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Custom Truck One Source, Inc. Reports Record Results for the Fourth-Quarter and Full-Year 2022

Custom Truck One Source, Inc. (NYSE: CTOS), a leading provider of specialty equipment to the electric utility, telecom, rail, and other infrastructure-related end markets, today reported financial results for the fourth quarter and full year ended December 31, 2022.

CTOS Fourth-Quarter and Full-Year Highlights

  • Total quarterly revenue of $486.7 million and annual revenue of $1,573.1 million, driven primarily by growth and continued strong demand from our end markets
  • Quarterly gross profit improvement of $50.4 million, or 64.7%, to $128.3 million compared to $77.9 million for fourth quarter 2021
  • Full-year gross profit of $383.7 million
  • Adjusted gross profit increased 36.6% to $169.1 million compared to $123.8 million for fourth quarter 2021
  • Quarterly net income of $30.9 million, driven by gross profit growth of $50.4 million, compared to a net loss of $3.7 million in fourth quarter 2021
  • Quarterly Adjusted EBITDA of $124.5 million compared to $95.6 million in the fourth quarter 2021
  • Full-year net income of $38.9 million
  • Full-year Adjusted EBITDA of $393.0 million, an increase of $69.9 million, or 21.6%, compared to 2021 full-year pro forma Adjusted EBITDA of $323.1 million
  • Reduced net leverage from 3.8x at the end of the third quarter of 2022 to 3.5x at the end of the year
  • Announced appointment of Ryan McMonagle as Chief Executive Officer, effective March 20, 2023. Fred Ross is retiring as Chief Executive Officer and has agreed to remain with the Company as Founder and will continue to serve as a member of the Board

“Our fourth quarter results concluded an incredibly strong year despite supply chain constraints and inflationary pressures that we experienced throughout 2022. Our entire team was instrumental in delivering these results and achieving record levels of vehicle production, completing more vehicles in 2022 than in any other year in our history,” said Fred Ross, Chief Executive Officer of CTOS. “We continue to see very strong demand from customers across all our primary end-markets and in all three of our business segments. The demand environment combined with our expectation of continued improvement in the supply chain, as well as a sustained level of vehicle production are reflected in our positive outlook for 2023. We continue to believe that our significant scale and one-stop-shop business model provide us with a competitive advantage that allows us to deliver unparalleled service to our customers,” Ross added.

Summary Actual Financial Results

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s)

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

Rental revenue

$

127,829

 

$

114,131

 

 

$

464,039

 

$

370,067

 

 

$

115,010

 

Equipment sales

 

325,746

 

 

212,509

 

 

 

982,341

 

 

695,334

 

 

 

210,903

 

Parts sales and services

 

33,149

 

 

29,799

 

 

 

126,706

 

 

101,753

 

 

 

31,867

 

Total revenue

 

486,724

 

 

356,439

 

 

 

1,573,086

 

 

1,167,154

 

 

 

357,780

 

Gross profit

$

128,325

 

$

77,852

 

 

$

383,748

 

$

210,013

 

 

$

88,172

 

Net income (loss)

$

30,937

 

$

(3,713

)

 

$

38,905

 

$

(181,501

)

 

$

(2,382

)

Adjusted EBITDA1

$

124,484

 

$

95,589

 

 

$

392,978

 

$

277,784

 

 

$

91,634

 

1 - Adjusted EBITDA is a non-GAAP financial measure. Further information and reconciliations for our non-GAAP measures to the most directly comparable financial measure under United States generally accepted accounting principles in the U.S. (“GAAP”) is included at the end of this press release.

Summary Pro Forma Financial Results1

The summary combined financial data below for the three and twelve months ended December 31, 2021 is presented on a pro forma basis to give effect to the following as if they occurred on January 1, 2020: (i) the acquisition of Custom Truck LP (the “Acquisition”) and related impacts of purchase accounting, (ii) borrowings under the new debt structure and (iii) repayment of previously existing debt of Nesco Holdings and Custom Truck LP.

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

(in $000s)

2022

Actual

 

2021

Pro Forma (1)

 

2022

Actual

 

2021

Pro Forma (1)

Rental revenue

$

127,829

 

$

114,131

 

 

$

464,039

 

$

422,040

 

Equipment sales

 

325,746

 

 

212,509

 

 

 

982,341

 

 

941,289

 

Parts sales and services

 

33,149

 

 

29,799

 

 

 

126,706

 

 

120,296

 

Total revenue

 

486,724

 

 

356,439

 

 

 

1,573,086

 

 

1,483,625

 

Gross profit

$

128,325

 

$

79,236

 

 

$

383,748

 

$

278,418

 

Net income (loss)

$

30,937

 

$

(2,675

)

 

$

38,905

 

$

(90,521

)

Adjusted EBITDA2

$

124,484

 

$

95,589

 

 

$

392,978

 

$

323,118

 

1 - The above pro forma information is presented for the twelve months ended December 31, 2021, in accordance with Article 11 of Regulation S-X. The information presented gives effect to the following as if they occurred on January 1, 2020: (i) the Acquisition, (ii) borrowings under the senior secured notes and the asset-based credit facility used to repay certain debt in connection with the Acquisition, (iii) extinguishment of Custom Truck LP's prior credit facility and term loan borrowings assumed in the Acquisition and immediately repaid on April 1, 2021, and (iv) extinguishment of Nesco Holdings’ prior credit facility and its senior secured notes repaid in connection with the Acquisition. The pro forma information is not necessarily indicative of the Company’s results of operations had the Acquisition been completed on January 1, 2020, nor is it necessarily indicative of the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies, synergies, or revenue opportunities that could result from the Acquisition.

2 - Adjusted EBITDA is a non-GAAP financial measure. Further information and reconciliations for our non-GAAP measures to the most directly comparable financial measure under GAAP is included at the end of this press release.

Summary Actual Financial Results by Segment

Our results are reported for our three segments: Equipment Rental Solutions (“ERS”), Truck and Equipment Sales (“TES”) and Aftermarket Parts and Services (“APS”). ERS encompasses our core rental business, inclusive of sales of rental equipment to our customers. TES encompasses our specialized truck and equipment production and sales activities. APS encompasses sales and rentals of parts, tools and other supplies to our customers, as well as our aftermarket repair service operations. Segment performance is presented below for the three months ended December 31, 2022 and 2021 and September 30, 2022, and for the twelve months ended December 31, 2022 and 2021. Segment performance for the twelve months ended December 31, 2021, includes Custom Truck LP from April 1, 2021 to December 31, 2021.

