Custom Truck One Source, Inc. Reports Strong Quarterly Gross Profit Growth

Published: Aug. 9, 2022 at 10:05 AM HST

KANSAS CITY, Mo., Aug. 9, 2022 /PRNewswire/ -- Custom Truck One Source, Inc. ("CTOS," "we," "our," or the "Company") (NYSE: CTOS), a leading provider of specialty equipment to the electric utility, telecom, rail, and other infrastructure-related end markets, today reported financial results for its second quarterly period ended June 30, 2022. Our results are reported for our three segments: Equipment Rental Solutions ("ERS"), Truck and Equipment Sales ("TES") and Aftermarket Parts and Services ("APS"). ERS encompasses our core rental business, inclusive of sales of rental equipment to our customers. TES encompasses our specialized truck and equipment production and sales activities. APS encompasses sales and rentals of parts, tools and other supplies to our customers, as well as our aftermarket repair service operations.

NYSE: CTOS (PRNewsfoto/Custom Truck One Source, Inc.)
NYSE: CTOS (PRNewsfoto/Custom Truck One Source, Inc.)(PRNewswire)

CTOS Second Quarter Highlights

  • Total quarterly revenue of $362.1 million, with growth in rental revenue of 13.7% from continued strong rental demand
  • Quarterly gross profit improvement of $36.1 million, or 77.3%, to $82.8 million compared to $46.7 million for second quarter 2021
  • Gross profit, excluding rental equipment depreciation, increased 27.0% to $126.1 million compared to $99.3 million pro forma second quarter 2021
  • Quarterly net income of $13.6 million, including $6.0 million related to the continuing post-acquisition integration related expenses, compared to a net loss of $129.4 million in second quarter 2021
  • Quarterly Adjusted EBITDA of $85.4 million compared to $70.2 million in second quarter 2021
  • Updating full-year revenue and Adjusted EBITDA guidance
  • Announced appointment of Christopher J. Eperjesy as Chief Financial Officer
  • Announced a stock repurchase program for up to $30 million of the Company's common stock

"Our entire team delivered strong second quarter results despite the continued headwinds stemming from supply chain constraints and inflation. I am proud that we achieved record production levels, completing more vehicles in the second quarter of 2022 than any other quarter in our history," said Fred Ross, Chief Executive Officer of CTOS. "While we are disappointed by the limitations caused by certain constrained production inputs, our second quarter results and the improving production momentum position us well for the second half of the year. We continue to focus on operational optimization so we can fully realize the benefits of our scale and our one-stop-shop business model. Custom Truck's commitment to our customers remains unmatched and we are steadfastly focused on meeting continued very strong customer demand across all three of our business segments."

Summary Actual Financial Results


Three Months Ended June 30,


Six Months Ended June 30,


Three Months
Ended
March 31, 2022
Actual

(in $000s)

2022

Actual


2021

Actual


2022

Actual


2021

Actual


Rental revenue

$                112,055


$                  98,539


$                221,200


$                146,828


$                109,145

Equipment sales

218,506


247,675


445,692


265,662


227,186

Parts and services revenue

31,545


28,897


61,690


40,920


30,145

Total revenue

$                362,106


$                375,111


$                728,582


$                453,410


$                366,476

Gross profit

$                  82,758


$                  46,690


$                167,251


$                  66,909


$                  84,493

Net income (loss)

$                  13,623


$              (129,356)


$                  10,350


$              (157,263)


$                  (3,273)

Adjusted EBITDA1

$                  85,383


$                  70,241


$                176,860


$                  97,772


$                  91,477

1 - Adjusted EBITDA is a non-GAAP financial measure. Further information and reconciliations for our non-GAAP measures to the most directly comparable financial measure under United States generally accepted accounting principles in the U.S. ("GAAP") is included at the end of this press release.

Summary Pro Forma Financial Results1
The summary combined financial data below for the six months ended June 30, 2021 is presented on a pro forma basis to give effect to the following as if they occurred on January 1, 2020: (i) the acquisition of Custom Truck LP (the "Acquisition") and related impacts of purchase accounting, (ii) borrowings under the new debt structure and (iii) repayment of previously existing debt of Nesco Holdings and Custom Truck LP.


Three Months Ended June 30,


Six Months Ended June 30,

(in $000s)

2022

Actual


2021

Actual


2022

Actual


2021

Pro Forma1

Rental revenue

$                112,055


$                  98,539


$                221,200


$                198,801

Equipment sales

218,506


247,675


445,692


511,617

Parts and services revenue

31,545


28,897


61,690


59,463

Total revenue

$                362,106


$                375,111


$                728,582


$                769,881

Gross profit

$                  82,758


$                  46,690


$                167,251


$                139,406

Net income (loss)

$                  13,623


$              (129,356)


$                  10,350


$                (51,284)

Adjusted EBITDA2

$                  85,383


$                  70,241


$                176,860


$                143,106


1 - The above pro forma information is presented for the six-month period ended June 30, 2021, in accordance with Article 11 of Regulation S-X. The information presented gives effect to the following as if they occurred on January 1, 2020: (i) the Acquisition, (ii) borrowings under the senior secured notes and the asset-based credit facility used to repay certain debt in connection with the Acquisition, (iii) extinguishment of Custom Truck LP's prior credit facility and term loan borrowings assumed in the Acquisition and immediately repaid on April 1, 2021, and (iv) extinguishment of Nesco Holdings' prior credit facility and its senior secured notes repaid in connection with the Acquisition. The pro forma information is not necessarily indicative of the Company's results of operations had the Acquisition been completed on January 1, 2020, nor is it necessarily indicative of the Company's future results. The pro forma information does not reflect any cost savings from operating efficiencies, synergies, or revenue opportunities that could result from the Acquisition.


