8-K
Custom Truck One Source, Inc. (CTOS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event Reported): March 8, 2021
NESCO HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 001-38186 | 84-2531628 | |
|---|---|---|---|
| (State or Other Jurisdiction<br>of Incorporation) | (Commission<br>File Number) | (I.R.S. Employer<br>Identification Number) | |
| 6714 Pointe Inverness Way, Suite 220<br>Fort Wayne, Indiana | 46804 | ||
| (Address of principal executive offices) | (Zip code) |
(800) 252-0043
(Registrant’s telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Exchange on Which Registered |
|---|---|---|
| Common Stock, $0.0001 par value | NSCO | New York Stock Exchange |
| Redeemable warrants, exercisable for Common Stock, $0.0001 par value | NSCO.WS | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On March 8, 2021, Nesco Holdings, Inc. (the "Company") issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2020. The press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
This Form 8-K and the Exhibit hereto shall be deemed “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and regardless of any general incorporation language in such filings, except to the extent expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Press release issuedMarch 8, 2021, by Nesco Holdings, Inc. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: | March 8, 2021 | Nesco Holdings, Inc. |
|---|---|---|
| /s/ Joshua A. Boone | ||
| Joshua A. Boone<br>Chief Financial Officer and Secretary |
Document
Exhibit 99.1
Nesco Holdings, Inc. Reports Fourth Quarter and Full Year 2020 Financial Results
Fourth Quarter Highlights
All metrics compared to fourth quarter 2019 unless otherwise noted
•Total revenue increased 7.8% to $83.3 million
•Equipment Rental and Sales (ERS) segment revenue increased 7.3% to $65.2 million
•Parts, Tools and Accessories (PTA) segment revenue increased 9.6% to $18.0 million
•Adjusted EBITDA decreased 9.2% to $32.3 million
•Net loss of $7.3 million compared to net income of $3.1 million
•Free cash flow increased to $28.5 million from negative $2.6 million
•Announced acquisition of Custom Truck to create industry-leading specialty equipment rental platform with a combined fleet of 8,800 units and more than $1.3 billion in original equipment cost
Full Year 2020 Highlights
All metrics compared to 2019 unless otherwise noted
•Total revenue increased 14.7% to $302.7 million
•Equipment Rental and Sales (ERS) segment revenue increased 9.1% to $236.6 million
•Parts, Tools and Accessories (PTA) segment revenue increased 40.1% to $66.2 million
•Adjusted EBITDA decreased 7.0% to $118.6 million
•Net loss of $21.3 million compared to a net loss of $27.1 million
•Free cash flow increased to $13.3 million from negative $62.5 million
•Available liquidity of $93.6 million as of December 31, 2020
FORT WAYNE, IN, March 8, 2021 – Nesco Holdings, Inc. (NYSE: NSCO, “Nesco” or the “Company”), a leading provider of specialty rental equipment to the electric utility, telecom and rail infrastructure end markets, today reported financial results for its fourth quarter and fiscal year ended December 31, 2020.
Total revenue in the fourth quarter was $83.3 million, an increase of 7.8% from the fourth quarter of 2019, as increased equipment sales and growth in PTA more than offset the negative impact of COVID-19 related project delays.
For the full year 2020, the Company reported total revenue of $302.7 million, an increase of 14.7%, primarily due to higher equipment sales and the acquisition of Truck Utilities.
Adjusted EBITDA was $32.3 million in the fourth quarter, a decrease of 9.2% from $35.6 million in the fourth quarter of 2019. For the full year 2020, Adjusted EBITDA was $118.6 million, a decrease of 7.0% from $127.5 million in 2019. In both periods, the declines in adjusted EBITDA were primarily due to lower fleet utilization resulting from project delays associated with COVID-19, partially offset by increases in equipment sales and growth in PTA.
A net loss of $7.3 million for the fourth quarter compared to net income of $3.1 million in the fourth quarter of 2019. The Company reported a net loss of $21.3 million for 2020, compared to a net loss of $27.1 million in 2019. The Company recognized a one-time income tax benefit in the third quarter of $23.7 million related to a reduction of the deferred income tax valuation allowance.
