Q1 2021 Custom Truck One Source Inc Earnings Call
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Good evening and welcome to custom truck one sources first quarter 2021 earnings conference call. Please.
Please note this conference call is being recorded.
After today's market closed custom truck issued a press release announcing nascar's first quarter results available on custom trucks Investor Relations website at investors got custom truck Dot com.
Management's comments on today's call regarding first quarter results will pertain to the pre merger performance of Moscow 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 S. E C.
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.
I'll now turn the call over to Fred Ross Chief Executive Officer of custom truck one source. Please go ahead.
Thank you everyone for joining us all custom trucks first quarter earnings call I'd like to extend a special one special welcome to the employees.
And customers and investors and Mexico.
We completed the transformational combination of custom truck with Nasco on April one, creating a leading one stop shop provider of specialty equipment, serving attractive and growing end markets.
Our timing is favorable falling unprecedented disruption from a global pandemic with our industry now entering a recovery phase benefiting from pent up demand powerful secular growth drivers and further potential tailwind with proposed infrastructure legislation.
I'll focus the majority of my remarks today and the merger and compelling opportunities are created and will then turn over turn over the call to Brian Mcmonagle, Our president and Chief operating officer to provide and update on the positive industry trends we are seeing.
Our merger integration and our plans to drive further growth and.
And 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 has strong teams that performed very well during the years past pandemics.
Keeping their focus on business operations and taking care of customers.
We are energized and acting with tremendous collaborative spirit as we integrate these two great companies.
Because I have gotten to know the desk organization and better my respect has only grown for the quality of their team and the impressive operations. They 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.
Especially like to call out the contribution from proven adaptability of all.
Custom truck and that's one employees as we work through this transition.
And in 'twenty was a challenging year for everyone, but that requires tremendous adaptability due to COVID-19 and bolt change proved resilient.
Or given similar cultures has been easy to arrive and a guiding principle will be all all of our decisions and our focus is quite simple and take care of our customers. This has been true through COVID-19 and it's been true now as we joined forces to provide even better service and future and.
I'm pleased to say that our collaborative teams very efficiently use the four months between merger announcement and completion.
We've put detailed integration plans in place, which enabled us to hit the ground running the team is executing.
<unk> 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 and 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 <unk>.
And each company has a breadth of products and services. So we're able to solve more customers' problems and Kirk and capture greater wallet share.
Typically <unk> 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 and we're positioned extremely well to capitalize on the robust tail winds and our core markets.
With Nasco meeting first quarter expectations, and SITA <unk> experiencing strong year over year growth, we feel confident and our outlook.
And I will turn it over the one I'm mcmonagle to provide commentary on the industry outlooks Mercury integrations and capital planning.
Brian.
Thank you Fred customer demand and the industry outlook, our robust customers eager to play catch up following COVID-19 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 nasco fleet's achieving over 78%.
Organization 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 the increasingly feel well prepared to operate safely. So far this quarter. We have continued to see increases and equipment on rent and unit sales as new projects are being started by our customers.
And its core our role is to provide repair and maintain specialty equipment for essential utility telecom and other critical projects.
Infrastructure Bill could add additional tailwind as the recovery accelerates with $100 billion dedicated to the electric grid $100 billion to the broadband networks and $174 billion to increased reliance on electric vehicles spending on new construction that would utilize our equipment could see is significant.
Boost even prior to any proposed infrastructure bill industry fundamentals are strong the power outages and Texas earlier this year highlight the need for upgrades to our nation's transmission and distribution systems and a highly publicized weighted.
Our customers continue to have record or near record backlogs.
Multibillion dollar capital projects and transmission and distribution have been announced to support grid maintenance fire hardening and alternative energy Likewise multibillion dollar capital projects have been announced and telecom to increase connectivity and for the rollout of five G. SEC.
Secular trends towards rental away from ownership continue amongst our customers.
I will now turn to the merger of custom truck with Nasco integration.
The integration teams at both companies went above and beyond and preparing for the combination that took place on April one.
This enabled us to coordinate very quickly to have a unified customer calling effort and to be able to draw on our 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 that $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 and 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 and assets that are core to our business and that will drive strong shareholder returns. We may also look opportunistically to expand through bolt on acquisitions or fleet purchases should attractive opportunities arise and always in a disciplined manner as part.
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 and their ability to adapt to new conditions and adhere to new safety protocols and 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.
Other and 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.
Thanks, Brian 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 nasco custom trucks for our first quarter results are currently being reviewed with our external auditor and we'll release those as soon as they're available.
And that's kind of a standalone financials tracked closely with management's expectations with total revenue of $78 3 million compared to $81 7 billion and first quarter of 2020, adjusted EBITDA declined 14, 1% to $27 5 million and the margin contracted 400 basis points as mixed paper and sales.
Our rental revenue.
Net loss was 27 9 million compared with $16 million and the first quarter of 2020, the $27 9 million loss includes $10 4 billion and transaction related expenses as well as a noncash charge of $7 6 million related to privately placed warrants stemming from <unk> 2019 merger with.
Capital investment Corp for <unk>.
Equipment rental and sales revenue declined one 6% to $62 7 million U S. Rental revenue was down four 9% to $44 7 million.
At $499 7 million, but we see on rent was in line with the 2020, we see on rent. However, we see on rent yield was down primarily as a result of mix as 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 yields we did see rate growth at the product category level during the quarter.
All good sales were up seven 9% from 2020 at $18 million as a result of strong demand for equipment purchases, given the limited supply and the market and an upward demand trajectory.