2 - Adjusted EBITDA is a non-GAAP financial measure. Further information and reconciliations for our non-GAAP measures to the most directly comparable financial measure under GAAP is included at the end of this press release.

Summary Actual Financial Results by Segment
Segment performance is presented below for the three months ended June 30, 2022 and 2021 and March 31, 2022, and for the six months ended June 30, 2022 and 2021. Segment performance for the six months ended June 30, 2021, includes Custom Truck LP from April 1, 2021 to June 30, 2021.

Equipment Rental Solutions


Three Months Ended June 30,


Six Months Ended June 30,


Three Months
Ended
March 31, 2022

(in $000s)

2022


2021


2022


2021


Rental revenue

$                108,109


$                  95,081


$                213,670


$                139,811


$                105,561

Equipment sales

37,200


32,555


96,553


43,040


59,353

Total revenue

145,309


127,636


310,223


182,851


164,914

Cost of rental revenue

27,851


27,524


52,642


43,061


24,791

Cost of equipment sales

30,418


34,529


73,648


41,269


43,230

Depreciation of rental equipment

42,384


42,192


86,350


59,077


43,966

Total cost of revenue

100,653


104,245


212,640


143,407


111,987

Gross profit

$                  44,656


$                  23,391


$                  97,583


$                  39,444


$                  52,927

Truck and Equipment Sales


Three Months Ended June 30,


Six Months Ended June 30,


Three Months
Ended
March 31, 2022

(in $000s)

2022


2021


2022


2021


Equipment sales

$                181,306


$                215,120


$                349,139


$                222,622


$                167,833

Cost of equipment sales

154,177


194,810


298,225


201,735


144,048

Gross profit

$                  27,129


$                  20,310


$                  50,914


$                  20,887


$                  23,785

Aftermarket Parts and Services


Three Months Ended June 30,


Six Months Ended June 30,


Three Months
Ended
March 31, 2022

(in $000s)

2022


2021


2022


2021


Rental revenue

$                    3,946


$                    3,458


$                    7,530


$                    7,017


$                    3,584

Parts and services revenue

31,545


28,897


61,690


40,920


30,145

Total revenue

35,491


32,355


69,220


47,937


33,729

Cost of revenue

23,578


28,379


48,528


39,413


24,950

Depreciation of rental equipment

940


987


1,938


1,946


998

Total cost of revenue

24,518


29,366


50,466


41,359


25,948

Gross profit

$                  10,973


$                    2,989


$                  18,754


$                    6,578


$                    7,781

Summary Combined Operating Metrics


Three Months Ended June 30,


Six Months Ended June 30,


Three Months
Ended
March 31, 2022

(in $000s)

2022


2021


2022


2021


Ending OEC(a) (as of period end)

$         1,399,500


$         1,338,700


$         1,399,500


$         1,338,700


$         1,364,660

Average OEC on rent(b)

$         1,150,400


$         1,084,709


$         1,150,800


$         1,066,318


$         1,119,100

Fleet utilization(c)

82.8 %


80.9 %


82.6 %


79.9 %


82.5 %

OEC on rent yield(d)

39.2 %


37.9 %


39.1 %


37.3 %


39.1 %

Sales order backlog(e) (as of period end)

$            663,619


$            222,661


$            663,619


$            222,661


$            586,368



(a)

Ending OEC — original equipment cost ("OEC") is the original equipment cost of units at a given point in time.

(b)

Average OEC on rent — Average OEC on rent is calculated as the weighted-average OEC on rent during the stated period.

(c)

Fleet utilization — total number of days the rental equipment was rented during a specified period of time divided by the total number of days available during the same period and weighted based on OEC.

(d)

OEC on rent yield ("ORY") — a measure of return realized by our rental fleet during a 12-month period. ORY is calculated as rental revenue (excluding freight recovery and ancillary fees) during the stated period divided by the Average OEC on rent for the same period. For period less than 12 months, the ORY is adjusted to an annualized basis.

(e)

Sales order backlog — purchase orders received for products expected to be shipped within the next 12 months, although shipment dates are subject to change due to design modifications or changes in other customer requirements. Sales order backlog should not be considered an accurate measure of future net sales.