“Our positive momentum in the latter part of the third quarter and throughout the fourth quarter helped us achieve record quarterly revenue in both our ERS and PTA segments,” said Lee Jacobson, Chief Executive Officer of Nesco. “The recovery continues to build in 2021 as new project releases gained pace in the second half of January and carried into February. We believe a bright future lies ahead for Nesco, with strong, multi-year tailwinds in our end markets and countless new opportunities from our strategic combination with Custom Truck.”
“During the fourth quarter, we continued to capitalize on improving demand across all of our end markets, maintaining disciplined cost control and capital investments, and driving free cash flow,” said Josh Boone, Chief Financial Officer of Nesco. “We were successful on all these fronts in the fourth quarter, generating positive free cash flow for the third consecutive quarter and the full year, while improving our liquidity position, to nearly $94 million at year-end.”
ACQUISITION OF CUSTOM TRUCK
As previously announced, on December 3, 2020, Nesco entered into a definitive agreement to acquire Custom Truck One Source, LP ("Custom Truck"). The combination will create a leading, one-stop shop for specialty rental equipment serving highly attractive and growing infrastructure end markets, including transmission and distribution ("T&D"), telecom, rail and other national infrastructure initiatives. Due to complementary business lines, customer bases and capabilities, the combined specialty equipment platform is expected to yield significant benefits from increased scale, broader product and service offerings and expanded geographic coverage with a combined fleet of 8,800 specialty equipment rental units and more than $1.3 billion original equipment cost.
The transaction has been approved by Nesco Holdings' shareholders and is on track to close in the first quarter of 2021.
FOURTH QUARTER REVENUE BY SEGMENT
All metrics compared to fourth quarter 2019 unless otherwise noted
Equipment Rental and Sales Segment (78.4% of revenue)
•Revenue increased 7.3% to $65.2 million, compared to $60.8 million
•Equipment rental revenue decreased 5.5% to $47.2 million, compared to $50.0 million
◦Average equipment on rent decreased 2.3% to $502.9 million due to COVID-19 related project delays
◦Fleet utilization declined 5.9% to 77.9%
•Equipment sales revenue increased 66.2% to $18.0 million due to an increase in new and used equipment sales
Parts, Tools and Accessories Segment (21.6% of revenue)
•Revenue increased 9.6% to $18.0 million, compared to $16.4 million
•Parts rental revenue of $4.1 million was flat when compared to the same period in 2019 due to COVID-19 related project delays
•Parts sales and service revenue increased 12.8% to $13.9 million primarily due to the acquisition of Truck Utilities
FULL YEAR REVENUE BY SEGMENT
All metrics compared to 2019 unless otherwise noted
Equipment Rental and Sales Segment (78.1% of revenue)
•Revenue increased 9.1% to $236.6 million, compared to $216.8 million
•Equipment rental revenue decreased 1.5% to $179.9 million, compared to $182.7 million
◦Average equipment on rent increased 0.6% to $482.0 million; the Company invested to grow the fleet in 2019 and in the first half of 2020, which resulted in increased equipment on rent year-over-year despite mid-year headwinds resulting from COVID-19 related project delays
◦Fleet utilization declined 10.1% to 74.6%
•Equipment sales revenue increased 66.2% to $56.6 million due to an increase in new and used equipment sales and a concerted effort to market and sell aging units
Parts, Tools and Accessories Segment (21.9% of revenue)
•Revenue increased 40.1% to $66.2 million, compared to $47.2 million
•Parts rental revenue increased 1.8% to $15.6 million when compared to same period in 2019, mainly due to an expansion of PTA locations in 2019 to create a national footprint, which offset the negative impact of COVID-19 related projected delays
•Parts sales and service revenue increased 58.4% to $50.6 million, primarily due to the acquisition of Truck Utilities
LIQUIDITY AND CASH FLOW
The Company had cash of $3.4 million and availability of $90.2 million under its asset-based credit facility, for total liquidity of $93.6 million as of December 31, 2020, a $24.6 million sequential quarterly improvement. Net debt outstanding, including capital leases, was $735.5 million as of December 31, 2020, a decrease of $29.3 million compared to the end of the third quarter.
For the full year 2020, Nesco reported positive cash flow from operating activities of $42.8 million, an increase of $24.0 million compared to 2019. Net cash outflow from investing activities of $29.3 million in 2020 improved from $129.7 million when compared to 2019 as Nesco curtailed capital expenditures and increased sales of rental equipment. Free cash flow increased to $13.3 million in 2020 from negative free cash flow of $62.5 million in 2019.