Equipment Rental Solutions

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Rental revenue

$

123,429

 

$

109,622

 

$

449,108

 

$

354,557

 

$

112,009

Equipment sales

 

78,472

 

 

35,294

 

 

212,146

 

 

105,435

 

 

37,121

Total revenue

 

201,901

 

 

144,916

 

 

661,254

 

 

459,992

 

 

149,130

Cost of rental revenue

 

26,735

 

 

26,961

 

 

106,598

 

 

94,644

 

 

27,221

Cost of equipment sales

 

57,504

 

 

29,605

 

 

158,167

 

 

90,420

 

 

27,015

Depreciation of rental equipment

 

39,836

 

 

43,752

 

 

167,962

 

 

151,954

 

 

41,776

Total cost of revenue

 

124,075

 

 

100,318

 

 

432,727

 

 

337,018

 

 

96,012

Gross profit

$

77,826

 

$

44,598

 

$

228,527

 

$

122,974

 

$

53,118

Truck and Equipment Sales

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Equipment sales

$

247,274

 

$

177,215

 

$

770,195

 

$

589,899

 

$

173,782

Cost of equipment sales

 

202,887

 

 

153,844

 

 

647,685

 

 

528,024

 

 

146,573

Gross profit

$

44,387

 

$

23,371

 

$

122,510

 

$

61,875

 

$

27,209

Aftermarket Parts and Services

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Rental revenue

$

4,400

 

$

4,509

 

$

14,931

 

$

15,510

 

$

3,001

Parts and services revenue

 

33,149

 

 

29,799

 

 

126,706

 

 

101,753

 

 

31,867

Total revenue

 

37,549

 

 

34,308

 

 

141,637

 

 

117,263

 

 

34,868

Cost of revenue

 

30,470

 

 

22,243

 

 

105,185

 

 

86,943

 

 

26,187

Depreciation of rental equipment

 

967

 

 

2,182

 

 

3,741

 

 

5,156

 

 

836

Total cost of revenue

 

31,437

 

 

24,425

 

 

108,926

 

 

92,099

 

 

27,023

Gross profit

$

6,112

 

$

9,883

 

$

32,711

 

$

25,164

 

$

7,845

Summary Combined Operating Metrics

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022 Actual

(in $000s)

2022

Actual

 

2021

Pro Forma

 

2022

Actual

 

2021

Pro Forma

 

Ending OEC(a) (as of period end)

$

1,455,820

 

$

1,363,451

 

$

1,455,820

 

$

1,363,451

 

$

1,428,800

Average OEC on rent(b)

$

1,267,600

 

$

1,151,959

 

$

1,187,950

 

$

1,097,200

 

$

1,182,500

Fleet utilization(c)

 

86.3 %

 

 

83.7 %

 

 

83.9 %

 

 

81.2 %

 

 

83.8 %

OEC on rent yield(d)

 

39.5 %

 

 

39.4 %

 

 

39.1 %

 

 

38.0 %

 

 

38.5 %

Sales order backlog(e) (as of period end)

$

754,142

 

$

411,636

 

$

754,142

 

$

411,636

 

$

709,180

(a)

Ending OEC — original equipment cost (“OEC”) is the original equipment cost of units at a given point in time.

(b)

Average OEC on rent — Average OEC on rent is calculated as the weighted-average OEC on rent during the stated period.

(c)

Fleet utilization — total number of days the rental equipment was rented during a specified period of time divided by the total number of days available during the same period and weighted based on OEC.

(d)

OEC on rent yield (“ORY”) — a measure of return realized by our rental fleet during a 12-month period. ORY is calculated as rental revenue (excluding freight recovery and ancillary fees) during the stated period divided by the Average OEC on rent for the same period. For period less than 12 months, the ORY is adjusted to an annualized basis.

(e)

Sales order backlog — purchase orders received for customized and stock equipment. Sales order backlog should not be considered an accurate measure of future net sales.

Management Commentary

Total revenue in 2022 was characterized by strong year-over-year customer demand for equipment sales, rental equipment and for parts sales and service, with full-year revenue increasing 34.8%, including the full year impact of our business combination, to $1,573.1 million as compared to full-year revenue in 2021 of $1,167.2 million. Total revenue in 2022 increased 6.0% compared to 2021 pro forma revenue of $1,483.6 million. In the fourth quarter of 2022, total revenue was $486.7 million, an increase of 36.6% from the fourth quarter of 2021. Equipment sales increased 53.3% in the fourth quarter of 2022 to $325.7 million, compared to $212.5 million in the fourth quarter of 2021, as an improvement in supply chain challenges allowed for greater order fulfillments. Full-year 2022 equipment sales revenue improved 41.3%, including the full year impact of our business combination, to $982.3 million, compared to full-year 2021 in the equipment sales revenue of $695.3 million. Full-year equipment sales revenue improved 4.4% compared to 2021 pro forma equipment sales revenue of $941.3 million. Fourth quarter 2022 rental revenue increased 12.0% to $127.8 million, compared to $114.1 million in the fourth quarter of 2021, reflecting our continued expansion of our rental fleet, higher utilization and pricing gains. Full-year 2022 rental revenue improved 25.4%, including the full year impact of our business combination, to $464.0 million, compared to full-year 2021 in the rental revenue of $370.1 million. Full-year rental revenue improved 10.0% compared to 2021 pro forma revenue of $422.0 million. Parts sales and service revenue increased 11.1% in the fourth quarter of 2022 to $33.1 million, compared to $29.8 million in the fourth quarter of 2021. Full-year 2022 parts sales and service revenue improved 24.5%, including the full year impact of our business combination, to $126.7 million, compared to full-year 2021 parts sales and service revenue of $101.8 million. Full-year 2022 parts sales and service revenue improved 5.3% compared to 2021 pro forma revenue of $120.3 million.

In our ERS segment, rental revenue in the fourth quarter of 2022 was $123.4 million compared to $109.6 million in the fourth quarter of 2021, a 12.6% increase. Fleet utilization continued to increase, coming in at 86.3% compared to 83.7% in the fourth quarter of 2021. Gross profit in the segment in the fourth quarter of 2022 and 2021 was $77.8 million and $44.6 million, respectively, representing strong growth over the prior year period from both rentals and sales. Gross profit in the segment, excluding $39.8 million and $43.8 million of rental equipment depreciation in the fourth quarter of 2022 and 2021, respectively, was $117.7 million in the fourth quarter of 2022, compared to $88.4 million in the fourth quarter of 2021, representing strong growth over the prior year period from both rentals and sales. Gross profit from rentals, which excludes depreciation of rental equipment, improved to $96.7 million in the fourth quarter of 2022 compared to $82.7 million in the fourth quarter of 2021.

Revenue in our TES segment increased 39.6%, to $247.3 million in the fourth quarter of 2022, from $177.2 million in the fourth quarter of 2021, as an improvement in supply chain challenges allowed for greater order fulfillments. Gross profit improved by 89.7% to $44.4 million in the fourth quarter of 2022 compared to $23.4 million in the fourth quarter of 2021. In the fourth quarter, TES continued to see strength in product demand as sales order backlog grew by 6.3% to $754.1 million compared to the end of the third quarter of 2022, and is up 83.2% from the fourth quarter of 2021. On a sequential basis, supply chain headwinds lessened, with new equipment sales revenue increasing 42.3% in the fourth quarter of 2022 compared to the third quarter of 2022.

APS segment revenue experienced an increase of $3.2 million, or 9.3%, in the fourth quarter of 2022, to $37.5 million, as compared to $34.3 million in the fourth quarter of 2021. Growth in demand for parts, tools and accessories (“PTA”) sales was offset by reduced tools and accessories rentals in the PTA division. Gross profit margin in the segment was negatively impacted by higher inventory costs due to shifts in product mix.