Management Commentary
Total revenue in the second quarter of 2022 was characterized by strong customer demand for rental equipment and for parts sales and service. Second quarter 2022 rental revenue increased 13.7% to $112.1 million, compared to $98.5 million in the second quarter of 2021, reflecting our continued expansion of our rental fleet and pricing gains. Parts sales and service revenue increased 9.2% to $31.5 million, compared to $28.9 million in the second quarter of 2021. Equipment sales decreased 11.8% in the second quarter of 2022 to $218.5 million, compared to $247.7 million in the second quarter of 2021 impacted by continued supply chain challenges.

In our ERS segment, rental revenue in the second quarter of 2022 was $108.1 million compared to $95.1 million in the second quarter of 2021, a 13.7% increase. Fleet utilization remained relatively steady at 83% compared to 81% in the second quarter of 2021. Gross profit (excluding depreciation) in the segment was $87.0 million, compared to $65.6 million in the second quarter of 2021, representing strong growth over the prior year period.

Revenue in our TES segment declined 15.7%, to $181.3 million in the second quarter of 2022, from $215.1 million in the second quarter of 2021, as a result of supply chain challenges relating to the segment's inventory suppliers. Gross profit improved by 33.6% to $27.1 million in the second quarter of 2022 compared to $20.3 million in the second quarter of 2021. Despite the impact on second quarter sales volume, TES continued to see strength in product demand as sales order backlog grew by 13.2% to $664.0 million compared to the end of the first quarter of 2022, and is up almost 200% from the second quarter of 2021.

APS segment revenue experienced an increase of $3.1 million, or 9.7%, in the second quarter of 2022, to $35.5 million, as compared to $32.4 million in the second quarter of 2021, driven by growth in volume of parts sales and tools and accessories rentals. Gross profit margin in the segment saw significant improvement from the impact of operational improvements in our distribution network, pricing gains and increased rentals.

Net income was $13.6 million in the second quarter of 2022 compared to a net loss of $129.4 million for the second quarter of 2021. Second quarter 2022 includes mark-to-market income of $13.1 million on the Company's stock purchase warrants. Second quarter 2021 included significant expenses associated with the acquisition of Custom Truck LP, including loss on extinguishment of debt and other transaction expenses. This represents our first positive net income quarter since the merger was announced in April of 2021.

Adjusted EBITDA for the second quarter of 2022 was $85.4 million, compared to $70.2 million for the second quarter of 2021. The increase in Adjusted EBITDA was largely driven by growth in rental and pricing gains that contributed to margin expansion in all three of our segments.

CTOS had cash and cash equivalents of $28.5 million as of June 30, 2022, and debt outstanding net of cash and cash equivalents ("net debt"), including finance leases, was $1,361.4 million as of June 30, 2022. Our net leverage ratio, which is net debt divided by Adjusted EBITDA, was 3.81 as of June 30, 2022. Availability under the senior secured credit facility was $310.2 million as of June 30, 2022. For the six months ended June 30, 2022, we added $127.2 million to our rental fleet.

2022 Outlook Update
Based on year-to-date performance, continued market strength, our current sales order backlog, and the ongoing supply chain environment, we are updating our full-year revenue and Adjusted EBITDA guidance at this time. Supply chain challenges are primarily impacting our ability to deliver new vehicles to TES customers. We are reaffirming guidance for the ERS and APS segments.

2022 Consolidated Outlook




Revenue

    $1,540 million

$1,650 million

Adjusted EBITDA1

        $385 million

$400 million





2022 Revenue Outlook by Segment




ERS

        $610 million

$650 million

TES

        $800 million

$850 million

APS

        $130 million

$150 million


1 - CTOS is not able to forecast net income on a forward-looking basis without unreasonable efforts due to the high variability and difficulty in predicting certain items that affect GAAP net income including, but not limited to, customer buyout requests on rentals with rental purchase options, income tax expense and changes in fair value of derivative financial instruments. Adjusted EBITDA should not be used to predict net income as the difference between the two measures is variable.

Recent Events
As we announced last week, the Company's Board of Directors appointed Christopher J. Eperjesy to serve as Chief Financial Officer, effective August 15, 2022. Mr. Eperjesy succeeds Todd Barrett, who will continue his role as Chief Accounting Officer.

Last week, we also announced that our Board of Directors authorized a stock repurchase program for up to $30 million of the Company's common stock. Under the repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions, or otherwise, all in accordance with the rules of the Securities and Exchange Commission and other applicable legal requirements. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The repurchase program does not obligate the Company to acquire any particular amount of its common stock, and the repurchase program may be suspended or discontinued at any time at the Company's discretion.

CONFERENCE CALL INFORMATION
The Company has scheduled a conference call at 5:00 P.M. Eastern Time on August 9, 2022, to discuss its second quarter 2022 financial results. A webcast will be publicly available at: investors.customtruck.com. To listen by phone, please dial 1-855-327-6837 or 1-631-891-4304. A replay of the call will be available until midnight, Tuesday, August 16, 2022, by dialing 1-844-512-2921 or 1-412-317‑6671 and entering passcode 10019703.