Total net capital expenditures in 2020 were $29.5 million. Gross capital expenditures, which include purchases of rental fleet and property and equipment, were $68.4 million. The Company received $38.9 million from the sale of rental equipment and parts, as well as insurance proceeds from damaged equipment.
CONFERENCE CALL INFORMATION
With the upcoming transaction, the Company will not be hosting a conference call at this time. The Company will be scheduling a conference call at a later date to discuss its financial results, provide a market update, as well as to provide an update related to the acquisition of Custom Truck.
NON-GAAP FINANCIAL MEASURES
The Company uses a variety of operational and financial metrics, including financial measures that do not conform with Generally Accepted Accounting Principles (GAAP), to analyze its performance and financial condition. These include adjusted EBITDA, free cash flow, fleet utilization, original equipment cost (OEC) on rent and net capital expenditures, among other metrics. The Company utilizes these financial measures to manage its business on a day-to-day basis and believes they are the most relevant measures of performance. Some of these measures are commonly used in the specialty rentals industry to evaluate performance. The Company believes these non-GAAP measures provide greater insights about its revenue and cost performance, in addition to standard GAAP-based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, they may not be comparable to measures used by other companies within the industry. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or to be superior to, the financial information prepared and presented in accordance with GAAP. The definitions of non-GAAP financial measures along with a reconciliation of non-GAAP financial information to GAAP are included in the supplemental financial schedules.
ABOUT NESCO
Nesco 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. Nesco 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. Nesco's coast-to-coast rental fleet of more than 4,500 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.nescospecialty.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 Nesco’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 Nesco's management has made in light of its experience in the industry, as well as Nesco’s perceptions of historical trends, current conditions, expected future developments and other factors Nesco 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 Nesco’s actual performance and results and could cause actual results to differ materially from those expressed in this press release. All forward-looking statements attributable to Nesco or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. Important factors, among others, that may affect actual results or outcomes include: the impact of the COVID-19 pandemic on Nesco's business and operations as well as the overall economy; Nesco's ability to complete its pending transaction with Custom Truck and the related private placement of notes; Nesco’s ability to execute on its plans to develop and market new products and the timing of these development programs; Nesco’s estimates of the size of the markets for its solutions; the rate and degree of market acceptance of Nesco’s solutions; the success of other competing technologies that may become available; Nesco’s ability to identify and integrate acquisitions, including Nesco’s ability to integrate its anticipated transaction with Custom Truck and realize the anticipated benefits thereof; the performance and security of Nesco’s services; potential litigation involving Nesco; and general economic and market conditions impacting demand for Nesco’s services. For a more complete description of these and other possible risks and uncertainties, please refer to Nesco's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 16, 2020, and as updated by Nesco's quarterly reports on Form 10-Q.
INVESTOR CONTACT
Josh Boone, CFO
(800) 252-0043
investors@nescospecialty.com
Nesco Holdings, Inc.
Condensed Consolidated Statements of Operations (unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in $000s except per share data) | 2020 | 2019 | 2020 | 2019 | ||||
| Revenue | ||||||||
| Rental revenue | $ | 51,387 | $ | 54,125 | $ | 195,490 | $ | 197,996 |