Net income was $30.9 million in the fourth quarter of 2022 compared to a net loss of $3.7 million for the fourth quarter of 2021. The improvement in net income is the result of gross profit expansion, offset by higher selling costs and interest expense on variable-rate debt and variable-rate floorplan liabilities.

Adjusted EBITDA for the fourth quarter of 2022 was $124.5 million, compared to $95.6 million for the fourth quarter of 2021. The increase in Adjusted EBITDA was largely driven by growth in rental demand and in new equipment sales, both of which contributed to margin expansion.

As of December 31, 2022, CTOS had cash and cash equivalents of $14.4 million, current and long-term debt of $1,361.7 million (net of deferred financing fees of $27.7 million), and current and long-term finance lease obligations of $5.0 million. Our net debt (non-GAAP measure as defined below) was $1,380.0 million as of December 31, 2022. Our net leverage ratio (non-GAAP measure), which is net debt divided by Adjusted EBITDA, was 3.5x as of December 31, 2022. Availability under the senior secured credit facility was $309.4 million as of December 31, 2022. For the twelve months ended December 31, 2022, we added net OEC of $92.4 million to our rental fleet. During the three months ended December 31, 2022, CTOS purchased approximately $8.0 million of its common stock under the previously announced stock repurchase program.

2023 Outlook

We are providing our full-year revenue and Adjusted EBITDA guidance for 2023 at this time. We believe ERS will continue to benefit from strong demand from our rental customers as well as for purchases of rental fleet units, particularly older equipment, in 2023. We also expect to further grow our rental fleet (based on net OEC) by mid- to high-single digits. Regarding TES, supply chain improvements, improved inventory levels exiting 2022, and record backlog levels should improve our ability to produce and deliver more units in 2023. “Our FY23 outlook reflects the ongoing strength of our end markets and the continued focus by our teams to profitably grow our business. The outlook also reflects the moderated risks associated with some continued supply chain challenges, which we expect could persist through the fiscal year,” said Ryan McMonagle, President and Chief Operating Officer of CTOS.

2023 Consolidated Outlook

 

 

 

Revenue

$1,610 million

$1,730 million

Adjusted EBITDA1

$415 million

$435 million

 

 

 

 

2023 Revenue Outlook by Segment

 

 

 

ERS

$665 million

$705 million

TES

$800 million

$870 million

APS

$145 million

$155 million

1 - CTOS is not able to forecast net income on a forward-looking basis without unreasonable efforts due to the high variability and difficulty in predicting certain items that affect GAAP net income including, but not limited to, customer buyout requests on rentals with rental purchase options, income tax expense and changes in fair value of derivative financial instruments. Adjusted EBITDA should not be used to predict net income as the difference between the two measures is variable.

CONFERENCE CALL INFORMATION

The Company has scheduled a conference call at 5:00 P.M. Eastern Time on March 14, 2023, to discuss its fourth quarter 2022 financial results. A webcast will be publicly available at: investors.customtruck.com. To listen by phone, please dial 1-877-425-9470 or 1-201-389-0878. A replay of the call will be available until midnight, Tuesday, March 21, 2023, by dialing 1-844-512-2921 or 1‑412‑317-6671 and entering passcode 13736182.

ABOUT CTOS

CTOS is one of the largest providers of specialty equipment, parts, tools, accessories and services to the electric utility transmission and distribution, telecommunications and rail markets in North America, with a differentiated “one-stop-shop” business model. CTOS offers its specialized equipment to a diverse customer base for the maintenance, repair, upgrade and installation of critical infrastructure assets, including electric lines, telecommunications networks and rail systems. The Company's coast-to-coast rental fleet of more than 10,000 units includes aerial devices, boom trucks, cranes, digger derricks, pressure drills, stringing gear, hi-rail equipment, repair parts, tools and accessories. For more information, please visit investors.customtruck.com.

FORWARD-LOOKING STATEMENTS

This press release includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company's management’s control, that could cause actual results or outcomes to differ materially from those discussed in this press release. This press release is based on certain assumptions that the Company's management has made in light of its experience in the industry, as well as the Company’s perceptions of historical trends, current conditions, expected future developments and other factors the Company believes are appropriate in these circumstances. As you read and consider this press release, you should understand that these statements are not guarantees of performance or results. Many factors could affect the Company’s actual performance and results and could cause actual results to differ materially from those expressed in this press release. Important factors, among others, that may affect actual results or outcomes include: increases in labor costs, our inability to obtain raw materials, component parts and/or finished goods in a timely and cost-effective manner, and our inability to manage our rental equipment in an effective manner; our sales order backlog may not be indicative of the level of our future revenues; increases in unionization rate in our workforce; our inability to recruit and retain the experienced personnel, including skilled technicians, we need to compete in our industries; our inability to attract and retain highly skilled personnel and our inability to retain our senior management; material disruptions to our operation and manufacturing locations as a result of public health concerns, equipment failures, natural disasters, work stoppages, power outages or other reasons; potential impairment charges; any further increase in the cost of new equipment that we purchase for use in our rental fleet or for sale as inventory; aging or obsolescence of our existing equipment, and the fluctuations of market value thereof; disruptions in our supply chain; our business may be impacted by government spending; we may experience losses in excess of our recorded reserves for receivables; unfavorable conditions in the capital and credit markets and our inability to obtain additional capital as required; increases in price of fuel or freight; regulatory technological advancement, or other changes in our core end-markets may affect our customer’s spending; difficulty in integrating acquired businesses and fully realizing the anticipated benefits and cost savings of the acquired businesses, as well as additional transaction and transition costs that we will continue to incur following acquisitions; material weakness in our internal control over financial reporting which, if not remediated, could result in material misstatements in our financial statements; the interest of our majority stockholder, which may not be consistent with the other stockholders; our significant indebtedness, which may adversely affect our financial position, limit our available cash and our access to additional capital, prevent us from growing our business and increase our risk of default; our inability to generate cash, which could lead to a default; significant operating and financial restrictions imposed by our debt agreements; changes in interest rates, which could increase our debt service obligations on the variable rate indebtedness and decrease our net income and cash flows; the phase-out of the London Interbank Offered Rate (“LIBOR”) and uncertainty as to its replacement; disruptions in our information technology systems or a compromise of our system security, limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, and implement strategic initiatives; we are subject to complex laws and regulations, including environmental and safety regulations that can adversely affect cost, manner or feasibility of doing business; we are subject to a series of risks related to climate change; and increased attention to, and evolving expectations for, sustainability and environmental, social and governance initiatives. For a more complete description of these and other possible risks and uncertainties, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and its subsequent reports filed with the Securities and Exchange Commission. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements.

CUSTOM TRUCK ONE SOURCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

The consolidated statements of operations for the three and twelve months ended December 31, 2021 includes the results of Custom Truck LP from April 1, 2021 to December 31, 2021.

