Custom Truck One Source, Inc. Reports Combined 27% Revenue Increase for Second Quarter 2021

KANSAS CITY, Mo., Aug. 12, 2021 /PRNewswire/ -- Custom Truck One Source, Inc. (NYSE: CTOS, "CTOS" or the "Company"), a leading provider of specialty equipment to the electric utility, telecom, rail and other infrastructure-related end markets, today reported financial results for its second quarterly period ended June 30, 2021.

On April 1, 2021, the Company, formerly known as Nesco Holdings, Inc. ("Nesco Holdings"), through its subsidiary, closed on the acquisition of Custom Truck One Source, L.P. ("Custom Truck LP") (the "Acquisition"). The Acquisition creates a leading, one-stop shop for specialty equipment serving highly attractive and growing infrastructure end markets, including electric utility transmission and distribution ("T&D"), telecom, rail and other national infrastructure initiatives. Our reported results include Custom Truck LP only for the period subsequent to the Acquisition. We also provide key operational metrics on a combined basis, pro forma combined results of operations (excluding results of operations at the segment level) for the three months ended June 30, 2020 and the six month periods ended June 30, 2020 and June 30, 2021 in accordance with Article 11 of Regulation S-X, and combined results of operations by segment, assuming the Acquisition had occurred on January 1, 2020. We believe such combined information is a better representation of how the combined company has performed over time. Following the transaction, we have expanded our reporting segments from two segments to three segments. The Equipment Rental Solutions ("ERS") segment encompasses our core rental business, inclusive of sales of rental equipment to our customers. The Truck and Equipment Sales ("TES") segment encompasses our specialized truck and equipment production and sales activities. Finally, the Aftermarket Parts and Services ("APS") segment encompasses sales of parts, tools and other supplies to our customers, as well as our aftermarket repair service operations.

CTOS Second Quarter 2021 Highlights
Custom Truck LP's results are included in the below summary only beginning on April 1, 2021.

• Closed on the Acquisition
• New senior secured asset-based credit facility and senior secured second lien notes reduced weighted average interest rate on senior debt to 4.4% from 7.7%
• Total revenue of $375.1 million compared to $68.5 million for second quarter 2020, including $247.7 million in equipment sales compared to $10.4 million for second quarter 2020
• Net loss of $129.4 million, including $61.7 million in debt extinguishment charges, $24.6 million in transaction and integration related expenses and purchase accounting inventory mark-up amortization of $9.4 million, compared to $13.2 million in second quarter 2020
• Adjusted EBITDA of $70.2 million, after expensing $8.4 million of charges primarily related to increased reserves of leasing receivables and inventories, compared to $26.2 million in second quarter 2020
• Cash flow from operating activities of $57.2 million, or $11.5 million including net repayments on non-trade floorplan financing, for the six months ended June 30, 2021, compared to $19.7 million for the six months ended June 30, 2020
• Reduced borrowings on the ABL Facility by $30.0 million

CTOS Second Quarter 2021 Compared To Combined Results for Second Quarter 2020
Amounts represent Nesco Holdings and Custom Truck LP combined for second quarter 2021 and 2020.

• Total revenues were $375.1 million compared to $294.5 million of pro forma results for second quarter 2020, an increase of 27.4%
• Equipment sales revenue was $247.7 million compared to $167.8 million of pro forma results for second quarter 2020, an increase of 47.6%
• Equipment sales order backlog was $222.7 million compared to $82.9 million
• Rental revenues were $98.5 million compared to $96.1 million of pro forma results for second quarter 2020, an increase of 2.6%
• Fleet utilization was 81% compared to 71%, a 14% improvement
• Net loss was $129.4 million compared to $18.6 million of pro forma net loss for second quarter 2020, including $61.7 million in debt extinguishment charges, $24.6 million in transaction and integration related expenses and purchase accounting inventory mark-up amortization of $9.4 million
• Adjusted EBITDA was $70.2 million, after expensing $8.4 million of charges primarily related to increased reserves of leasing receivables and inventories, compared to $64.0 million of pro forma Adjusted EBITDA for second quarter 2020 

