent to increase our reserves. Turn to slide 15. The strong financial performance was not limited to revenue and adjusted EBITDA. We continued to strengthen our liquidity position and improve leverage while at the same time investing in the rental fleet. Available liquidity improved $68 million in the quarter. That was driven primarily by increased availability under the ABL, which came from a combination of a $30 million pay down on the outstanding balances as well as growth in the borrowing base. We do expect available liquidity to decline somewhat over the balance of the year as we make demand-driven investments in the rental fleet. As discussed previously, our closing leverage was right around 3.9 times when you reflect the full $50 million expected synergies. Using our updated $55 million synergy assumption, our leverage at the end of Q2 improved to 3.7 times. Gross rental CapEx for the quarter was $55 million, offset by the proceeds of $26 million from the sale of assets. Including non-rental spend, net CapEx is $30 million for the quarter. We do expect the pace of CapEx to increase in the balance of the year as the summer seasonal slowdown ends and utility contractors ramp up on transmission work. Based on year-to-date performance, current backlog, and our outlook for the rental fleet, we expect combined FY21 revenue to finish between $1.5 billion and $1.55 billion, and adjusted EBITDA to be in the range of $320 million to $340 million. It is important to note our adjusted EBITDA estimate excludes the negative impact of the reserve charges discussed previously. The adjusted EBITDA range would represent growth of 8% to 15% versus combined 2020 and imply solid second-half growth compared to the first half of 2021. In closing, I want to echo Fred and Ryan's comments regarding the exceptional performance our team delivered while managing through the integration and effectively navigating the many challenges that have impacted our suppliers and customers alike. We have built a great foundation to profitably grow the business, and with the powerful tailwinds in our end markets, we are truly excited about the clear path for shareholder value creation. With that, I'll turn it over to the operator to open the line for questions.
spk04: Thank you. So to register a question, press the 1 followed by the 4 on your keypad. You'll hear a three-tone prompt that acknowledges your request. If your question has been answered and you would like to withdraw your registration, press the 1 followed by the 3. So again, for questions, it's 1, 4 on your keypad. And one moment, please, for the first question. First question is from Scott Schneeberger with Oppenheimer. Please go ahead.
spk00: Thank you. Good afternoon, everyone. I guess the first question sounds like you're feeling great about the markets. I'm curious, in the rental category, just talk, if you could, about first quarter to second quarter, what you saw in rental and drivers behind that. Thank you.
spk05: Sure. Yeah. Scott, good to talk to you. I'd say in rental specifically from Q1 to Q2, we are continuing to see really good demand in all four of the industries. Utility in particular is staying very strong, so distribution has been very strong. Our utilization distribution has been very high, and we're placing every asset that we can receive. It is where if we were able to have more supply of product, we would be able to even grow the distribution fleet further. So it is where we've seen the most supply chain impact. And then transmission has also been very good. Scott, as you know, there is a bit of a slowdown in the middle of summer, but we're coming out of that now. And then rail has been strong and telecom has been strong too. A lot of new demand for telecom rental requests right now. Overall, all the in-markets have been very good.
spk00: Okay, thanks. Obviously, robust sales activity. Could you just speak about what you're seeing, what type of contribution you feel you're in the back half of the year? Thank you.
spk05: Yeah, I think we'll see good growth in the back half of the year from the sales side. You can see that in the backlog, right? So the fact that backlog has continued to grow even as sales revenue grew as much as it did in Q2 and in the first half of the year, I think we're comfortable there. I do think our limiter on sales growth in the back half of the year, though, will be supply chain. And so I do think that it will be tempered a bit. I do still think we'll be able to deliver – double-digit growth in the back half of the year relative to last year. And so I think we are feeling very good here sitting in early August with sales for the second half of the year as well. Okay.
spk00: Thanks on that. And then on parts, tools, accessories, or the new name, aftermarket parts and services, It sounds like you have a lot of reconfiguring going on there. Could you just take us a level deeper on where you see the deficiencies and what you are doing to improve that? Thanks.