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s except per share data)

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

Revenue

 

 

 

 

 

 

 

 

 

Rental revenue

$

127,829

 

 

$

114,131

 

 

$

464,039

 

 

$

370,067

 

 

$

115,010

 

Equipment sales

 

325,746

 

 

 

212,509

 

 

 

982,341

 

 

 

695,334

 

 

 

210,903

 

Parts sales and services

 

33,149

 

 

 

29,799

 

 

 

126,706

 

 

 

101,753

 

 

 

31,867

 

Total revenue

 

486,724

 

 

 

356,439

 

 

 

1,573,086

 

 

 

1,167,154

 

 

 

357,780

 

Cost of Revenue

 

 

 

 

 

 

 

 

 

Cost of rental revenue

 

27,481

 

 

 

28,012

 

 

 

110,272

 

 

 

99,885

 

 

 

28,207

 

Depreciation of rental equipment

 

40,803

 

 

 

45,934

 

 

 

171,703

 

 

 

157,110

 

 

 

42,612

 

Cost of equipment sales

 

260,391

 

 

 

183,449

 

 

 

805,852

 

 

 

618,444

 

 

 

173,588

 

Cost of parts sales and services

 

29,724

 

 

 

21,192

 

 

 

101,511

 

 

 

81,702

 

 

 

25,201

 

Total cost of revenue

 

358,399

 

 

 

278,587

 

 

 

1,189,338

 

 

 

957,141

 

 

 

269,608

 

Gross Profit

 

128,325

 

 

 

77,852

 

 

 

383,748

 

 

 

210,013

 

 

 

88,172

 

Operating Expenses

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

58,599

 

 

 

43,844

 

 

 

210,868

 

 

 

155,783

 

 

 

49,835

 

Amortization

 

6,940

 

 

 

13,334

 

 

 

33,940

 

 

 

40,754

 

 

 

6,794

 

Non-rental depreciation

 

2,112

 

 

 

1,768

 

 

 

9,414

 

 

 

3,613

 

 

 

1,938

 

Transaction expenses and other

 

9,026

 

 

 

9,065

 

 

 

26,218

 

 

 

51,830

 

 

 

6,498

 

Total operating expenses

 

76,677

 

 

 

68,011

 

 

 

280,440

 

 

 

251,980

 

 

 

65,065

 

Operating Income (Loss)

 

51,648

 

 

 

9,841

 

 

 

103,308

 

 

 

(41,967

)

 

 

23,107

 

Other Expense

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

61,695

 

 

 

 

Interest expense, net

 

26,582

 

 

 

19,169

 

 

 

88,906

 

 

 

72,843

 

 

 

22,887

 

Financing and other expense (income)

 

(6,425

)

 

 

428

 

 

 

(32,330

)

 

 

571

 

 

 

(1,747

)

Total other expense

 

20,157

 

 

 

19,597

 

 

 

56,576

 

 

 

135,109

 

 

 

21,140

 

Income (Loss) Before Income Taxes

 

31,491

 

 

 

(9,756

)

 

 

46,732

 

 

 

(177,076

)

 

 

1,967

 

Income Tax Expense (Benefit)

 

554

 

 

 

(6,043

)

 

 

7,827

 

 

 

4,425

 

 

 

4,349

 

Net Income (Loss)

$

30,937

 

 

$

(3,713

)

 

$

38,905

 

 

$

(181,501

)

 

$

(2,382

)

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Per Share:

 

 

 

 

 

 

 

 

 

Basic

$

0.13

 

 

$

(0.02

)

 

$

0.16

 

 

$

(0.75

)

 

$

(0.01

)

Diluted

$

0.13

 

 

$

(0.02

)

 

$

0.16

 

 

$

(0.75

)

 

$

(0.01

)

CUSTOM TRUCK ONE SOURCE, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

(in $000s)

December 31, 2022

 

December 31, 2021

Assets

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

$

14,360

 

 

$

35,902

 

Accounts receivable, net

 

193,106

 

 

 

168,394

 

Financing receivables, net

 

38,271

 

 

 

28,649

 

Inventory

 

596,724

 

 

 

410,542

 

Prepaid expenses and other

 

25,784

 

 

 

13,217

 

Total current assets

 

868,245

 

 

 

656,704

 

Property and equipment, net

 

121,956

 

 

 

108,612

 

Rental equipment, net

 

883,674

 

 

 

834,325

 

Goodwill

 

703,827

 

 

 

695,865

 

Intangible assets, net

 

304,132

 

 

 

327,840

 

Operating lease assets

 

29,434

 

 

 

36,014

 

Other assets

 

26,944

 

 

 

24,406

 

Total Assets

$

2,938,212

 

 

$

2,683,766

 

Liabilities and Stockholders' Equity

 

 

 

Current Liabilities

 

 

 

Accounts payable

$

87,255

 

 

$

91,123

 

Accrued expenses

 

68,784

 

 

 

60,337

 

Deferred revenue and customer deposits

 

34,671

 

 

 

35,791

 

Floor plan payables - trade

 

136,634

 

 

 

72,714

 

Floor plan payables - non-trade

 

293,536

 

 

 

165,239

 

Operating lease liabilities - current

 

5,262

 

 

 

4,987

 

Current maturities of long-term debt

 

6,940

 

 

 

6,354

 

Current portion of finance lease obligations

 

1,796

 

 

 

4,038

 

Total current liabilities

 

634,878

 

 

 

440,583

 

Long-term debt, net

 

1,354,766

 

 

 

1,308,265

 

Finance leases

 

3,206

 

 

 

5,109

 

Operating lease liabilities - noncurrent

 

24,818

 

 

 

31,514

 

Deferred income taxes

 

29,086

 

 

 

15,621

 

Derivative, warrants and other liabilities

 

3,015

 

 

 

24,164

 

Total long-term liabilities

 

1,414,891

 

 

 

1,384,673

 

Commitments and contingencies

 

 

 

Stockholders' Equity

 

 

 

Common stock

 

25

 

 

 

25

 

Treasury stock, at cost

 

(15,537

)

 

 

(3,020

)

Additional paid-in capital

 

1,521,487

 

 

 

1,508,995

 

Accumulated other comprehensive loss

 

(8,947

)

 

 

 

Accumulated deficit

 

(608,585

)

 

 

(647,490

)

Total stockholders' equity

 

888,443

 

 

 

858,510

 

Total Liabilities and Stockholders' Equity

$

2,938,212

 

 

$

2,683,766

 

CUSTOM TRUCK ONE SOURCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

The consolidated statement of cash flows for the twelve months ended December 31, 2021 include the cash flows of Custom Truck LP from April 1, 2021 to December 31, 2021.