"We are one quarter into the combination of Nesco and Custom Truck, and I couldn't be happier with the progress we have made on integrating the two companies while continuing to deliver excellent results for our customers and shareholders," said Fred Ross, Chief Executive Officer of CTOS. "In addition, the tailwinds supporting our end markets are very strong, driving incredible demand for our products, both for rental and sales.  While we are not completely immune to the current challenges related to supply chains and inflationary pressures, our scale, and our unique business model put us in the best position relative to our competition and ensure that we can continue to provide excellent customer service and create shareholder value."

Summary Actual and Pro Forma Financial Results¹
The summary combined financial data below for the three months ended June 30, 2021 presents actual results. The data for the three months ended June 30, 2020 and six months ended June 30, 2021 and 2020 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 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.

Summary Financial Results by Segment — GAAP
Segment performance presented below for the three and six months ended June 30, 2021 include Custom Truck LP from April 1, 2021 to June 30, 2021. Segment performance for the three and six months ended June 30, 2020 represent those of Nesco Holdings and is not comparable.

Summary Combined Non-GAAP Financial Results by Segment
The combined results by operating segment presented below are presented for the three and six month periods ended June 30, 2021 and 2020 as if Custom Truck LP and Nesco Holdings had operated together for all periods. This presentation excludes the impact of purchase accounting.

Summary Combined Operating Metrics
The combined operating metrics presented below are presented for the three and six month periods ended June 30, 2021 and 2020 as if Custom Truck LP and Nesco Holdings had operated together for all periods.

Management Commentary
Management commentary below is based on the combined results of Custom Truck LP and Nesco Holdings for the three and six month periods ended June 30, 2021 and 2020 as if the companies had operated together for all periods.

Total revenue for CTOS in the second quarter was $375.1 million, an increase of 27.4% from the second quarter of 2020, driven by strong customer demand for new and used equipment following a period of tepid demand in 2020 that was impacted by the global health pandemic. Expectations related to infrastructure investments in T&D and Telecom have contributed to increased levels of customer buys, including rental equipment sales, which improved $2.4 million to $32.6 million as compared to $30.2 million in the second quarter of 2020. Sales of new and used equipment were $215.1 million compared to $137.6 million in the second quarter of 2020, an increase of 56.3%. Sales order backlog grew to $222.7 million compared to $82.9 million as of the end of the second quarter of 2020, and increase of 168.7%.

In our ERS segment, demand for equipment remained solid as combined rental revenue was $95.1 million compared to $92.1 million in the second quarter of 2020. Fleet utilization improved to 81% from 71%. Activity in the T&D sector, driven by renewable generation projects and aging-infrastructure improvement work, was somewhat tempered as elevated temperatures across North America has caused a shift in the normal seasonal uptick in grid work. While utilization improved steadily, rental revenue growth compared to the second quarter of 2020 continues to be negatively impacted by the size of the fleet, which was approximately $30 million smaller compared to last year.  The decline in fleet size is a result of the strong customer buy-out demand we experienced in late 2020 and early 2021. Combined gross profit (excluding depreciation) in the segment was $78.6 million, representing a 4.4% increase, compared to $75.3 million in the second quarter of 2020. Higher levels of rental equipment sales, which on a combined basis represented 25.5% of total ERS segment revenue compared to 24.7% in the prior year, impacted the segment's gross profit growth. Increased maintenance activity on the rental fleet in the current period, which followed a curtailment of maintenance work in the prior year due to the global health pandemic, also affected gross profit growth.

On a combined basis, revenue in our APS segment was affected by the increase repair and maintenance activity on the rental fleet, which resulted in fewer in-house technician hours being available for outside service. Sluggish performance for the Nesco Holdings parts, tools and accessories business (formerly our "PTA" segment) also contributed to the decline. Segment revenue decreased by $2.2 million (or 6.5%) to $32.4 million as compared to $34.6 million in the second quarter of 2020. For the year-to-date period, segment revenue decreased by $5.4 million (or 7.6%) to $66.5 million as compared to $71.9 million in 2020.

