Custom Truck One Source, Inc. — Filing Summary
Entity identification: The supplied filing is a Form 10-Q for Nesco Holdings, Inc. (NYSE: NSCO), not a filing under the name Custom Truck One Source, Inc. The filing covers the quarter and six months ended June 30, 2020; amounts below are in millions unless otherwise stated.
Business context and reporting period
Nesco provides specialty equipment rentals, equipment sales, parts, tools, and services to electric utility, telecommunications, rail, and other infrastructure markets in North America. Its reportable segments are Equipment Rental and Sales (ERS) and Parts, Tools, and Accessories (PTA). Results include Truck Utilities, acquired in November 2019.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $68.5 | $62.9 | $150.2 | $124.3 |
| Gross profit / margin | $16.3 / 23.9% | $20.6 / 32.8% | $37.7 / 25.1% | $41.0 / 33.0% |
| Operating income | $2.5 | $9.8 | $9.3 | $18.5 |
| Net loss | $(13.2) | $(5.4) | $(29.1) | $(12.1) |
| Adjusted EBITDA | $26.2 | $30.5 | $58.2 | $60.9 |
| Operating cash flow | Not separately stated | Not separately stated | $19.7 | $5.2 |
- Q2 revenue rose 9.0%, while first-half revenue rose 20.8%. Q2 rental revenue declined 2.4%; parts and services grew 87.5%, primarily reflecting Truck Utilities and expanded PTA operations.
- Q2 utilization fell to 71.3% from 80.2%, while average equipment on rent decreased 0.8% to $461.1 million. Average rental rate per day was broadly unchanged at $136.71. Management attributed weaker rental demand mainly to COVID-related project delays.
- First-half operating cash flow improved to $19.7 million, primarily from working-capital management. Investing cash outflow was $35.2 million, including $55.4 million of rental-fleet purchases and $19.0 million of proceeds from equipment and parts sales. Cash declined $1.0 million to $5.3 million.
- At June 30, 2020, gross debt was $746.8 million, including $268.5 million drawn on the revolving credit facility and $475.0 million of 10% senior secured notes due 2024. The filing reports $78.3 million of revolver availability, subject to a borrowing base. Net debt after deferred financing fees was $734.1 million. Capital lease obligations were approximately $24.4 million.
Material changes and unusual items
- Gross margin contracted substantially year over year as costs and depreciation rose faster than revenue; operating expenses also increased, including from organizational expansion and public-company costs.
- Interest expense increased, and an undesignated interest-rate collar generated $6.8 million of first-half fair-value expense. Its balance-sheet liability rose to $8.5 million from $1.7 million at year-end 2019.
- The CARES Act produced income tax benefits of $1.1 million for Q2 and $0.3 million for the first half, related to recovery of taxes paid in prior years.
- During Q2, the company changed the valuation method for parts, tools, and accessories inventory from FIFO to moving average; it stated the effect was not material and did not restate prior periods. The Truck Utilities purchase-price allocation remained preliminary, with completion expected in Q3 2020.
- Goodwill and indefinite-lived intangibles were assessed and found not impaired in Q1; management identified no Q2 triggering event requiring another impairment test.
Outlook, risks, and contingencies
The filing gives no numerical revenue or earnings guidance. Management said liquidity and operating cash flows were expected to meet operating, debt-service, and capital needs for the next 12 months, while continuing to monitor COVID-19. The company reduced planned capital spending and working capital and made limited headcount reductions, while retaining selective investment in fleet, systems, and personnel. Management noted that customers continued to delay projects and defer capital purchases; prolonged weakness could increase impairment or reserve risk. It also cited cyclical demand, access to credit, customer project activity, interest rates, equipment supply and costs, acquisition integration, and regulatory and safety matters as risks. The company reported compliance with debt covenants at June 30, 2020; ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Confirm the issuer: this filing names Nesco Holdings, Inc. (NSCO), whereas the request identifies Custom Truck One Source, Inc.
- Review the effect of COVID-19 on utilization, rental revenue, customer project timing, and planned capital expenditures.
- Assess debt-service capacity, revolver availability and borrowing-base conditions, and the 10% coupon on the 2024 notes.
- Examine the quality and sustainability of operating cash flow, including working-capital movements, fleet investment, and used-equipment sale proceeds.
- Verify final Truck Utilities purchase accounting and monitor the interest-rate collar’s valuation and earnings impact.