The parts tools and accessories business saw a revenue decline of 13, 5% to $15 6 million a decline and PTA was driven by a decline and the truck utilities up fitting business due to a focus on rental fleet maintenance, but partially offset by year on year growth and the core parts tools and accessories.
Gross profit decreased five 5% to $22 million. This year, primarily as a result of deferred repair and maintenance costs carrying over from the COVID-19 slowdown in 2020 cash.
SG&A remained just below 2020 levels at 11 3 million.
Debt refinancing that took place concurrent with the acquisition on April one resulted in a much stronger balance sheet for custom truck and legacy <unk> 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 and a weighted interest rate on debt from seven 7% to four 4% post merger.
As Ryan said, we will continue to maintain a disciplined focus on managing cash and we will seek to deleverage the business through a combination of cash generation and EBITDA growth.
Sure, Fred and Ryan's excitement and optimism for the newly combined custom truck one source. The merger has put us in a unique position to benefit from favorable end market demand trends and secular growth drivers and 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.
Certainly we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone and acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we.
We will pause for a moment as callers join the queue.
The first question is from is from Scott Schneeberger from Oppenheimer. Please go ahead.
Thank you very much good afternoon, and one four for my first question.
I'd like to assets and it sounds like from from your comments are nice momentum from from March into April and now and May.
Just curious if you could delve into and end markets, a little bit and what youre seeing maybe kind of.
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 parts of this question.
Given that there was a little mixed dynamic between transmission and distribution in the quarter for Nasco. If you can just speak to the trends youre seeing.
Those two vis vis each other.
As far as we're moving into the second quarter and looking to be out today and today. It's in the summer season. Thank you.
Sure. Thanks, 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.
And I'd highlight maybe a couple of numbers.
And that we previously mentioned, but.
Utilization for the quarter was just over 78% and.
And as we said finished north of 82% at the end of March and we're seeing that trend continue and.
Q2, and I think Scott you are.
Your question is right because I think it highlights really strong demand and 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, what 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.
And then I would highlight telecom also Scott we're seeing five G is now materializing. So we're seeing good demand for rental equipment, there and we're seeing a lot of request to purchase equipment also and then.
And 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 would say is we are looking at backlog on some of our specialty vocational equipment in particular, we're seeing a lot of demand there also.
Excellent. Thanks, Yes, I did hear the commentary on the utilization sounds good I asked I heard you speak that it sounds like all asset classes.
And regardless of size or absolute level of rental are seeing rates improve so that's good to hear and.
And and 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 yes.
You guys gave me discuss cost synergies I think it would be early to see activity there, but you reiterated what you expect and this year next year sounds good revenue synergies it sounds like Youre getting started and maybe even seeing some initial progress there. So long if you could elaborate a little bit more on maybe.
Maybe the PTA business with constant and truck customers custom truck equipment sales with nasco customers is there anything you could elaborate and there would be great. Thank you.
Sure Yes.
I'd Echo your comment on the cost side and 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.
And then yes, we're seeing early wins on the revenue side also Scott. So we've seen some really quick wins of selling whole goods to some of them.
Some of <unk> legacy customers and then we've also seen good cross selling into the PTA equipment. So so we're happy with the progress on both of those initiatives and we are seeing.
And we already have some wins on the board on both sides, which we feel really good about 45 days and two into the integration.
Great glad to hear that I'm, just going to sneak one more and here and it's on the integration.
There are a lot of systems that need to be combined the ERP the rental system.
So and that CRM.
If you could give us an update on how that's going.
Any issues you may be see a rising or is it seamless and you're tracking well and on plan on that front. Thank you.
Yeah, Scott this is Brad.
We are we are tracking on plan or ahead of plan.
And kind of middle of the rollout from the legacy custom sites and it's going incredibly smooth.
We have a lot of credit to our it and back office teams and making that work and really across the organization.
And starting to develop the plans to bring and the nasco team, we should have kind of their rental ops and our rental system and a next couple of months and and 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.
Excellent I appreciate that thanks, I'll turn it over.
The next question is from Stefan ask Chris <unk> from CJS Securities. Please go ahead.
Hi, Thanks for taking my question and.
First and you touched on rental rates a little bit could you go into a little more detail, there and and you expect those to trend going forward.
Yes, we did see.
On a combined free basis rate growth and 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.
And that rate going 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 the same thing. So we expect to see that continue through through Q2.
And as given kind of the demand and supply dynamic that exists right now.
Great. Thanks, and then in terms of Capex could you maybe go over Capex goes over the next two years and then also how much capex is dedicated towards the PTA segment.
The I'll say from a from our core rental.
Well, we have talked about before and during the proxy and kind of pretty close was a fleet maintenance net maintenance capex number of $50 million to $70 million.
Dictated by customer buyout.
And we are defining that as the OE C. 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 will look to and 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.
And now.
From a from a PTA segment.
The investment on rental there.
It's probably going to be in the.
And the low millions.
Range, consistent with where it has been in the past and fill something.
And as a team and we're bringing together and we think about the integration because we see a lot of upside right from a from TCA and the bringing that to the custom truck group rate is certainly going to change that investment need and we're still evaluating that right now.
Great. Thanks for taking my questions I'll jump back.
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.
Thank you well this concludes our call today, thanks, everyone for the interest and custom truck. We look forward to speaking with you on our next quarterly earnings call and in the meantime, please don't hesitate to reach out with any questions. Thank you again disconnect.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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