Net loss was $129.4 million compared to pro forma net loss of $18.6 million for the second quarter of 2020 ($51.3 million pro forma compared to $117.2 million pro forma for the six-month period of 2020). Significant transaction related expenses were drivers of the increase for the quarterly and year-to-date periods.

Adjusted EBITDA on a combined basis was $70.2 million, which is not adjusted to exclude the expensing of $8.4 million in charges primarily related to increases in reserves of leasing receivables and inventories, compared to $64.0 million on a pro forma basis for the second quarter of 2020 ($143.1 million pro forma compared to $137.5 million pro forma for the six-month period of 2020). The increase in Adjusted EBITDA was largely driven by the strong improvement in new and used sales activity.

CTOS had cash and cash equivalents of $27.2 million as of June 30, 2021, and net debt outstanding, including capital leases, was $1.3 billion as of June 30, 2021. Availability under the senior secured credit facility was $355.2 million as of June 30, 2021. This compares to cash and cash equivalents of $27.0 million as of April 1, 2021, and net debt outstanding, including capital leases, of $1.4 billion as of April 1, 2021.

2021 Outlook

Based on the Company's year-to-date results, current backlog and management's outlook for the rental fleet for remainder of the year, the Company is providing full-year 2021 guidance for the first time since the closing of the Acquisition. This guidance is presented on an "as reported" basis, including only Custom Truck LP's results for the nine-month period from April 1, 2021 to December 31, 2021, as well as on a "combined" basis, as if Custom Truck LP and Nesco Holdings had operated together for the entirety of 2021. This guidance is subject to risks and uncertainties described in the "Forward-Looking Statements" section below. The guidance is presented below.

CONFERENCE CALL INFORMATION
The Company has scheduled a conference call at 5:00 P.M. Eastern Time on August 12, 2021, to discuss its second quarter 2021 financial results. A webcast will be publicly available investors.customtruck.com. To listen by phone, please dial 1-800-920-2986 or 1-212-231-2939. A replay of the call will be available until midnight, Thursday, August 19, 2021, by dialing 1-844-512-2921 or 1-412-317-6671 and entering passcode 21996430.

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. 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 8,800 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 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: difficulty in integrating Nesco Holdings and Custom Truck LP businesses and fully realizing the anticipated benefits of the Acquisition; public health crisis such as the COVID-19 pandemic; the cyclicality of demand for our products and services and our vulnerability to industry, regional and national downturns, which impact, among others, our ability to manage our rental equipment; fluctuation of our revenue and operating results; our inability to obtain raw materials, component parts and/or finished goods in a timely and cost-effective manner; competition, which may have a material adverse effect on our business by reducing our ability to increase or maintain revenues or profitability; any further increase in the cost of new equipment that we purchase for use in our rental fleet or for our sales inventory; aging or obsolescence of our existing equipment, and the fluctuations of market value thereof; uncertainties in the success of our future acquisitions or integration of companies that we acquire; our inability to recruit and retain the experienced personnel we need to compete in our industries; further unionization of our workforce; 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; unfavorable conditions in the capital and credit markets and our inability to obtain additional capital as required; our inability to renew our leases upon their expiration; our failure to keep pace with technological developments; our dependence on a limited number of manufacturers and suppliers and on third-party contractors to provide us with various services to assist us with conducting our business; risks related to our operations outside of the United States, including changes in local political or economic conditions,  foreign exchange risks and compliance risks with local laws and regulations; potential impairment charges and our inability to collect on contracts with customers; failure of federal and state legislative and regulatory developments that encourage electric power transmission infrastructure spending to translate into demand for our equipment; 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; changes to international trade agreements, tariffs, import and excise duties, taxes or other governmental rules and regulations; our exposure to various risks related to legal proceedings or claims, and our failure to comply with relevant laws and regulations, including those related to occupational health and safety, environment and government contract; significant transaction and transition costs that we will continue to incur following the Acquisition; the interest of our majority shareholder, which may not be consistent with the other shareholders; 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; significant operating and financial restrictions imposed by the agreements governing our existing debt; and uncertainties related to our variable rate indebtedness.  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, 2020 and its subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K. 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.

