Q2 2021 Custom Truck One Source Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to custom truck, one first and second quarter 2021 earnings conference 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 you have a question. Please press. The one followed by the four on your telephone if at any time during the conference you need to reach an operator, Please press star zero.
Please note. This conference call is being recorded and management will be the French by 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, Bryan Erman, Vice President of Investor Relations for custom shop.
Thank you and good afternoon before we begin I'd 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 on certain and outside the company's control.
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.
You should refer to the risk factors section of the company's filings with the SEC.
Italy. Please note you can find reconciliations of the historical non-GAAP financial measures discussed during the call.
This 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 10-Q T SEC on Monday August 16th.
Today's discussion of our results of operations for Q2.2021 for question one sourcing accustomed truck is presented on a historical basis as of for the three months ended June 32021 prior periods.
While our reported results can only include custom truck one source over the period since the merger date April 1st we are presented with.
Today combined results as if nasco with custom truck operators 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 Mcmonagle, President and COO and Brad meters CFO.
I'll now turn the call over to Fred.
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 in Mexico.
Be happy with the 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.
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 demonstrates the continued strength of our Cushing strategically selected end markets compared to the second quarter last year.
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 89% versus June of 2019.
Rental continues to perform very well with utilization of 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 the existing high levels of utilization, we need to continue to grow our fleet to meet current strong rental demand.
While our scale of supplier relationships afford us excellent access to the Japanese attachments and other items, we need to manufacture our trups and grow our fleet.
Our ability to.
Our ability to fully take advantage of current levels level demand is being somewhat limited barge supply chain availability, we're working closely with our suppliers and are hopeful that any issue 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, Mexico integration at which 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 enjoys very strong tailwind 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' needs.
Rental and sales domains provides them, providing us with the maximum opportunity to capture customer share of wallet that achieved very strong returns on capital.
In addition, the model provides excellent flexibility downside protection when market shifts the combination of custom truck industrial has provided us with multiple avenues to capture both revenue and cost synergies, which have already started.
Monotype, we've already started to monetize we.
We have spent this last quarter the first.
First since the transaction closed closely examining both businesses, which is uncover new opportunities for growth as well as highlighting parts of the business that we can further enhance the combined businesses also provides additional scale, making <unk> 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.
Coast to coast network of 35 branches allows us to have a very flexible rental fleet can provide continuous and consistent service of our customers.
And finally, we continue to maintain a very strong balance sheet and generate strong cash flows providing us the resources to invest in just two 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.
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 in ESCO 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 before primary end markets that we focus on transmission and distribution or T&D Telecom rail infrastructure, we intentionally focus on these markets because they provide strong long term growth.
Entities and are far less cyclical than other truck related end markets such as freight.
N 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 to 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 tea.
N D contractors, which are our key customer base for us.
Telecom and specifically <unk> 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 months to 18 months, while this market only accounts for about 6% of our revenue year to date many of our existing PND related contractor customers are the ones who.
I expect it to deliver the rollout and 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 existing rail infrastructure is quite aged and in need of constant maintenance and such.
Such required maintenance work is not heavily correlated to flux 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 in sitting in traffic caused by a major road and bridge maintenance work.
Several airports are in various stages of significant expansion of 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 one trillion dollar infrastructure Bill approved by the Senate and 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 has 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 five highlights meaningful opportunities to grow market share and expand rural 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 or revenue growth in Q2 clearly indicates.
We are growing that share, but we are still in the early stages. We also believe the continued shift towards rental Israel.
Increased rental penetration is being driven by two key factors first T. N V 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 then I owe us.
Is 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.
Yeah.
Turning to slide six our one stop shop business model is designed to maximize our unit economics and share of customer wallet or.
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 mark up that would be applied by a third party and instead capture that incremental profit ourselves in.
In addition, we are more efficient in the assembly are outfitting process than the Oems would be attachment.
Efficiency plus the cost advantage, we have from purchasing in 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.
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.
Hansen, our stickiness with customers provides greater opportunity to deliver aftermarket parts and service and.