 

 

Twelve Months Ended December 31,

(in $000s)

 

2022

 

 

 

2021

 

Operating Activities

 

 

 

Net income (loss)

$

38,905

 

 

$

(181,501

)

Adjustments to reconcile net income (loss) to net cash flow from operating activities:

 

 

 

Depreciation and amortization

 

223,483

 

 

 

209,073

 

Amortization of debt issuance costs

 

4,860

 

 

 

4,740

 

Loss on extinguishment of debt

 

 

 

 

61,695

 

Provision for losses on accounts receivable

 

12,650

 

 

 

11,103

 

Share-based compensation

 

12,297

 

 

 

17,313

 

Gain on sales and disposals of rental equipment

 

(55,213

)

 

 

(11,636

)

Change in fair value of derivative and warrants

 

(20,290

)

 

 

6,192

 

Deferred tax expense (benefit)

 

7,387

 

 

 

3,863

 

Changes in assets and liabilities:

 

 

 

Accounts and financing receivables

 

(36,821

)

 

 

(37,716

)

Inventories

 

(194,691

)

 

 

46,574

 

Prepaids, operating leases and other

 

(11,936

)

 

 

(6,123

)

Accounts payable

 

(5,589

)

 

 

8,060

 

Accrued expenses and other liabilities

 

8,108

 

 

 

5,580

 

Floor plan payables - trade, net

 

63,920

 

 

 

(18,276

)

Customer deposits and deferred revenue

 

(1,102

)

 

 

19,985

 

Net cash flow from operating activities

 

45,968

 

 

 

138,926

 

Investing Activities

 

 

 

Acquisition of businesses, net of cash acquired

 

(49,832

)

 

 

(1,337,686

)

Purchases of rental equipment

 

(340,791

)

 

 

(188,389

)

Proceeds from sales and disposals of rental equipment

 

205,852

 

 

 

99,833

 

Purchase of non-rental property and cloud computing arrangements

 

(34,165

)

 

 

(3,238

)

Net cash flow from investing activities

 

(218,936

)

 

 

(1,429,480

)

Financing Activities

 

 

 

Proceeds from debt

 

 

 

 

952,743

 

Proceeds from issuance of common stock

 

 

 

 

883,000

 

Payment of common stock issuance costs

 

 

 

 

(6,386

)

Payment of premiums on debt extinguishment

 

 

 

 

(53,469

)

Share-based payments

 

(1,838

)

 

 

(652

)

Borrowings under revolving credit facilities

 

153,036

 

 

 

491,084

 

Repayments under revolving credit facilities

 

(110,249

)

 

 

(347,111

)

Repayments of notes payable

 

(1,012

)

 

 

(507,509

)

Finance lease payments

 

(3,955

)

 

 

(5,223

)

Repurchase of common stock

 

(10,279

)

 

 

 

Acquisition of inventory through floor plan payables - non-trade

 

619,896

 

 

 

304,902

 

Repayment of floor plan payables - non-trade

 

(491,599

)

 

 

(353,641

)

Payment of debt issuance costs

 

(104

)

 

 

(34,694

)

Net cash flow from financing activities

 

153,896

 

 

 

1,323,044

 

Effect of exchange rate changes on cash and cash equivalents

 

(2,470

)

 

 

 

Net Change in Cash and Cash Equivalents

 

(21,542

)

 

 

32,490

 

Cash and Cash Equivalents at Beginning of Period

 

35,902

 

 

 

3,412

 

Cash and Cash Equivalents at End of Period

$

14,360

 

 

$

35,902

 

 

 

 

 

 

Twelve Months Ended December 31,

(in $000s)

2022

 

2021

Supplemental Cash Flow Information

 

 

 

Interest paid

$

81,177

 

$

92,625

Income taxes paid

 

567

 

 

541

Non-Cash Investing and Financing Activities

 

 

 

Non-cash consideration - acquisition of business

 

 

 

187,935

Rental equipment and property and equipment purchases in accounts payable

 

68

 

 

Rental equipment sales in accounts receivable

 

11,283

 

 

1,555

CUSTOM TRUCK ONE SOURCE, INC.

PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma combined financial information presented on the subsequent pages give effect to the Company's acquisition of Custom Truck LP, as if the Acquisition had occurred on January 1, 2020, and is presented to facilitate comparisons with our results following the Acquisition. This information has been prepared in accordance with Article 11 of Regulation S-X. Such unaudited pro forma combined financial information also uses the fair value of assets and liabilities, including the fair value of tax assets and liabilities, on April 1, 2021, the closing date of the Acquisition, and makes the following assumptions: (1) removes acquisition-related costs and charges that were recognized in the Company's consolidated financial statements in the three and twelve months ended December 31, 2021, and applies these costs and charges as if the transactions had occurred on January 1, 2020; (2) removes the loss on the extinguishment of debt that was recognized in the Company’s consolidated financial statements in the three and twelve months ended December 31, 2021 and applies the charge to the three and twelve months ended December 31, 2020, as if the debt extinguishment giving rise to the loss had occurred on January 1, 2020; (3) adjusts for the impacts of purchase accounting in the three and twelve months ended December 31, 2021; (4) adjusts interest expense, including amortization of debt issuance costs, to reflect borrowings on the ABL Facility and issuance of the 2029 Secured Notes, as if the funds had been borrowed and the 2029 Secured Notes had been issued on January 1, 2020 and used to repay pre-acquisition debt; and, (5) adjusts for the income tax effect using a tax rate of 25%.

NON-GAAP FINANCIAL AND PERFORMANCE MEASURES

In our press release and schedules, and on the related conference call, we report certain financial measures that are not required by, or presented in accordance with, United States generally accepted accounting principles (“GAAP”). We utilize these financial measures to manage our business on a day-to-day basis and some of these measures are commonly used in our industry to evaluate performance. We believe these non-GAAP measures provide investors expanded insight to assess performance, in addition to the standard GAAP-based financial measures. The press release schedules reconcile the most directly comparable GAAP measure to each non-GAAP measure that we refer to. Although management evaluates and presents these non-GAAP measures for the reasons described herein, please be aware that these non-GAAP measures have limitations and should not be considered in isolation or as a substitute for revenue, operating income/loss, net income/loss, earnings/loss per share or any other comparable operating measure prescribed by GAAP. In addition, we may calculate and/or present these non-GAAP financial measures differently than measures with the same or similar names that other companies report, and as a result, the non-GAAP measures we report may not be comparable to those reported by others.

Custom Truck LP became a wholly owned subsidiary of the Company on April 1, 2021. The Company's consolidated financial statements prepared under GAAP include Custom Truck LP from April 1, 2021. Accordingly, the financial information presented under GAAP for the twelve months ended December 31, 2022 is not comparable to the financial information of the twelve months ended December 31, 2021. As a result, we have included information on a “pro forma combined basis” as further described below, which we believe provides for more meaningful year-over-year comparability.

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial performance measure that we use to monitor our results of operations, to measure performance against debt covenants and performance relative to competitors. We believe Adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of operating performance, without regard to financing methods or capital structures. We exclude the items identified in the reconciliations of net income (loss) to Adjusted EBITDA because these amounts are either non-recurring or can vary substantially within the industry depending upon accounting methods and book values of assets, including the method by which the assets were acquired, and capital structures. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historical costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an indication that results will be unaffected by the items excluded from Adjusted EBITDA. Our computation of Adjusted EBITDA may not be identical to other similarly titled measures of other companies.

We define Adjusted EBITDA as net income or loss before interest expense, income taxes, depreciation and amortization, share-based compensation, and other items that we do not view as indicative of ongoing performance. Our Adjusted EBITDA includes an adjustment to exclude the effects of purchase accounting adjustments when calculating the cost of inventory and used equipment sold. When inventory or equipment is purchased in connection with a business combination, the assets are revalued to their current fair values for accounting purposes. The consideration transferred (i.e., the purchase price) in a business combination is allocated to the fair values of the assets as of the acquisition date, with amortization or depreciation recorded thereafter following applicable accounting policies; however, this may not be indicative of the actual cost to acquire inventory or new equipment that is added to product inventory or the rental fleets apart from a business acquisition. Additionally, the pricing of rental contracts and equipment sales prices for equipment is based on OEC, and we measure a rate of return from rentals and sales using OEC. We also include an adjustment to remove the impact of accounting for certain of our rental contracts with customers containing a rental purchase option that are accounted for under GAAP as a sales-type lease. We include this adjustment because we believe continuing to reflect the transactions as an operating lease better reflects the economics of the transactions given our large portfolio of rental contracts. These, and other, adjustments to GAAP net income or loss that are applied to derive Adjusted EBITDA are specified by our senior secured credit agreements.