ABOUT CTOS
CTOS is one of the largest providers of specialty equipment, parts, tools, accessories and services to the electric utility transmission and distribution, telecommunications and rail markets in North America. CTOS offers its specialized equipment to a diverse customer base for the maintenance, repair, upgrade and installation of critical infrastructure assets, including electric lines, telecommunications networks and rail systems. The Company's coast-to-coast rental fleet of more than 9,600 units includes aerial devices, boom trucks, cranes, digger derricks, pressure drills, stringing gear, hi-rail equipment, repair parts, tools and accessories. For more information, please visit investors.customtruck.com.

FORWARD-LOOKING STATEMENTS
This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this press release, the words "estimates," "projected," "expects," "anticipates," "forecasts," "plans," "intends," "believes," "seeks," "may," "will," "should," "future," "propose" and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company's management's control, that could cause actual results or outcomes to differ materially from those discussed in this press release. This press release is based on certain assumptions that the Company's management has made in light of its experience in the industry, as well as the Company's perceptions of historical trends, current conditions, expected future developments and other factors the Company believes are appropriate in these circumstances. As you read and consider this press release, you should understand that these statements are not guarantees of performance or results. Many factors could affect the Company's actual performance and results and could cause actual results to differ materially from those expressed in this press release. Important factors, among others, that may affect actual results or outcomes include: difficulty in integrating the Nesco Holdings and Custom Truck LP businesses and fully realizing the anticipated benefits of the Acquisition; as well as significant transaction and transition costs that we will continue to incur following the Acquisition; material disruptions to our operation and manufacturing locations as a result of public health concerns, including the COVID-19 pandemic, equipment failures, natural disasters, work stoppages, power outages or other reasons; the cyclical nature of demand for our products and services and our vulnerability to industry, regional and national downturns, which impact, among others, our ability to manage our rental equipment; our inability to obtain raw materials, component parts and/or finished goods in a timely and cost-effective manner; and our inability to manage our rental equipment in an effective manner; any further increase in the cost of new equipment that we purchase for use in our rental fleet or for our sales inventory; disruptions in our supply chain as a result of the ongoing COVID-19 pandemic; aging or obsolescence of our existing equipment, and the fluctuations of market value thereof; our inability to recruit and retain the experienced personnel, including skilled technicians, we need to compete in our industries; e; disruptions in our information technology systems or a compromise of our system security, limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, and implement strategic initiatives; unfavorable conditions in the capital and credit markets and our inability to obtain additional capital as required; our dependence on a limited number of manufacturers and suppliers and on third-party contractors to provide us with various services to assist us with conducting our business; potential impairment charges; our exposure to various risks related to legal proceedings or claims, and our failure to comply with relevant laws and regulations, including those related to occupational health and safety, the environment, government contracts, and data privacy and data security; the interest of our majority stockholder, which may not be consistent with the other stockholders; our significant indebtedness, which may adversely affect our financial position, limit our available cash and our access to additional capital, prevent us from growing our business and increase our risk of default; our inability to attract and retain highly skilled personnel and our inability to retain our senior management; our inability to generate cash, which could lead to a default; significant operating and financial restrictions imposed by the Indenture and the ABL Credit Agreement; increases in unionization rate in our workforce; changes in interest rates, which could increase our debt service obligations on the variable rate indebtedness and decrease our net income and cash flows; and the phase-out of LIBOR and uncertainty as to its replacement. For a more complete description of these and other possible risks and uncertainties, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2021, and its subsequent reports filed with the Securities and Exchange Commission. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements.

INVESTOR CONTACT
Brian Perman, Vice President, Investor Relations
(844) 403-6138
investors@customtruck.com

CUSTOM TRUCK ONE SOURCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


The condensed consolidated statements of operations for the three and six months ended June 30, 2021 includes the results of Custom Truck LP from April 1, 2021 to June 30, 2021.



Three Months Ended June 30,


Six Months Ended June 30,


Three Months

Ended

March 31, 2022

(in $000s except per share data)

2022


2021


2022


2021


Revenue










Rental revenue

$                112,055


$                  98,539


$                221,200


$                146,828


$                109,145

Equipment sales

218,506


247,675


445,692


265,662


227,186

Parts sales and services

31,545


28,897


61,690


40,920


30,145

Total revenue

362,106


375,111


728,582


453,410


366,476

Cost of Revenue










Cost of rental revenue

28,791


29,013


54,584


45,941


25,793

Depreciation of rental equipment

43,324


43,179


88,288


61,023


44,964

Cost of equipment sales

184,595


229,339


371,873


243,004


187,278

Cost of parts sales and services

22,638


26,890


46,586


36,533


23,948

Total cost of revenue

279,348


328,421


561,331


386,501


281,983

Gross Profit

82,758


46,690


167,251


66,909


84,493

Operating Expenses










Selling, general and administrative expenses

48,779


51,264


102,434


63,314


53,655

Amortization

6,871


13,332


20,206


14,086


13,335

Non-rental depreciation

2,317


951


5,364


972


3,047

Transaction expenses and other

6,046


24,575


10,694


35,023


4,648

Total operating expenses

64,013


90,122


138,698


113,395


74,685

Operating Income (Loss)

18,745


(43,432)


28,553


(46,486)


9,808

Other Expense










Loss on extinguishment of debt


61,695



61,695


Interest expense, net

20,281


19,723


39,437


34,629


19,156

Financing and other expense (income)