spk05: Sure. Yeah, no, I think, Scott, we feel great about the opportunity and the customer demand for aftermarket parts and services. So certainly feel good there. You know, I think we are – we have taken the approach of let's leverage now the entire sales organization to a much larger extent. So things like block rental, we're now aligning much more closely with the pulling and stringing business on the rental side. And things like kit sales, we're now aligning much closer with the truck sales organization so that the sales teams in those businesses are aligned in terms of how we go to market. And then from the operational side there, Scott, that's where we've been doing a lot of, kind of the repositioning so a lot of work around pricing a lot of work around just kind of our operating rhythm on the back end and making sure the organization is set up set up to succeed so I think we feel as though we have our head our hands around it it will take really the balance of this year I think to be in a really good spot but I think we all are feeling very good about the opportunity and we feel like we have the plan defined and now it's just about executing against that plan
spk00: Thanks. Sounds good. Yeah, it sounds like it will take some time, though, just to get – it sounds like an integration issue with the organization is getting everyone in sales kind of aligned. Using that as a segue, nice to see the synergies increase. Could you talk about where – what's behind that? What were the drivers to increase the outwork there? Thanks.
spk05: Sure. I'd say when we talked to you back in December and even with Q1, I think we talked about three big categories. The first was SG&A. I'd say SG&A synergies are really coming in line. They're slightly ahead of what we had forecast originally. The second was service and production optimization. I think that's where we've seen the most upside for us, and so that's really integrating the two rental service organizations has been significant. We found a lot of opportunity to take the best of both companies and to integrate that across the entire fleet. And then production optimization was a lot around labor efficiency. As we think about how we build trucks, now a scale has increased there as well. And then the third category was procurement. We have seen good opportunities in procurement. Now bringing these two organizations together especially around the APS segment, Scott. Focusing on the legacy CTOS parts business and the legacy NESCO PTA business, I think we see a lot of procurement opportunity, which will take time, obviously, to work through, but is a reason that we feel even more confident from the overall cost energy standpoint.
spk00: Okay, thanks on that. Just a couple more from me. So the guidance on EBITDA, it seems, implies a step up in EBITDA. And I just was curious, this is somewhat of a seasonality question and a segment question, but could you speak to the magnitude of the sequential EBITDA growth to third quarter to fourth quarter? and just what we should expect to see from each of the segments, maybe sequentially two to three to fourth quarter, in this kind of bridging this guidance for the remainder of the year. Thank you.
spk07: Yeah, Scott, this is Brad. Good to speak with you. We're not kind of breaking down in terms of full detail, but I'd say consistent with historical events, You go back to what we did in Q4 last year. Q4 is our strongest quarter by far. Our expectation is, one, we'll have more investment in the fleet running through in Q3, so you get more of a full benefit in Q4, plus the December seasonal spike in both new sales and rental asset buyouts will happen then. So I'd say that the balance is going to be more in Q4 than it is Q3. again, consistent with historical trend. In terms of the mix, we do see rental picking up a bit more, as Ryan alluded to in his remarks. We're seeing good movement right now in pricing, so that will certainly drive a little bit. And then from a fleet standpoint, we don't see the buyouts occurring in Q3 kind of at the same level they did in Q1, yet we're going to continue to make investment in the fleet. So you'll start to see Rental I think from relative to what it did in the first half outpace the other areas where I mentioned, you know We still think there's good new sales growth in the back half of the year Relative to last year. I think it'll be at a slower pace though than what we saw in q1 Simply because of the supply chain constraints that Ryan had mentioned Okay, understandable and lastly I'd like to take it back up kind of a bigger picture of
spk00: And the infrastructure bill, as it appears right now, I think I heard maybe Fred said it, or Ryan, $400 billion seems applicable to your end markets. Could you just kind of delve into that a little bit more? And I guess if this were to happen in the next few weeks, I guess that's still pretty uncertain. When do you think you would see benefits from this? Thank you.