Although management evaluates and presents the Adjusted EBITDA non-GAAP measure for the reasons described herein, please be aware that this non-GAAP measure has limitations and should not be considered in isolation or as a substitute for revenue, operating income/loss, net income/loss, earnings/loss per share or any other comparable operating measure prescribed by GAAP. In addition, we may calculate and/or present this non-GAAP financial measure differently than measures with the same or similar names that other companies report, and, as a result, the non-GAAP measure we report may not be comparable to those reported by others.

We present Pro Forma Adjusted EBITDA as if the Acquisition had occurred on January 1, 2020. Refer to the reconciliation of pro forma combined net income (loss) to Pro Forma Adjusted EBITDA for the three and twelve months ended December 31, 2021 in this press release.

Gross Profit and Rental Profit Excluding Rental Equipment Depreciation. We present total gross profit excluding rental equipment depreciation as a non-GAAP financial performance measure. We also present rental gross profit that excludes rental equipment depreciation as a non-GAAP financial measure. These measures differ from the GAAP definitions of gross profit, as we do not include the impact of depreciation expense, which represents non-cash expense. We use these measures to evaluate operating margins and the effectiveness of the cost of our rental fleet.

Net Debt. We present the non-GAAP financial measure “net debt,” which is total debt (the most comparable GAAP measure, calculated as current and long-term debt, excluding deferred financing fees, plus current and long-term finance lease obligations) minus cash and cash equivalents. We believe this non-GAAP measure is useful to investors to evaluate our financial position.

Net Leverage Ratio. Net leverage ratio is a non-GAAP financial performance measure used by management and we believe it provides useful information to investors because it is an important liquidity measure that reflects our ability to service debt. We define net leverage ratio as net debt divided by Adjusted EBITDA.

CUSTOM TRUCK ONE SOURCE, INC.

SCHEDULE 1 — ADJUSTED EBITDA RECONCILIATION

(unaudited)

 

The Adjusted EBITDA Reconciliation for the twelve months ended December 31, 2021 includes the results of Custom Truck LP from April 1, 2021 to December 31, 2021.

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s)

2022

Actual

 

2021

Actual

 

2022

Actual

 

2021

Actual

 

Net income (loss)

$

30,937

 

 

$

(3,713

)

 

$

38,905

 

 

$

(181,501

)

 

$

(2,382

)

Interest expense

 

21,432

 

 

 

17,778

 

 

 

76,265

 

 

 

67,610

 

 

 

19,338

 

Income tax expense (benefit)

 

554

 

 

 

(6,043

)

 

 

7,827

 

 

 

4,425

 

 

 

4,349

 

Depreciation and amortization

 

52,362

 

 

 

63,106

 

 

 

223,483

 

 

 

209,073

 

 

 

54,001

 

EBITDA

 

105,285

 

 

 

71,128

 

 

 

346,480

 

 

 

99,607

 

 

 

75,306

 

Adjustments:

 

 

 

 

 

 

 

 

 

Non-cash purchase accounting impact (1)

 

8,268

 

 

 

6,468

 

 

 

23,069

 

 

 

33,954

 

 

 

3,408

 

Transaction and integration costs (2)

 

9,026

 

 

 

8,900

 

 

 

26,218

 

 

 

51,993

 

 

 

6,501

 

Loss on extinguishment of debt (3)

 

 

 

 

 

 

 

 

 

 

61,695

 

 

 

 

Sales-type lease adjustment (4)

 

1,411

 

 

 

3,757

 

 

 

5,204

 

 

 

7,030

 

 

 

1,232

 

Share-based payments (5)

 

2,771

 

 

 

4,597

 

 

 

12,297

 

 

 

17,313

 

 

 

4,378

 

Change in fair value of derivative and warrants (6)

 

(2,277

)

 

 

739

 

 

 

(20,290

)

 

 

6,192

 

 

 

809

 

Adjusted EBITDA

$

124,484

 

 

$

95,589

 

 

$

392,978

 

 

$

277,784

 

 

$

91,634

 

Adjusted EBITDA is defined as net income (loss) plus interest expense, provision for income taxes, depreciation and amortization, and further adjusted for non-cash purchase accounting impact, transaction and process improvement costs, including business integration expenses, share-based payments, the change in fair value of derivative instruments, sales-type lease adjustment, and other special charges that are not expected to recur. This non-GAAP measure is subject to certain limitations.

(1)

Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment and inventory sold. The equipment and inventory acquired received a purchase accounting step-up in basis, which is a non-cash adjustment to the equipment cost pursuant to our credit agreement.

(2)

Represents transaction and process improvement costs related to acquisitions of businesses, including post-acquisition integration costs, which are recognized within operating expenses in our Consolidated Statements of Comprehensive Net Income (Loss). These expenses are comprised of professional consultancy, legal, tax and accounting fees. Also included are expenses associated with the integration of acquired businesses. These expenses are presented as adjustments to net income (loss) pursuant to our ABL Credit Agreement.

(3)

Loss on extinguishment of debt represents a special charge, which is not expected to recur. Such charges are adjustments pursuant to our credit agreement.

(4)

Represents the adjustment for the impact of sales-type lease accounting for certain leases containing rental purchase options (or “RPOs”), as the application of sales-type lease accounting is not deemed to be representative of the ongoing cash flows of the underlying rental contracts. This adjustment is made pursuant to our credit agreement.

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s)

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

Equipment sales

$

(14,518

)

 

$

(2,563

)

 

$

(41,525

)

 

$

(16,274

)

 

$

(7,099

)

Cost of equipment sales

 

14,509

 

 

 

4,945

 

 

 

37,582

 

 

 

16,532

 

 

 

5,938

 

Gross (profit) loss

 

(9

)

 

 

2,382

 

 

 

(3,943

)

 

 

258

 

 

 

(1,161

)

Interest income

 

(4,303

)

 

 

(5,276

)

 

 

(12,130

)

 

 

(5,898

)

 

 

(2,719

)

Rental invoiced

 

5,723

 

 

 

6,651

 

 

 

21,277

 

 

 

12,670

 

 

 

5,112

 

Sales-type lease adjustment

$

1,411

 

 

$

3,757

 

 

$

5,204

 

 

$

7,030

 

 

$

1,232

 

(5)

Represents non-cash share-based compensation expense associated with the issuance of stock options and restricted stock units.

(6)

Represents the charge to earnings for our interest rate collar and the change in fair value of the liability for warrants.

CUSTOM TRUCK ONE SOURCE, INC.

SCHEDULE 2 — SUPPLEMENTAL PRO FORMA INFORMATION

(unaudited)

Pro Forma Combined Statements of Operations — Three Months Ended December 31, 2021

 

(in $000s)

Custom Truck One Source, Inc.