(15,078)


(2,058)


(24,158)


3,799


(9,080)

Total other expense

5,203


79,360


15,279


100,123


10,076

Income (Loss) Before Income Taxes

13,542


(122,792)


13,274


(146,609)


(268)

Income Tax Expense (Benefit)

(81)


6,564


2,924


10,654


3,005

Net Income (Loss)

$                  13,623


$              (129,356)


$                  10,350


$              (157,263)


$                  (3,273)











Net Income (Loss) Per Share










Basic

$                      0.05


$                    (0.53)


$                      0.04


$                    (1.07)


$                    (0.01)

Diluted

$                      0.05


$                    (0.53)


$                      0.04


$                    (1.07)


$                    (0.01)

CUSTOM TRUCK ONE SOURCE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 


(in $000s)

June 30, 2022


December 31, 2021

Assets




Current Assets




Cash and cash equivalents

$                           28,524


$                           35,902

Accounts receivable, net

168,916


168,394

Financing receivables, net

35,496


28,649

Inventory

536,087


410,542

Prepaid expenses and other

13,800


13,217

Total current assets

782,823


656,704

Property and equipment, net

107,940


108,612

Rental equipment, net

834,164


834,325

Goodwill

705,973


695,865

Intangible assets, net

318,661


327,840

Operating lease assets

35,316


36,014

Other assets

29,538


24,406

Total Assets

$                      2,814,415


$                      2,683,766

Liabilities and Stockholders' Equity




Current Liabilities




Accounts payable

$                         127,635


$                           91,123

Accrued expenses

52,400


60,337

Deferred revenue and customer deposits

28,820


35,791

Floor plan payables - trade

71,272


72,714

Floor plan payables - non-trade

239,514


165,239

Operating lease liabilities - current

5,266


4,987

Current maturities of long-term debt

3,177


6,354

Current portion of finance lease obligations

3,175


4,038

Total current liabilities

531,259


440,583

Long-term debt, net

1,349,964


1,308,265

Finance leases

3,335


5,109

Operating lease liabilities - noncurrent

30,623


31,514

Deferred income taxes

24,497


15,621

Derivative, warrants and other liabilities

4,612


24,164

Total long-term liabilities

1,413,031


1,384,673

Commitments and contingencies




Stockholders' Equity




Common stock

25


25

Treasury stock

(4,463)


(3,020)

Additional paid-in capital

1,514,339


1,508,995

Accumulated other comprehensive loss

(2,636)


Accumulated deficit

(637,140)


(647,490)

Total stockholders' equity

870,125


858,510

Total Liabilities and Stockholders' Equity

$                      2,814,415


$                      2,683,766

CUSTOM TRUCK ONE SOURCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


The condensed consolidated statement of cash flows for the six months ended June 30, 2021 include the cash flows of Custom Truck LP from April 1, 2021 to June 30, 2022.



Six Months Ended June 30,

(in $000s)

2022


2021

Operating activities




Net income (loss)

$                            10,350


$                         (157,263)

Adjustments to reconcile net income (loss) to net cash flow from operating activities:




Depreciation and amortization

117,120


79,163

Amortization of debt issuance costs

2,158


2,239

Loss on extinguishment of debt


61,695

Provision for losses on accounts receivable

4,545


6,177

Share-based compensation

5,148


7,860

(Gain) loss on sales and disposals of rental equipment

(22,905)


2,882

Gain on insurance proceeds - damaged equipment


(650)

Change in fair value of derivative and warrants

(18,822)


6,880

Deferred tax expense (benefit)

2,575


9,849

Changes in assets and liabilities:




Accounts and financing receivables

(10,744)


(13,141)

Inventories

(125,021)


43,553

Prepaids, operating leases and other

(1,821)


(2,852)

Operating lease assets and liabilities

85


220

Accounts payable

32,480


11,937

Accrued expenses and other liabilities

(8,099)


(13)

Floor plan payables - trade, net

(1,441)


(6,927)

Customer deposits and deferred revenue

(6,972)


5,616

Net cash flow from operating activities

(21,364)


57,225

Investing activities




Acquisition of business, net of cash acquired

(49,832)


(1,334,285)

Purchases of rental equipment

(127,237)


(65,873)

Proceeds from sales and disposals of rental equipment

96,143


41,708

Other investing activities, net

(11,763)


(1,777)

Net cash flow from investing activities

(92,689)


(1,360,227)

Financing activities




Proceeds from debt


947,420

Proceeds from issuance of common stock


883,000

Payment of common stock issuance costs


(6,386)

Payment of premiums on debt extinguishment


(53,469)

Share-based payments

(1,247)


(586)

Borrowings under revolving credit facilities

75,000


441,084

Repayments under revolving credit facilities

(34,945)


(307,055)

Repayments of notes payable

(3,791)


(494,220)

Finance lease payments

(2,639)


(2,579)

Acquisition of inventory through floor plan payables - non-trade

293,241


84,619

Repayment of floor plan payables - non-trade

(218,965)


(130,334)

Payment of debt issuance costs


(34,694)