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 life cycle, 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.
Currently have 35 branches, most of which have full service and parts capabilities. In addition, we have more than 80 mobile tax who can be deployed to address in field service needs.
Those service capabilities are supported by a best in class 24, seven call Center staff by certified technicians. The call Center allows us to respond immediately to our customers 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 in 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, we will provide an excellent foundation from which to expand our aftermarket parts and service platform.
Turning to slide eight the integration of custom trucking nasco 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've 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 dollar annual synergy target to be accomplished over a 24 month time period.
I'm 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.
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 seat hospital will report the business under three segments equipment rental solutions or E. R. S truck and equipment sales or T E S.
And aftermarket parts and service or a P. S. 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 <unk> 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 E. R. S will be consistent with those included in our recent filings, which are utilization, what we see on rent and on rent yield four O R y.
The T S 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 buyers order or similar formal documentation.
Our final segment a P. S will capture most of the legacy nasco parts tools and accessories business and the legacy custom truck parts and service activities.
Slide 10 presents the revenue and gross profit results from the E. R. S business for Q2.2021.
On a combined basis for Q2, 'twenty 'twenty 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 map 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 that skillfully.
Those costs and the challenge condition of the legacy Nasco fleet was greater than we initially expected.
Well, 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 cost 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.
What we see on rent was also up $128 million over the same period.
The limited growth in OE C on rent relative to the improvement in utilization as a function of the overall fleet size.
Demand for additional rental equipment remained 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.
<unk> 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 and product categories, primarily focused on the rental.
We're working closely with our suppliers to ensure sufficient supply to allow us to meet more customer demand for rental equipment.
On rate yield was 38% for the quarter flat compared to last year. This is an area where.
Where we see real opportunity for growth during Q2, we implemented a new tiered pricing strategy, which has already started to yield positive results.
Tween 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 turnover, but we are excited about the long term opportunities with this strategy.
Slide 11 summarizes our T E S performance, which has been strong.
Revenues were up 56% in the quarter, while still growing backlog of 169% versus last year and 89% relative to Q2.2019, a good pre COVID-19 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 cost, 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 pass through to our customers.
Overall, we couldn't be happier with the performance of the T S business.
Turning to slide 12, our Aps business posted revenue of $32.3 million.
<unk> to $34.6 million last year.
Aps growth has been lower than the other segments for two reasons first the technician supporting the legacy tough 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.
The legacy Nasco PTA business has not performed up to our expectations.
As Fred noted earlier, we have spent the month since the transaction closed diving deep into the legacy nasco businesses and identifying some areas that need additional attention.
E T. A 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.
<unk>, 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.
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 with so many mines $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 <unk> 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 in our 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.
Brian 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 mesko merger.
Slide 14 details the bridge from net income to adjusted EBITDA and highlight certain charges, we've taken to fix the balance sheet 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 Mexico, former debt structure $24.6 million of transaction in process improvement cost 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 noncash stock compensation change in fair value of derivatives and warrants and the impact of sales type lease accounting on a portion of our rental business.
All of the adjustments are consistent with the requirements under our credit agreement.
As part of our deep dive into the combined business. During Q2, we felt it was appropriate to increase some of our a R and inventory reserves, which totaled $4.7 million and $3 million respectively.
They are reserves, primarily related to balances owed to us in connection with the rental assets that were sent to Puerto Rico in 2018.
Support the rebuild effort after hurricane Maria.
Well, 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.
Turning to slide 15, the strong financial performance was not limited to revenue and adjusted EBITDA, We continue to strengthen our liquidity position and improved leverage while at the same time investing in our 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.
We do expect available liquidity to decline somewhat over the balance of the year as we make demand driven investments in our rental fleet.
As discussed previously our clothing or our leverage was right around three nine times when you reflect the full $50 million expected synergies using.
Using our updated $55 million synergy assumption our leverage at the end of Q2 improved to three seven 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 that capex is $30 million a quarter.
We do expect the pace of Capex to increase in the balance of the year as the summer seasonal slowdown 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 FY 'twenty one revenue to finish between 125 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.