INVESTOR CONTACT
Brian Perman, Vice President, Investor Relations
(844) 403-6138
[email protected]

CUSTOM TRUCK ONE SOURCE, INC.
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 condensed consolidated financial statements prepared under GAAP include Custom Truck LP as of June 30, 2021 and for the period from April 1, 2021 to June 30, 2021. Information presented for the six months ended June 30, 2021 and for the three and six months ended June 30, 2020 are those of Nesco Holdings. Accordingly, the financial information presented under GAAP for the current periods is not comparable to those of corresponding prior periods. As a result, we have included information on a "combined basis" as further described below, which we believe provides for more meaningful year-over-year comparability.

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 are presented to facilitate comparisons with our results following the acquisition. This information has been prepared in accordance with Article 11 of the Regulation S-X. Such unaudited pro forma combined financial information also uses the estimated fair value of 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 condensed consolidated financial statements in the three and six months ended June 30, 2021 and applies these costs and charges to the three and six months ended June 30, 2020, 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 condensed consolidated financial statements in the three and six months ended June 30, 2021 and applies the charge to the three and six months ended June 30, 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 six months ended June 30, 2021 and 2020; (4) adjusts interest expense, including amortization of debt issuance costs, to reflect borrowings on the ABL Facility and issuance of the 2029 Senior Secured Notes, as if the funds had been borrowed 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%.

Pro Forma Adjusted EBITDA. 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 loss to Pro Forma Adjusted EBITDA for the three and six-month periods ended June 30, 2021 and 2020 in this press release.

Combined Financial Results by Segment. We present financial results for each of our three segments on a combined basis, as if the Acquisition had occurred on January 1, 2020. This combined presentation differs from the presentation of pro forma financial information described above, in that our Combined Financial Results by Segment presentation excludes the impact of purchase accounting on segment revenues, cost of revenues and gross profit. Additionally, GAAP requires the results of acquired businesses to be included with those of the acquiring entity only from the date of acquisition; therefore, our presentation of Combined Financial Results by Segment for current and comparable prior periods (e.g. periods prior to the Acquisition) is a Non-GAAP basis of presentation. Because of the complimentary nature of the businesses of Custom Truck LP and Nesco Holdings, as well as the disparity in measures such as total revenue and total assets between Custom Truck LP and Nesco Holdings, we believe presenting the two entities on a combined basis for the three and six months ended June 30, 2021 and 2020 provides useful information to the users of our financial statements. Refer to the reconciliation of the combined segment data to the most comparable GAAP measure for the three and six months ended June 30, 2021 and 2020 in this press release.  

Adjusted Net Working Capital. We present Adjusted Net Working Capital, which we define as total current assets excluding cash and cash equivalents, trade and financing receivables, and mark-up to inventory values from purchase accounting, less non-interest bearing current liabilities. The presentation of Adjusted Net Working Capital in this press release compares the measure of the Company as of June 30, 2021, which includes Custom Truck LP, to the same measure as if Nesco Holdings and Custom Truck LP had been combined on March 31, 2021 without further adjustments, which is a Non-GAAP basis of presentation.

Adjusted Net Working Capital is a non-GAAP financial measure defined by the Company as total current assets excluding cash and cash equivalents, trade and financing receivables, mark-up to inventory values from purchase accounting, less non-interest bearing current liabilities. This non-GAAP measure is subject to certain limitations.

1 - The following table reconciles consolidated balance sheets of Nesco Holdings and Custom Truck LP as of March 31, 2021. Such information excludes the effects of the Acquisition and related financing transactions and, thus, is presented on a non-GAAP basis. This non-GAAP presentation is subject to certain limitations.