Net cash flow from financing activities

106,654


1,326,800

Effect of exchange rate changes on cash and cash equivalents

21


Net Change in Cash and Cash Equivalents

(7,378)


23,798

Cash and Cash Equivalents at Beginning of Period

35,902


3,412

Cash and Cash Equivalents at End of Period

$                            28,524


$                            27,210






Six Months Ended June 30,

(in $000s)

2022


2021

Supplemental Cash Flow Information




Cash paid for interest

$                            38,417


$                            40,227

Cash paid for income taxes


122

Non-Cash Investing and Financing Activities:




Non-cash consideration - acquisition of business


187,935

Rental equipment sales in accounts receivable

1,145


2,077

CUSTOM TRUCK ONE SOURCE, INC.
NON-GAAP FINANCIAL AND PERFORMANCE MEASURES
In our press release and schedules, and on the related conference call, we report certain financial measures that are not required by, or presented in accordance with, United States generally accepted accounting principles ("GAAP"). We utilize these financial measures to manage our business on a day-to-day basis and some of these measures are commonly used in our industry to evaluate performance. We believe these non-GAAP measures provide investors expanded insight to assess performance, in addition to the standard GAAP-based financial measures. The press release schedules reconcile the most directly comparable GAAP measure to each non-GAAP measure that we refer to. Although management evaluates and presents these non-GAAP measures for the reasons described herein, please be aware that these non-GAAP measures have limitations and should not be considered in isolation or as a substitute for revenue, operating income/loss, net income/loss, earnings/loss per share or any other comparable operating measure prescribed by GAAP. In addition, we may calculate and/or present these non-GAAP financial measures differently than measures with the same or similar names that other companies report, and as a result, the non-GAAP measures we report may not be comparable to those reported by others.

Custom Truck LP became a wholly owned subsidiary of the Company on April 1, 2021. The Company's condensed consolidated financial statements prepared under GAAP include Custom Truck LP from April 1, 2021. Accordingly, the financial information presented under GAAP for the six-month period ended June 30, 2022 is not comparable to the financial information of the six-month period ended June 30, 2021. As a result, we have included information on a "pro forma combined basis" as further described below, which we believe provides for more meaningful year-over-year comparability.

Pro Forma Financial Information. The unaudited pro forma combined financial information presented on the subsequent pages give effect to the Company's acquisition of Custom Truck LP, as if the Acquisition had occurred on January 1, 2020, and is presented to facilitate comparisons with our results following the Acquisition. This information has been prepared in accordance with Article 11 of Regulation S-X. Such unaudited pro forma combined financial information also uses the estimated fair value of assets and liabilities on April 1, 2021, the closing date of the Acquisition, and makes the following assumptions: (1) removes acquisition-related costs and charges that were recognized in the Company's condensed consolidated financial statements in the three and six months ended June 30, 2021, and applies these costs and charges as if the transactions had occurred on January 1, 2020; (2) removes the loss on the extinguishment of debt that was recognized in the Company's condensed consolidated financial statements in the three and six months ended June 30, 2021 and applies the charge to the three and six months ended June 30, 2020, as if the debt extinguishment giving rise to the loss had occurred on January 1, 2020; (3) adjusts for the impacts of purchase accounting in the three and six months ended June 30, 2021; (4) adjusts interest expense, including amortization of debt issuance costs, to reflect borrowings on the ABL Facility and issuance of the 2029 Secured Notes, as if the funds had been borrowed and the 2029 Secured Notes had been issued on January 1, 2020 and used to repay pre-acquisition debt; and, (5) adjusts for the income tax effect using a tax rate of 25%.

Pro Forma Adjusted EBITDA. We present Pro Forma Adjusted EBITDA as if the Acquisition had occurred on January 1, 2020. Refer to the reconciliation of pro forma combined net income (loss) to Pro Forma Adjusted EBITDA for the three and six-month period ended June 30, 2021 in this press release.

CUSTOM TRUCK ONE SOURCE, INC.

SCHEDULE 1 — ADJUSTED EBITDA RECONCILIATION

(unaudited)


The Adjusted EBITDA Reconciliation for the six months ended June 30, 2021 includes the results of Custom Truck LP from April 1, 2021 to June 30, 2021.



Three Months Ended June 30,


Six Months Ended June 30,


Three Months
Ended
March 31, 2022

(in $000s)

2022
Actual


2021
Actual


2022
Actual


2021
Actual


Net income (loss)

$                  13,623


$              (129,356)


$                  10,350


$              (157,263)


$              (3,273)

Interest expense

18,050


17,602


35,495


32,508


17,445

Income tax expense (benefit)

(81)


6,564


2,924


10,654


3,005

Depreciation and amortization

54,620


60,062


117,120


79,163


62,500

EBITDA

86,212


(45,128)


165,889


(34,938)


79,677

Adjustments:










Non-cash purchase accounting impact (1)

2,367


21,387


11,393


21,440


9,026

Transaction and integration costs (2)

6,043


24,601


10,691


35,345


4,648

Loss on extinguishment of debt (3)


61,695



61,695


Sales-type lease adjustment (4)

2,032


(510)


2,561


(510)


529

Share-based payments (5)

1,784


7,162


5,148


7,860


3,364

Change in fair value of derivative and warrants (6)

(13,055)


1,034


(18,822)


6,880


(5,767)

Adjusted EBITDA

$                  85,383


$                  70,241


$                176,860


$                  97,772


$             91,477

Adjusted EBITDA is defined as net income (loss) plus interest expense, provision for income taxes, depreciation and amortization, and further adjusted for non-cash purchase accounting impact, transaction and process improvement costs, including business integration expenses, share-based payments, the change in fair value of derivative instruments, sales-type lease adjustment, and other special charges that are not expected to recur. This non-GAAP measure is subject to certain limitations.