 

Pro Forma Adjustmentsa

 

Pro Forma Combined

Rental revenue

$

114,131

 

 

$

 

 

$

114,131

 

Equipment sales

 

212,509

 

 

 

 

 

 

212,509

 

Parts sales and services

 

29,799

 

 

 

 

 

 

29,799

 

Total revenue

 

356,439

 

 

 

 

 

 

356,439

 

Cost of revenue

 

232,653

 

 

 

(1,384

)

b

 

231,269

 

Depreciation of rental equipment

 

45,934

 

 

 

 

 

 

45,934

 

Total cost of revenue

 

278,587

 

 

 

(1,384

)

 

 

277,203

 

Gross profit

 

77,852

 

 

 

1,384

 

 

 

79,236

 

Selling, general and administrative

 

43,844

 

 

 

 

 

 

43,844

 

Amortization

 

13,334

 

 

 

 

 

 

13,334

 

Non-rental depreciation

 

1,768

 

 

 

 

 

 

1,768

 

Transaction expenses and other

 

9,065

 

 

 

 

 

 

9,065

 

Total operating expenses

 

68,011

 

 

 

 

 

 

68,011

 

Operating income (loss)

 

9,841

 

 

 

1,384

 

 

 

11,225

 

Interest expense, net

 

19,169

 

 

 

 

 

 

19,169

 

Finance and other expense (income)

 

428

 

 

 

 

 

 

428

 

Total other expense

 

19,597

 

 

 

 

 

 

19,597

 

Income (loss) before taxes

 

(9,756

)

 

 

1,384

 

 

 

(8,372

)

Taxes

 

(6,043

)

 

 

346

 

c

 

(5,697

)

Net income (loss)

$

(3,713

)

 

$

1,038

 

 

$

(2,675

)

a.

The pro forma adjustments give effect to the following as if they occurred on January 1, 2020: (i) the Acquisition and (ii) the extinguishment of Nesco Holdings’ 2019 Credit Facility and the prepayment of the Senior Secured Notes due 2024 in connection with the Acquisition. The adjustments also give effect to transaction expenses directly attributable to the Acquisition.

b.

Represents the elimination from cost of revenue of the run-off of the step-up in fair value of inventory acquired that was recognized in the Company’s consolidated financial statements for the three months ended December 31, 2021. The impact of the step-up is reflected as an adjustment to the comparable prior period ended December 31, 2020 as if the Acquisition had occurred on January 1, 2020.

c.

Reflects the adjustment to recognize the tax impacts of the pro forma adjustments for which a tax expense is recognized using a statutory tax rate of 25%.

Pro Forma Combined Statements of Operations — Twelve Months Ended December 31, 2021

 

(in $000s)

Custom Truck

One Source, Inc.

 

Custom Truck LP

(Three Months

Ended March 31,

2021)

 

Pro Forma Adjustmentsa

 

Pro Forma Combined

Rental revenue

$

370,067

 

 

$

51,973

 

 

$

 

 

$

422,040

 

Equipment sales

 

695,334

 

 

 

245,955

 

 

 

 

 

 

941,289

 

Parts sales and services

 

101,753

 

 

 

18,543

 

 

 

 

 

 

120,296

 

Total revenue

 

1,167,154

 

 

 

316,471

 

 

 

 

 

 

1,483,625

 

Cost of revenue

 

800,031

 

 

 

240,678

 

 

 

(19,186

)

b

 

1,021,523

 

Depreciation of rental equipment

 

157,110

 

 

 

22,757

 

 

 

3,817

 

c

 

183,684

 

Total cost of revenue

 

957,141

 

 

 

263,435

 

 

 

(15,369

)

 

 

1,205,207

 

Gross profit

 

210,013

 

 

 

53,036

 

 

 

15,369

 

 

 

278,418

 

Selling, general and administrative

 

155,783

 

 

 

34,428

 

 

 

 

 

 

190,211

 

Amortization

 

40,754

 

 

 

1,990

 

 

 

3,589

 

d

 

46,333

 

Non-rental depreciation

 

3,613

 

 

 

1,151

 

 

 

(213

)

d

 

4,551

 

Transaction expenses and other

 

51,830

 

 

 

5,254

 

 

 

(40,277

)

e

 

16,807

 

Total operating expenses

 

251,980

 

 

 

42,823

 

 

 

(36,901

)

 

 

257,902

 

Operating income (loss)

 

(41,967

)

 

 

10,213

 

 

 

52,270

 

 

 

20,516

 

Loss on extinguishment of debt

 

61,695

 

 

 

 

 

 

(61,695

)

f

 

 

Interest expense, net

 

72,843

 

 

 

9,992

 

 

 

(3,919

)

g

 

78,916

 

Finance and other expense (income)

 

571

 

 

 

(2,346

)

 

 

 

 

 

(1,775

)

Total other expense

 

135,109

 

 

 

7,646

 

 

 

(65,614

)

 

 

77,141

 

Income (loss) before taxes

 

(177,076

)

 

 

2,567

 

 

 

117,884

 

 

 

(56,625

)

Taxes

 

4,425

 

 

 

 

 

 

29,471

 

h

 

33,896

 

Net income (loss)

$

(181,501

)

 

$

2,567

 

 

$

88,413

 

 

$

(90,521

)

a.

The pro forma adjustments give effect to the following as if they occurred on January 1, 2020: (i) the Acquisition, (ii) the extinguishment of Nesco Holdings’ 2019 Credit Facility and the prepayment of the Senior Secured Notes 2024 in connection with the Acquisition and (iii) the extinguishment of the outstanding borrowings of Custom Truck LP’s credit facility and term loan that was repaid on the closing of the Acquisition.

b.

Represents adjustments to cost of revenue for the reduction to depreciation expense for the difference between historical depreciation and depreciation of the fair value of the property and equipment acquired from the Acquisition.

c.

Represents the adjustment for depreciation of rental fleet relating to the mark-up to fair value from purchase accounting as a result of the Acquisition.

d.

Represents the differential in other amortization and depreciation related to the fair value of the identified intangible assets from purchase accounting as a result of the Acquisition.

e.

Represents the elimination of transaction expenses recognized in the Company’s consolidated financial statements for the twelve months ended December 31, 2021. The expenses were directly attributable to the Acquisition and are reflected as adjustments to the comparable prior period ended December 31, 2020 as if the Acquisition had occurred on January 1, 2020.

f.

Represents the elimination of the loss on extinguishment of debt recognized in the Company’s consolidated financial statements for the twelve months ended December 31, 2021 as though the repayment of the 2019 Credit Facility and the 2024 Secured Notes had occurred on January 1, 2020.

g.

Reflects the differential in interest expense, inclusive of amortization of capitalized debt issuance costs, related to the Company’s debt structure after the Acquisition as though the following had occurred on January 1, 2020: (i) borrowings under the ABL Facility; (ii) repayment of the 2019 Credit Facility; (iii) repayment of the 2024 Secured Notes; (iv) repayment of Custom Truck LP’s borrowings under its revolving credit and term loan facility; and (v) the issuance of the 2029 Secured Notes.

h.

Reflects the adjustment to recognize the tax impacts of the pro forma adjustments for which a tax expense is recognized using a statutory tax rate of 25%.

