Filing summary
Entity and period: This is Nesco Holdings, Inc.’s Form 10-K for the fiscal year ended December 31, 2020—not a filing by Custom Truck One Source. Custom Truck was the subject of a pending acquisition. Financial amounts below are in U.S. dollars.
Business context
Nesco rents and sells specialty equipment and provides parts, tools, accessories, repair and upfit services for electric utility transmission and distribution, telecom, rail and related markets. It reports two segments: Equipment Rental and Sales (ERS) and Parts, Tools and Accessories (PTA). At year-end, it reported a rental fleet of more than 4,500 units, over 60 locations including third-party facilities, and more than 2,000 customers. Electric utility T&D accounted for 75.8% of 2020 revenue.
Financial performance
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $302.7 million | $264.0 million |
| Gross profit / margin | $76.4 million / 25.3% | $86.5 million / 32.8% |
| Operating income | $17.2 million | $36.0 million |
| Net loss | $21.3 million; $(0.43) per share | $27.1 million; $(0.82) per share |
| Adjusted EBITDA | $118.6 million | $127.5 million |
| Cash from operating activities | $42.8 million | $18.8 million |
Revenue rose 14.7%, but rental revenue declined 1.3% to $195.5 million. Growth came mainly from higher rental-equipment and new-equipment sales and PTA parts and services, including the contribution from the 2019 Truck Utilities acquisition. Sales and services became a larger share of revenue, while their lower gross-profit contribution, lower rental utilization and higher expenses weighed on margins and Adjusted EBITDA.
Fleet utilization fell to 74.6% from 84.7%; average original equipment cost (OEC) on rent was nearly flat at $482.0 million versus $479.0 million; OEC on rent yield declined to 36.0% from 36.9%. Management attributed utilization weakness principally to COVID-related project delays and the larger fleet added in 2019. ERS gross profit declined to $58.6 million from $74.0 million; PTA gross profit increased to $17.8 million from $12.6 million.
Cash, debt and liquidity
Year-end cash was $3.4 million, down from $6.3 million. Net cash used in investing was $29.3 million, compared with $129.7 million in 2019; rental-fleet equipment purchases were $67.5 million. Cash from operations improved, supported in part by working-capital movements. The filing does not present a defined free-cash-flow measure.
Debt outstanding was approximately $728.4 million before deferred financing costs: $251.0 million under the asset-based revolving facility, $475.0 million of 10% second-lien notes due 2024, and $2.4 million of other notes payable. Capital-lease obligations were approximately $10.5 million. Revolver commitments were $385 million, with reported remaining availability of approximately $90–94 million, subject to the borrowing base; $1.4 million of letters of credit was outstanding. The company said it was in compliance with its debt covenants at year-end. The 10% notes and variable-rate revolver create significant interest and refinancing exposure.
Material changes, outlook and risks
- COVID-19: Project delays began in the second quarter, with an uneven recovery from late summer and further temporary delays in November and December. Management said customer backlogs remained strong and delayed projects were being rescheduled, but cautioned that the outlook remained uncertain. The company reduced capital spending, working capital and headcount in response, then reported increased service costs in the fourth quarter as it prepared equipment for renewed demand.
- Tax benefit: The 2020 net loss included a $30.1 million income-tax benefit, largely reflecting reductions in deferred-tax valuation allowances following reassessment of tax rules and the CARES Act. The company reported federal and state net operating loss carryforwards of approximately $363.0 million and $223.2 million, respectively. Realization of deferred tax assets remains dependent on future taxable income and other factors.
- Custom Truck transaction: In December 2020, Nesco agreed to acquire Custom Truck for a base purchase price of $1.475 billion, subject to adjustments. The transaction was still pending in the filing. The proposed financing included a new ABL facility of up to $750 million, approximately $1.0 billion of senior secured notes or bridge financing, a $700–763 million Platinum equity subscription, supplemental equity financing and 20 million shares issued to certain sellers. Shareholder approval was obtained February 18, 2021; completion and final financing terms were not established in this 10-K. Management expected greater scale and liquidity, while warning of integration, execution, financing, dilution and closing risks.
- Other risks and items: Demand is cyclical and exposed to pandemic effects, infrastructure spending delays, competition, equipment costs and supplier constraints. The business also faces used-equipment residual-value, customer credit, cybersecurity, environmental, litigation and high-debt risks. A change in the inventory costing method from FIFO to moving average was made in 2020; the company said the prior-period effect was not material. The interest-rate collar generated $5.3 million of 2020 expense from changes in fair value.
No numerical 2021 earnings or revenue guidance is provided in the supplied filing text. Management described positioning for long-term growth while maintaining liquidity amid continuing uncertainty. The financial statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not provide an internal-control attestation.
Key facts for investors to verify
- Whether and when the Custom Truck acquisition closed, its final purchase price and financing, and the resulting debt, liquidity and share dilution.
- Whether utilization and rental demand recovered from 2020 levels, and the effect on rental revenue, margins and fleet investment needs.
- How much of the reported operating cash-flow improvement was recurring versus working-capital or tax-related, and the cash required for fleet maintenance and growth.
- Whether deferred tax assets and net operating loss carryforwards are realizable, and whether future results include further valuation-allowance adjustments.
- Current revolver availability, covenant headroom, interest costs and the company’s ability to refinance or service its debt.