(1)

Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment and inventory sold. The equipment and inventory acquired received a purchase accounting step-up in basis, which is a non-cash adjustment to the equipment cost pursuant to our credit agreement.

(2)

Represents transaction costs related to acquisitions of businesses, including post-acquisition integration costs, which are recognized within operating expenses in our consolidated Statements of Comprehensive Net Income (Loss). These expenses are comprised of professional consultancy, legal, tax and accounting fees. Also included are expenses associated with the integration of acquired businesses.

(3)

Loss on extinguishment of debt represents a special charge, which is not expected to recur. Such charges are adjustments pursuant to our credit agreement.

(4)

Represents the adjustment for the impact of sales-type lease accounting for certain leases containing rental purchase options (or "RPOs"), as the application of sales-type lease accounting is not deemed to be representative of the ongoing cash flows of the underlying rental contracts. This adjustment is made pursuant to our credit agreement.


Three Months Ended June 30,


Six Months Ended June 30,


Three Months Ended
March 31, 2022

(in $000s)

2022


2021


2022


2021


Equipment sales

$                   (7,671)


$                   (6,806)


$                   (19,908)


$                   (13,738)


$                   (12,237)

Cost of equipment sales

6,765


4,995


17,135


10,863


10,370

Gross profit

(906)


(1,811)


(2,773)


(2,875)


(1,867)

Interest income

(2,220)


(1,519)


(5,108)


(3,552)


(2,888)

Rentals invoiced

5,158


2,820


10,442


5,917


5,284

Sales-type lease adjustment

$                     2,032


$                      (510)


$                     2,561


$                      (510)


$                       529



(5)

Represents non-cash share-based compensation expense associated with the issuance of stock options and restricted stock units.

(6)

Represents the charge to earnings for our interest rate collar and the change in fair value of the liability for warrants.

CUSTOM TRUCK ONE SOURCE, INC.

SCHEDULE 2 — SUPPLEMENTAL PRO FORMA INFORMATION

(unaudited)

Pro Forma Combined Statements of Operations — Three Months Ended June 30, 2021

 


(in $000s)

Custom Truck One
Source, Inc.


Pro Forma
Adjustmentsa


Pro Forma
Combined

Rental revenue

$                  98,539


$                         —


$                  98,539

Equipment sales

247,675



247,675

Parts sales and services

28,897



28,897

Total revenue

375,111



375,111

Cost of revenue

285,242


(9,388)

b

275,854

Depreciation of rental equipment

43,179



43,179

Total cost of revenue

328,421


(9,388)


319,033

Gross profit

46,690


9,388


56,078

Selling, general and administrative

51,264



51,264

Amortization

13,332



13,332

Non-rental depreciation

951



951

Transaction expenses and other

24,575


(24,575)

c

Total operating expenses

90,122


(24,575)


65,547

Operating income (loss)

(43,432)


33,963


(9,469)

Loss on extinguishment of debt

61,695


(61,695)

d

Interest expense, net

19,723



19,723

Finance and other expense (income)

(2,058)



(2,058)

Total other expense

79,360


(61,695)


17,665

Income (loss) before taxes

(122,792)


95,658


(27,134)

Taxes

6,564


23,915

e

30,479

Net income (loss)

$              (129,356)


$                  71,743


$                (57,613)



a.

The pro forma adjustments give effect to the following as if they occurred on January 1, 2020: (i) the Acquisition and (ii) the extinguishment of Nesco Holdings' 2019 Credit Facility and its Senior Secured Notes due 2024 repaid in connection with the Acquisition. The adjustments also give effect to transaction expenses directly attributable to the Acquisition.

b.

Represents the elimination from cost of revenue, the run-off of the estimated step-up in fair value of inventory acquired that was recognized in the Company's consolidated financial statements for the three months ended June 30, 2021. The impact of the step-up is reflected as an adjustment to the comparable prior period (e.g. June 30, 2020) as if the Acquisition had occurred on January 1, 2020.

c.

Represents the elimination of transaction expenses recognized in the Company's consolidated financial statements for the three months ended June 30, 2021. The expenses were directly attributable to the Acquisition and are reflected as adjustments to the comparable prior period (e.g. June 30, 2020) as if the Acquisition had occurred on January 1, 2020.

d.

Represents the elimination of the loss on extinguishment of debt recognized in the Company's consolidated financial statements for the three months ended June 30, 2021 as though the repayment of the 2019 Credit Facility and 2024 Secured Notes had occurred on January 1, 2020.

e.