Reconciliation of Actual or Pro Forma Combined Net Income (Loss) to Actual or Pro Forma Adjusted EBITDA
 
 The following table provides a reconciliation of actual or pro forma combined net income (loss) to actual or pro forma Adjusted EBITDA:
 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

(in $000s)

2022 Actual

 

2021 Pro Forma

 

2022 Actual

 

2021 Pro Forma

Net income (loss)

$

30,937

 

 

$

(2,675

)

 

$

38,905

 

 

$

(90,521

)

Interest expense

 

21,432

 

 

 

17,778

 

 

 

76,265

 

 

 

71,204

 

Income tax expense (benefit)

 

554

 

 

 

(5,697

)

 

 

7,827

 

 

 

33,896

 

Depreciation and amortization

 

52,362

 

 

 

63,106

 

 

 

223,483

 

 

 

243,570

 

EBITDA

 

105,285

 

 

 

72,512

 

 

 

346,480

 

 

 

258,149

 

Adjustments:

 

 

 

 

 

 

 

Non-cash purchase accounting impact (a)

 

8,268

 

 

 

5,084

 

 

 

23,069

 

 

 

15,755

 

Transaction and process improvement costs (b)

 

9,026

 

 

 

8,900

 

 

 

26,218

 

 

 

16,967

 

Sales-type lease adjustment (c)

 

1,411

 

 

 

3,757

 

 

 

5,204

 

 

 

8,185

 

Share-based payments (d)

 

2,771

 

 

 

4,597

 

 

 

12,297

 

 

 

17,870

 

Change in fair value of derivative and warrants (e)

 

(2,277

)

 

 

739

 

 

 

(20,290

)

 

 

6,192

 

Adjusted EBITDA

$

124,484

 

 

$

95,589

 

 

$

392,978

 

 

$

323,118

 

(a)

Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment and inventory sold. The equipment and inventory acquired received a purchase accounting step-up in basis, which is a non-cash adjustment to the equipment cost pursuant to our credit agreement.

(b)

Represents transaction and process improvement costs related to acquisitions of businesses, including the post-acquisition integration costs, which are recognized within operating expenses in our Consolidated Statements of Operations and Comprehensive Income (Loss). These expenses are comprised of professional consultancy, legal, tax and accounting fees. Also included are expenses associated with the integration of acquired businesses. These expenses are presented as adjustments to net income (loss) pursuant to our ABL Credit Agreement

(c)

Represents the impact of sales-type lease accounting for certain leases containing RPOs, as the application of sales-type lease accounting is not deemed to be representative of the ongoing cash flows of the underlying rental contracts. The adjustment is made pursuant to our credit agreement.

(d)

Represents non-cash share-based compensation expense associated with the issuance of stock options and restricted stock units.

(e)

Represents the charge to earnings for our interest rate collar and the change in fair value of the liability for warrants.

Reconciliation of Gross Profit Excluding Rental Equipment Depreciation

(unaudited)

 

The following table presents the reconciliation of gross profit excluding equipment depreciation:

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

 

 

 

Rental revenue

$

127,829

 

$

114,131

 

$

464,039

 

$

370,067

 

$

115,010

Equipment sales

 

325,746

 

 

212,509

 

 

982,341

 

 

695,334

 

 

210,903

Parts sales and services

 

33,149

 

 

29,799

 

 

126,706

 

 

101,753

 

 

31,867

Total revenue

 

486,724

 

 

356,439

 

 

1,573,086

 

 

1,167,154

 

 

357,780

Cost of Revenue

 

 

 

 

 

 

 

 

 

Cost of rental revenue

 

27,481

 

 

28,012

 

 

110,272

 

 

99,885

 

 

28,207

Depreciation of rental equipment

 

40,803

 

 

45,934

 

 

171,703

 

 

157,110

 

 

42,612

Cost of equipment sales

 

260,391

 

 

183,449

 

 

805,852

 

 

618,444

 

 

173,588

Cost of parts sales and services

 

29,724

 

 

21,192

 

 

101,511

 

 

81,702

 

 

25,201

Total cost of revenue

 

358,399

 

 

278,587

 

 

1,189,338

 

 

957,141

 

 

269,608

Gross Profit

 

128,325

 

 

77,852

 

 

383,748

 

 

210,013

 

 

88,172

Plus: depreciation of rental equipment

 

40,803

 

 

45,934

 

 

171,703

 

 

157,110

 

 

42,612

Gross profit excluding depreciation of rental equipment

$

169,128

 

$

123,786

 

$

555,451

 

$

367,123

 

$

130,784

Reconciliation of ERS Segment Gross and Rental Profit Excluding Depreciation

(unaudited)

 

The following table presents the reconciliation of ERS segment gross profit excluding equipment depreciation:

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

 

 

 

Rental revenue

$

123,429

 

$

109,622

 

$

449,108

 

$

354,557

 

$

112,009

Equipment sales

 

78,472

 

 

35,294

 

 

212,146

 

 

105,435

 

 

37,121

Total revenue

 

201,901

 

 

144,916

 

 

661,254

 

 

459,992

 

 

149,130

Cost of Revenue

 

 

 

 

 

 

 

 

 

Cost of rental revenue

 

26,735

 

 

26,961

 

 

106,598

 

 

94,644

 

 

27,221

Cost of equipment sales

 

57,504

 

 

29,605

 

 

158,167

 

 

90,420

 

 

27,015

Depreciation of rental equipment

 

39,836

 

 

43,752

 

 

167,962

 

 

151,954

 

 

41,776

Total cost of revenue

 

124,075

 

 

100,318

 

 

432,727

 

 

337,018

 

 

96,012

Gross profit

 

77,826

 

 

44,598

 

 

228,527

 

 

122,974

 

 

53,118

Plus: depreciation of rental equipment

 

39,836

 

 

43,752

 

 

167,962

 

 

151,954

 

 

41,776

Gross profit excluding depreciation of rental equipment

$

117,662

 

$

88,350

 

$

396,489

 

$

274,928

 

$

94,894

The following table presents the reconciliation of ERS rental profit excluding equipment depreciation:

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30, 2022

(in $000s)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Rental revenue

$

123,429

 

$

109,622

 

$

449,108

 

$

354,557

 

$

112,009

Cost of rental revenue

 

26,735

 

 

26,961

 

 

106,598

 

 

94,644

 

 

27,221

Rental profit excluding depreciation of rental equipment

$

96,694

 

$

82,661

 

$

342,510

 

$

259,913

 

$

84,788

Reconciliation of Net Debt

(unaudited)

 

The following table presents the reconciliation of net debt:

 

(in $000s)

December 31, 2022

Current maturities of long-term debt

$

6,940

 

Current portion of finance lease obligations

 

1,796

 

Long-term debt, net

 

1,354,766

 

Finance leases

 

3,206

 

Deferred financing fees

 

27,686

 

Less: cash and cash equivalents

 

(14,360

)

Net debt

$

1,380,034

 

Reconciliation of Net Leverage Ratio

(unaudited)

 

The following table presents the reconciliation of the net leverage ratio:

 

(in $000s)

Twelve Months

Ended

December 31, 2022

Net debt

$

1,380,034

Divided by: Adjusted EBITDA

$

392,978

Net leverage ratio

 

3.51

 

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