Business context and reporting period
Custom Truck One Source, Inc. (then Nesco Holdings, Inc.) reported standalone results for the three months ended March 31, 2021; the Custom Truck One Source, L.P. acquisition closed April 1, 2021, so the acquired business is not included in Q1 operating results. The business provides specialty equipment rentals and sales, parts, tools, accessories, and related services for infrastructure markets.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $78.3 million | $81.7 million |
| Gross profit; margin | $20.2 million; 25.8% | $21.4 million; 26.2% |
| Operating income (loss) | ($3.1) million | $6.8 million |
| Net loss; diluted loss per share | ($27.9) million; ($0.57) | ($16.0) million; ($0.33) |
| Adjusted EBITDA (non-GAAP) | $27.5 million | $32.1 million |
| Operating cash flow | ($12.1) million | ($2.8) million |
| Cash at quarter-end | $3.2 million | $3.4 million at Dec. 31, 2020 |
| Debt outstanding, before deferred fees | $737.2 million | $728.4 million at Dec. 31, 2020 |
Capital lease obligations were approximately $9.6 million at March 31. Total assets were $750.2 million and stockholders’ deficit was $68.7 million. Investing cash flow was positive $4.0 million and financing cash flow was positive $7.9 million. Fleet utilization was 78.5% versus 77.3%; average OEC on rent was approximately $499.7 million in both periods; annualized OEC on rent yield was 35.0% versus 36.5%.
Material changes versus the prior comparable period
- Revenue declined 4.2%. Rental revenue fell 5.3%, parts and services revenue fell 14.6%, while sales of rental equipment rose 15.3% as the company selectively sold older and underutilized fleet equipment.
- Gross profit declined $1.2 million and margin contracted 0.4 percentage points. Adjusted EBITDA fell 14.1%, primarily reflecting lower rental yield, a slower ramp in transmission projects, a greater equipment-sales mix, and reduced PTA servicing volume.
- Net loss widened by $11.9 million. Q1 2021 included approximately $10.4 million of acquisition-related transaction costs and a $7.6 million non-cash charge from remeasuring private warrants.
- Operating cash use increased, partly because of acquisition-related costs and working-capital movements. Lower rental-equipment purchases and higher equipment-sale proceeds contributed to the improvement in investing cash flow.
Outlook, risks, contingencies, and unusual items
No formal earnings or revenue guidance is provided. Management described demand as recovering from COVID-related project delays, with customers reporting substantial project backlogs and rescheduling delayed work. It cautioned that pandemic effects remain difficult to predict and expected service costs to rise through Q2 2021 as deferred fleet repairs are completed.
The April 1 acquisition had an estimated preliminary purchase price of $1.5 billion, subject to valuation adjustments. The transaction issued 176.6 million shares at $5.00 each, and the company reported 245.9 million shares outstanding after closing. Platinum became the majority shareholder. Management expects approximately $50 million of cost synergies within two years and estimates approximately $50 million of integration and restructuring costs, including $40 million in the first two years; realization is uncertain.
At closing, the company issued $920 million of 5.50% senior secured notes due 2029 and entered a $750 million asset-based revolving facility. It redeemed its prior $475 million 2024 notes and paid a $38.5 million make-whole premium. The filing’s pro forma debt estimate was $1.377 billion, excluding approximately $360.7 million of floorplan financing. The ABL facility has floating rates, borrowing-base limits, restrictive covenants, and a springing fixed-charge coverage test when availability falls below specified thresholds.
Other risks include integration execution, leverage and variable-rate exposure, equipment and supplier availability, and continued pandemic effects. Management said an IRS federal excise tax assessment of $2.4 million is under appeal and does not consider a loss probable. Management reported no material litigation matters. The company identified an immaterial prior-period warrant accounting error; the correction reclassified $10.3 million from additional paid-in capital to liabilities, and management concluded the prior-period and current-period effects were not material.
Important facts for investors to verify
- Post-acquisition purchase-price allocation, final acquired assets and liabilities, and the resulting consolidated leverage and interest burden.
- Actual ABL borrowings, borrowing-base availability, covenant headroom, and exposure to changing floating interest rates.
- Whether management achieves the projected $50 million synergies and the timing and total cost of integration.
- Whether rental demand, fleet yield, PTA service volumes, and deferred maintenance costs improve as management expects.
- Final resolution of the $2.4 million IRS assessment and any material acquisition-related contingencies.