Reflects the adjustment to recognize the tax impacts of the pro forma adjustments for which a tax expense is recognized using a statutory tax rate of 25%.



Pro Forma Combined Statements of Operations — Six Months Ended June 30, 2021


(in $000s)

Nesco Holdings


Custom Truck LP


Pro Forma
Adjustmentsa


Pro Forma
Combined

Rental revenue

$                   90,561


$                 108,240


$                         —


$                 198,801

Equipment sales

27,572


484,045



511,617

Parts sales and services

23,226


36,237



59,463

Total revenue

141,359


628,522



769,881

Cost of revenue

74,924


470,387


(1,342)

b

543,969

Depreciation of rental equipment

33,358


45,891


7,257

c

86,506

Total cost of revenue

108,282


516,278


5,915


630,475

Gross profit

33,077


112,244


(5,915)


139,406

Selling, general and administrative

29,943


67,798



97,741

Amortization

8,508


1,990


9,170

d

19,668

Non-rental depreciation

42


2,241


(894)

d

1,389

Transaction expenses and other

28,539


11,738


(40,277)

e

Total operating expenses

67,032


83,767


(32,001)


118,798

Operating income (loss)

(33,955)


28,477


26,086


20,608

Loss on extinguishment of debt

61,695



(61,695)

f

Interest expense, net

32,054


12,567


(9,042)

g

35,579

Finance and other expense (income)

6,929


(5,476)



1,453

Total other expense

100,678


7,091


(70,737)


37,032

Income (loss) before taxes

(134,633)


21,386


96,823


(16,424)

Taxes

10,084


570


24,206

h

34,860

Net income (loss)

$                (144,717)


$                   20,816


$                   72,617


$                  (51,284)



a.

The pro forma adjustments give effect to the following as if they occurred on January 1, 2020: (i) the Acquisition, (ii) the extinguishment of Nesco Holdings' 2019 Credit Facility and its Senior Secured Notes 2024 repaid in connection with the Acquisition and (iii) the extinguishment of the outstanding borrowings of Custom Truck LP's credit facility and term loan that was repaid on the closing of the Acquisition.

b.

Represents adjustments to cost of revenue for the reduction to depreciation expense for the difference between historical depreciation and depreciation of the fair value of the property and equipment.

c.

Represents the adjustment for depreciation of rental fleet relating to the mark-up to fair value from purchase accounting as a result of the Acquisition.

d.

Represents the differential in other amortization and depreciation related to the estimated fair value of non-rental property and equipment and the identified intangible assets from purchase accounting as a result of the Acquisition.

e.

Represents the elimination of transaction expenses recognized in the Company's consolidated financial statements for the six months ended June 30, 2021. The expenses were directly attributable to the Acquisition and are reflected as adjustments to the comparable prior period (e.g. June 30, 2020) as if the Acquisition had occurred on January 1, 2020.

f.

Represents the elimination of the loss on extinguishment of debt recognized in the Company's consolidated financial statements for the six months ended June 30, 2021. The expenses were directly attributable to the Acquisition and are reflected as adjustments to the comparable prior period (e.g. June 30, 2020) as if the Acquisition had occurred on January 1, 2020.

g.

Reflects the differential in interest expense, inclusive of amortization of capitalized debt issuance costs, related to the Company's debt structure after the Acquisition as though the following had occurred on January 1, 2020: (i) borrowings under the ABL Facility; (ii) repayment of the 2019 Credit Facility; (iii) repayment of the 2024 Secured Notes; (iv) repayment of Custom Truck LP's borrowings under its revolving credit and term loan facility; and (v) the issuance of the 2029 Secured Notes.

h.

Reflects the adjustment to recognize the tax impacts of the pro forma adjustments for which a tax expense is recognized using a statutory tax rate of 25%.

Reconciliation of Pro Forma Combined Net Income (Loss) to Pro Forma Adjusted EBITDA

The following table provides a reconciliation of pro forma combined net income (loss) to pro forma Adjusted EBITDA:



Three Months Ended June 30,


Six Months Ended June 30,

(in $000s)

2022 Actual


2021 Pro Forma


2022 Actual


2021 Pro Forma

Net income (loss)

$                  13,623


$                (57,613)


$                  10,350


$                (51,284)

Interest expense

18,050


17,602


35,495


30,979

Income tax expense (benefit)

(81)


30,479


2,924


34,860

Depreciation and amortization

54,620


60,062


117,120


111,887

EBITDA

86,212


50,530


165,889


126,442

Adjustments:








Non-cash purchase accounting impact

2,367


11,999


11,393


313

Transaction and process improvement costs

6,043


26


10,691


409

Loss on extinguishment of debt




Sales-type lease adjustment

2,032


(510)


2,561


645

Share-based payments

1,784


7,162


5,148


8,417

Change in fair value of derivative and warrants

(13,055)


1,034


(18,822)


6,880

Adjusted EBITDA

$                  85,383


$                  70,241


$                176,860


$               143,106

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SOURCE Custom Truck One Source, Inc.

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