Adjusted EBIT in a range would represent growth of 8% to 15% versus combined 2020 and in place saw implies solid second half growth compared to the first half of 2020 one.
In closing I want to Echo Fred and Ryan's comments regarding the exceptional performance our team delivered well in managing through the integration and effectively navigating the many challenges that have impacted our suppliers and customers alike.
We've built a great foundation to profitably grow the business and with a powerful tailwind 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.
Thank you so to register a question press. The one followed by the four on your keypad, you'll hear three tone prompt that acknowledges your request for your question has been answered and you would like to withdraw your registration press. The one followed by the three so again for questions. It's one four on your keypad and one moment.
For the first question.
First question is from Scott Schneeberger with Oppenheimer. Please go ahead.
Thank you and good afternoon, everyone.
I guess.
First question it 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 what you saw on rental and and and and drivers behind that thank you.
Sure Yeah, Scott good to talk to you I'd say in rental rental specifically from Q1 to Q2, we are continuing to see really good demand and and all four of the industry's utility in particular is staying very strong so distribution has been.
It's been very strong our utilization and distribution has been very high and where we're placing every asset that we can receive.
It is where where if we were able to have more supply of product, we wouldn't 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 the summer.
But we're coming out of that we're coming out of that now so and then rail has been strong and telecom has been strong too a lot of new demand for our telecom rental requests right now. So overall all the end markets have been have been very good.
Yeah.
Okay. Thanks, and you know obviously robust sales activity could you just speak about what you're seeing.
You know what type of contribution you feel like you can go in the back half of Europe. Thank you.
Yeah, I think we will see a we think we'll see good growth in the back half of the year from a 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 and in Q2 and in the first half of the year I think we're comfortable there I do think our limit.
Her on sales growth in the back half of the year, there will be supply chain.
And so I do think that it will be tempered a bit I, just still think we'll be able to you know 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. He you know here sitting sitting in early August.
With with the with sales for the second half of the year as well.
Okay. Thanks on that and then I'm parts towards accessories, or I'm, sorry, the new name aftermarket parts and service.
It sounds like you have a lot of reconfiguring going on there could you just take all that will take us a level deeper on where you see that efficiency and what you are doing to improve that.
Sure Yeah, No I think Scott, we feel great feel great about the opportunity and the customer the customer demand for aftermarket parts and services.
So certainly feel good there.
I think we are we.
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 screening business on the rental side and things like kit sales were now aligning much closer with the truck sales organization. So that so the so the <unk>.
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 a 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 haven't had 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.
It sounds good yeah. It sounds like it will take some time, though is just to get it sounds like an integration.
Issue with the organization he's getting everyone.
<unk> kind of a wine.
Using that as a segue.
Nice to see the synergies increase could you talk about where what's behind that what were the.
The drivers who are to increase the outlook there. Thanks.
Sure I'd say when we when we talked to you back in December and Yeah, 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 or 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.
<unk> has been significant we found a lot of opportunity to take the best of both companies and in an integrated across the entire fleet and then production optimization was a lot around labor.
Labor efficiency as we think about how we build trucks now of 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 So I'm focusing on the legacy seacoast parts business and the legacy Nasco PTA business I think we see a.
A lot of procurement opportunity that will which will take time, obviously the to work through.
But.
Is the reason that we feel even more confident from us from the overall cost synergy standpoint.
Yes.
Okay. Thanks, and then just a couple more from me.
So the guidance on EBITDA it seems.
Implies.
Step up in EBITDA and I just was curious.
Cause somewhat of a seasonality question and a a N.
And a segment question, but could you speak to the magnitude of the sequential EBITDA growth third quarter to fourth quarter.
And just what what what we should expect to see from this segment.
Maybe it's acquaints to be two to three years to fourth quarter in in in the in this kind of bridging. This this guidance for the remainder of the year. Thank you.
Yeah. Scott this is Brad good to speak with you.