| Sales of rental equipment | 11,948 | 8,600 | 31,533 | 23,767 | ||||
| Sales of new equipment | 6,056 | 2,232 | 25,099 | 10,308 | ||||
| Parts sales and services | 13,864 | 12,289 | 50,617 | 31,964 | ||||
| Total revenues | 83,255 | 77,246 | 302,739 | 264,035 | ||||
| Cost of revenue | ||||||||
| Cost of rental revenue | 17,837 | 13,313 | 59,030 | 50,829 | ||||
| Depreciation of rental equipment | 19,257 | 19,270 | 78,532 | 70,568 | ||||
| Cost of rental equipment sales | 9,161 | 7,649 | 25,615 | 20,302 | ||||
| Cost of new equipment sales | 4,951 | 1,902 | 21,792 | 8,520 | ||||
| Cost of parts sales and services | 8,311 | 10,131 | 39,150 | 25,052 | ||||
| Major repair disposals | 671 | 694 | 2,177 | 2,216 | ||||
| Total cost of revenue | 60,188 | 52,959 | 226,296 | 177,487 | ||||
| Gross profit | 23,067 | 24,287 | 76,443 | 86,548 | ||||
| Operating expenses | ||||||||
| Selling, general, and administrative | 12,195 | 9,960 | 43,464 | 34,667 | ||||
| Licensing and titling | 702 | 690 | 2,945 | 2,617 | ||||
| Amortization and non-rental depreciation | 940 | 858 | 3,248 | 3,122 | ||||
| Transaction expenses | 5,554 | 247 | 6,627 | 7,641 | ||||
| Asset impairment | — | — | — | 657 | ||||
| Other operating expenses | 702 | 613 | 2,911 | 1,826 | ||||
| Total operating expenses | 20,093 | 12,368 | 59,195 | 50,530 | ||||
| Operating income | 2,974 | 11,919 | 17,248 | 36,018 | ||||
| Other expense | ||||||||
| Loss on extinguishment of debt | — | — | — | 4,005 | ||||
| Interest expense, net | 15,384 | 16,985 | 63,200 | 63,361 | ||||
| Other expense, net | (846) | (855) | 5,399 | 1,690 | ||||
| Total other expense | 14,538 | 16,130 | 68,599 | 69,056 | ||||
| Loss before income taxes | (11,564) | (4,211) | (51,351) | (33,038) | ||||
| Income tax expense (benefit) | (4,233) | (7,316) | (30,074) | (5,986) | ||||
| Net Income (Loss) | $ | (7,331) | $ | 3,105 | $ | (21,277) | $ | (27,052) |
| Income (Loss) Per Share: | ||||||||
| Basic and diluted | $ | (0.15) | $ | 0.06 | $ | (0.43) | $ | (0.82) |
Nesco Holdings, Inc.
Condensed Consolidated Balance Sheets (unaudited)
| (in $000s, except share data) | December 31, 2020 | December 31, 2019 | ||
|---|---|---|---|---|
| Assets | ||||
| Current Assets | ||||
| Cash | $ | 3,412 | $ | 6,302 |
| Accounts receivable, net of allowance of $6,372 and $4,654, respectively | 60,933 | 71,323 | ||
| Inventory | 31,367 | 33,001 | ||
| Prepaid expenses and other | 7,530 | 5,217 | ||
| Total current assets | 103,242 | 115,843 | ||
| Property and equipment, net | 6,269 | 6,561 | ||
| Rental equipment, net | 335,812 | 383,420 | ||
| Goodwill and other intangible assets, net | 305,631 | 308,747 | ||
| Deferred income taxes | 16,952 | — | ||
| Notes receivable | 498 | 713 | ||
| Total assets | $ | 768,404 | $ | 815,284 |
| Liabilities and Stockholders' Deficit | ||||
| Current Liabilities | ||||
| Accounts payable | $ | 31,829 | $ | 41,172 |
| Accrued expenses | 31,991 | 27,590 | ||
| Deferred rent income | 975 | 2,270 | ||
| Current maturities of long-term debt | 1,280 | 1,280 | ||
| Current portion of capital lease obligations | 5,276 | 5,451 | ||
| Total current liabilities | 71,351 | 77,763 | ||
| Long term debt, net | 715,858 | 713,023 | ||
| Capital leases | 5,250 | 22,631 | ||
| Deferred income taxes | — | 12,288 | ||
| Interest rate collar | 7,012 | 1,709 | ||
| Total long-term liabilities | 728,120 | 749,651 | ||
| Commitments and contingencies | ||||
| Stockholders' Deficit | ||||
| Common stock - $0.0001 par value, 250,000,000 shares authorized, 49,156,753 and 49,033,903 issued and outstanding, at December 31, 2020 and 2019, respectively | 5 | 5 | ||
| Additional paid-in capital | 434,917 | 432,577 | ||
| Accumulated deficit | (465,989) | (444,712) | ||
| Total stockholders' deficit | (31,067) | (12,130) | ||
| Total Liabilities and Stockholders' Deficit | $ | 768,404 | $ | 815,284 |
Nesco Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
| Twelve Months Ended December 31, | ||||
|---|---|---|---|---|
| (in $000s) | 2020 | 2019 | ||
| Operating activities | ||||
| Net loss | $ | (21,277) | $ | (27,052) |
| Adjustments to reconcile net loss to net cash flow from operating activities: | ||||
| Depreciation | 79,559 | 71,548 | ||
| Amortization - intangibles | 3,153 | 3,008 | ||
| Amortization - financing costs | 3,290 | 2,913 | ||