spk02: Well, this is Fred Ross. So we actually are seeing part of it even pick up now with both the broadband and the telecom sides really picking up. We've got equipment coming in for them. The rail side has already started to pick up. I think for the most part, the roads and bridges will be the bigger part of it, and I think we'll see some transmission that will start to happen. That probably doesn't happen until the second quarter of next year, but there's a lot of things that were already in the works that will be picking up now that would be part of infrastructure regardless. But I think the long-term demand was already in place for so many different things. So for the most part, it's The infrastructure is really more about next year than it is right now, but probably the second quarter of next year. But there is a lot in there for that, so I just think it just continues the tailwinds for us that continues our growth in both rental and sales.
spk07: Yeah, the only other thing I'd add on top of that, Scott, is when you think about the As Ryan noted, the backlog that exists today for T&D, which is a decent portion of what's in the infrastructure bill, is already quite healthy. So adding more fuel to that is going to take a time to make its way through because, again, the additional resources that are needed, permitting, getting the crews, getting the equipment, all that's going to take some time. So I think to Fred's point, the core infrastructure road bridge will happen sooner than kind of the other areas that are core to us in terms of telecom and all that. Because, again, they were already planning on investing a lot of dollars. The question is can our customers and those that we're actually going to build and drive that work, can they get their hands on the resources to do it, which is fine for us because it just extends out the runway and the tailwinds that we're already seeing right now.
spk00: Understood. Great. All right, guys. Thanks. I'll turn it over. Thanks, Scott.
spk04: Thanks, Scott. So again, questions, it's 104 on your keypad. Next question is from Stephanos Christ with CJS Securities. Please go ahead.
spk01: Hey, thanks for taking my questions. First, you called out some supply chain issues and getting new equipment, and it seems like it'd be harder to increase your rental fleet. So can you just talk about your decision in terms selling versus renting equipment and how you're going to be able to grow the fleet with the supply chain issues that you called out?
spk05: Sure. Yeah, I'd say where we've seen the biggest supply chain issues are around utility, right? And so I think that's impacted the rental fleet more because demand for equipment has been strong across the board. So whether it's utility or some of our telecom product or rail product or more broadly infrastructure, demand is strong. But as I said in the opening remarks, utility is about 78% of rental revenue. And so because we've seen more supply chain challenges where we haven't received what we expected, that's some of the impact that you've seen from a rental standpoint. We do think that's improving. As we think about the second half of the year, we do expect to receive more utility equipment, which we'll be able to put into the rental fleet as it makes sense. Taking a one-stop shop, we've always said we want to make sure we respond to the customer in the way they want to consume the equipment, and that's proven to be a very good strategy. For utility in particular, though, we've put more things into the rental fleet as we're able and as the customers accept it.
spk01: Got it. Thank you. And then we've seen issues in labor. Are you seeing anything in your main customers' Anything you're concerned about there?
spk02: Not really. So our labor itself, we're not having any trouble building equipment. Our customers are wanting their equipment as quick as possible. So they're not telling us to hold things back because they can't come up with the crews. So that tells us that they can get their labor. And just to back up what Ryan said, I believe that our supply chain is going to be fine for the fourth quarter and into 22, I feel good with where we're going to be on the utility side. Really, really good.
spk01: All right. Thank you for taking my questions.
spk09: Thanks, Tuff.
spk04: And again, for questions, it's 1-4. And we have nothing further from the floor.
spk02: Well, this concludes our call for today. Thanks, everyone, for the interest in Custom Truck. We look forward to speaking with you on the next quarterly earnings call. In the meantime, please don't hesitate to reach out with any questions. Thank you again.
spk04: And that does conclude our call for today. We thank everyone for participating and may now disconnect.
Disclaimer