I kind of break down in terms of full detail, but I'd say consistent with historical results ready to go back to like we did in Q4 of last year in Q4 is our strongest quarter by far we you know our expectation is one we'll have more investment in our fleet running through in Q3. So you get more of a full benefit in Q4 plus the December.
December seasonal spike in both new sales and rental asset buyouts.
It will happen and so I'd say that the balance is going to be more in Q4 than it is Q3.
Again, consistent with what 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 good movement right now on pricing.
It was 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, yeah, 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, we still think there is good.
New sales growth in the back half of the year relative to last year, I think it'll be at a slower pace than what we saw in Q1 simply because of the supply chain constraints that Ron had mentioned.
Okay understandable and lastly, I'd like to take it back up kind of a bigger picture and the the infrastructure Bill as it appears right now I think I heard.
Maybe the French sat at Orion.
$400 billion it seems that your end markets.
Could you just kind of delve into that a little bit more than that.
And I guess so.
It's worth who.
Few weeks I guess, that's still pretty uncertain, but when do you think you would.
Earlier, you did see benefits. Thank you.
Well this is Fred Fred Ross, So we actually are seeing part of it even pick up now.
With the with.
With the both the broadband and the telecom side really picking up.
We've got equipment coming in for them.
The rail side as has already started to pick up the.
I think for the most part.
The roads and bridges will be the bigger part of it and I think we'll see some some transmission.
That will start to happen, they're probably doesn't happen until the second quarter of next year, but there's a lot of things that were already in the works for work that will be picking up now that would be part of infrastructure regardless.
But I think the long term demand was was already in place for so many different things, but so for the most part of it.
With that 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 and therefore for that so I just think it just it just continues the tailwind for us.
<unk> continues our growth in both rental and sales.
The only other color to add on top of that Scott.
Scott and when you think about the as Ryan noted with the backlog that exist today for T&D, which is a decent portion of what's an infrastructure bill is already quite healthy. So you know, adding adding more fuel to that is going to take the time to make its way through because again the additional resources that are needed permitting and getting the crews getting the equipment all of that is 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 investing a lot of dollars question, just kidding can our customers and those that were actually going to build and drive that where can they get their hands on the resources.
To do it and which is fine for us because it just extend out the the runway and the tailwind that we're already seeing right now.
Understood Great all right guys. Thanks, I'll turn it over.
Thanks, Scott Thanks, Scott.
So again two questions one for on your keypad.
Next question is from Stefanos Crist with CJS Securities. Please go ahead.
Hey, Thanks for taking my questions.
It's.
First you called out some supply chain issues in getting new equipment and.
And it seems like it would be harder to.
Increase your rental fleet. So can you just talk about you know your decision.
Selling versus renting equipment.
How you're going be able to grow the fleet with the supply chain issues that you called out.
Sure Yeah, I would 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 demand for equipment has been strong across the board whether its utility.
Or some of our telecom product a rail product, but 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 havent received what we expected.
No. That's that's some of the impact that you've seen that.
From a rental standpoint, we do think thats, improving as we think about the second half of the year.
We do expect to receive more utility equipment, which will be able to put into the rental fleet.
As it makes sense, but again, taking a one stop shop, we've always said, we want to make sure we respond to the customer and the way they want to consume the equipment and that has 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 acceptance.
Got it thank you.
And then you know we've seen issues and labor are.
Are you seeing anything in your main customers.
Anything you are concerned about there.
Okay.
No not really.
So the.
Our labor itself, we're not having any trouble building equipment.
Our customers are 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 with the crews. So that tells us that they can get their labor and just to back up with running said I believe that our supply chain is there's a there's going to be.
Finally for the fourth quarter and into the.
And into 'twenty, two I feel good with where we're going to be on the utility side.
Really good.
Yeah.
Alright, Thank you for taking my questions.
Thanks, Kevin.
And again for questions. It's one four.
Okay.
Yeah, we have nothing further from the.
Yeah.
Well.
This concludes our call for today.
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.
And that does conclude our call for today, we thank everyone for participating and you may now disconnect.
Okay.
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