| Provision for losses on accounts receivable | 3,765 | 3,292 | ||
| Share-based payments | 2,357 | 1,014 | ||
| Gain on sale of equipment - rental fleet | (7,215) | (5,542) | ||
| Gain on insurance proceeds - damaged equipment | (781) | (538) | ||
| Major repair disposals | 2,177 | 2,216 | ||
| Loss on extinguishment of debt | — | 4,005 | ||
| Asset impairment | — | 657 | ||
| Change in fair value of derivative | 5,303 | 1,709 | ||
| Deferred tax (benefit) expense | (28,810) | (6,861) | ||
| Changes in assets and liabilities: | ||||
| Accounts receivable | 7,061 | (17,073) | ||
| Inventory | (9,642) | (22,683) | ||
| Prepaid expenses and other | (2,313) | (2,578) | ||
| Accounts payable | 3,113 | 7,547 | ||
| Accrued expenses and other liabilities | 4,384 | 6,560 | ||
| Unearned income | (1,295) | (3,350) | ||
| Net cash flow from operating activities | 42,829 | 18,792 | ||
| Investing activities | ||||
| Cash paid for business acquisition, net of cash required | — | (48,425) | ||
| Purchase of equipment - rental fleet | (67,546) | (106,641) | ||
| Proceeds from sale of equipment and parts | 34,923 | 26,794 | ||
| Insurance proceeds from damaged equipment | 4,010 | 1,658 | ||
| Purchase of property and equipment | (874) | (3,065) | ||
| Other | 173 | — | ||
| Net cash flow from investing activities | (29,314) | (129,679) | ||
| Financing activities | ||||
| Proceeds from issuance of long-term debt | — | 475,000 | ||
| Borrowings under revolving credit facilities | 86,178 | 313,000 | ||
| Repayments under revolving credit facilities | (85,208) | (272,000) | ||
| Repayments of short-term debt | (1,146) | (527,531) | ||
| Capital lease payments | (15,950) | (5,201) | ||
| Proceeds from merger and recapitalization | — | 147,269 | ||
| Finance fees paid | (279) | (15,488) | ||
| Net cash flow from financing activities | (16,405) | 115,049 | ||
| Net change in cash | (2,890) | 4,162 | ||
| Cash at Beginning of Period | 6,302 | 2,140 | ||
| Cash at End of Period | $ | 3,412 | $ | 6,302 |
| Twelve Months Ended December 31, | ||||
| --- | --- | --- | --- | --- |
| (in $000s) | 2020 | 2019 | ||
| Supplemental Cash Flow Information | ||||
| Cash paid for interest | $ | 60,340 | $ | 53,595 |
| Cash paid for income taxes | 646 | 455 | ||
| Non-Cash Investing and Financing Activities: | ||||
| Transfer of inventory to rental equipment | 10,851 | 5,804 | ||
| Rental equipment and property and equipment purchases in accounts payable | 9,122 | 21,643 | ||
| Rental equipment sales in accounts receivable | 5,120 | 4,684 | ||
| Extinguishment of capital lease obligations | 1,608 | — | ||
| Customer note receivable | — | 972 | ||
| Settlement of note payable with common stock | — | 25,000 |
Nesco Holdings, Inc.
Adjusted EBITDA Reconciliation (unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in $000s) | 2020 | 2019 | 2020 | 2019 | ||||
| Net loss | $ | (7,331) | $ | 3,105 | $ | (21,277) | $ | (27,052) |
| Interest expense | 15,384 | 16,985 | 63,200 | 63,361 | ||||
| Income tax expense (benefit) | (4,233) | (7,316) | (30,074) | (5,986) | ||||
| Depreciation expense | 19,479 | 19,444 | 79,559 | 71,548 | ||||
| Amortization expense | 920 | 836 | 3,153 | 3,008 | ||||
| EBITDA | 24,219 | 33,054 | 94,561 | 104,879 | ||||
| Adjustments: | ||||||||
| Non-cash purchase accounting impact (1) | 1,025 | 940 | 2,510 | 1,802 | ||||
| Transaction and process improvement costs (2) | 6,562 | 1,190 | 11,660 | 15,866 | ||||
| Major repairs (3) | 671 | 694 | 2,177 | 2,216 | ||||
| Share-based payments (4) | 688 | 551 | 2,357 | 1,014 | ||||
| Change in fair value of derivative (5) | (846) | (843) | 5,303 | 1,709 | ||||
| Adjusted EBITDA | $ | 32,319 | $ | 35,586 | $ | 118,568 | $ | 127,486 |
Adjusted EBITDA is defined as net income (loss) plus interest expense, provision for income taxes, depreciation and amortization, and further adjusted for (1) non-cash purchase accounting impact, (2) transaction and process improvement costs, including the effect of the cessation of operations in Mexico, (3) major repairs, (4) share-based payments, (5) other non-recurring items, if any, and (6) the change in fair value of derivative instruments. 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 sold. The equipment acquired received a purchase step-up in basis, which is a non-cash adjustment to the equipment cost pursuant to our credit agreement.
(2) 2020: Represents transaction costs related to the pending acquisition of Custom Truck, as well as, our acquisition of Truck Utilities; 2019: Represents transaction expenses related to merger activities associated with the transaction with Capitol that was consummated on July 31, 2019. These expenses are comprised of professional consultancy, legal, tax and accounting fees. Also included are costs of startup activities (which include training, travel, and process setup costs) associated with the rollout of new PTA locations that occurred throughout the prior year into the first half of the current year. Finally, the expenses associated with the closure of its Mexican operations, which closure activities commenced in the third quarter of 2019, are also included for the periods presented. Pursuant to our credit agreement, the cost of undertakings to effect such cost savings, operating expense reductions and other synergies, as well as any expenses incurred in connection with acquisitions, are amounts to be included in the calculation of Adjusted EBITDA.
(3) Represents the undepreciated cost of replaced vehicle chassis and components from heavy maintenance, repair and overhaul activities associated with our fleet, which is an adjustment pursuant to our credit agreement.
(4) Represents non-cash stock compensation expense associated with the issuance of stock options and restricted stock units.
(5) Represents the charge to earnings for our interest rate collar (which is an undesignated hedge).
Fleet Metrics (unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in $000s) | 2020 | 2019 | 2020 | 2019 | ||||||||
| Average OEC on rent | $ | 502,949 | $ | 514,552 | $ | 482,016 | $ | 478,967 | ||||
| Fleet utilization | 77.9 | % | 83.8 | % | 74.6 | % | 84.7 | % | ||||
| OEC on rent yield | 35.7 | % | 37.0 | % | 36.0 | % | 36.9 | % |
OPERATIONAL AND FINANCIAL METRICS
Average OEC on rent. OEC on rent is the original equipment cost of units rented to customers at a given point in time. Average OEC on rent is calculated as the weighted-average OEC on rent during the stated period.
Fleet utilization. Fleet utilization is defined as the 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.
OEC on rent yield. OEC on rent yield (“ORY”) is a measure of return realized by our on 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.
Segment Performance (unaudited)
| Three Months Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||||||
| (in $000s) | ERS | PTA | Total | ERS | PTA | Total | ||||||
| Rental revenue | $ | 47,240 | $ | 4,147 | $ | 51,387 | $ | 49,985 | $ | 4,140 | $ | 54,125 |
| Sales of rental equipment | 11,948 | — | 11,948 | 8,600 | — | 8,600 | ||||||
| Sales of new equipment | 6,056 | — | 6,056 | 2,232 | — | 2,232 | ||||||
| Parts sales and services | — | 13,864 | 13,864 | — | 12,289 | 12,289 | ||||||
| Total revenue | 65,244 | 18,011 | 83,255 | 60,817 | 16,429 | 77,246 | ||||||
| Cost of revenue | 31,336 | 9,595 | 40,931 | 21,279 | 12,410 | 33,689 | ||||||
| Depreciation of rental equipment | 18,311 | 946 | 19,257 | 18,030 | 1,240 | 19,270 | ||||||
| Gross Profit | $ | 15,597 | $ | 7,470 | $ | 23,067 | $ | 21,508 | $ | 2,779 | $ | 24,287 |
| Twelve Months Ended December 31, | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2020 | 2019 | |||||||||||
| (in $000s) | ERS | PTA | Total | ERS | PTA | Total | ||||||
| Rental revenue | $ | 179,933 | $ | 15,557 | $ | 195,490 | $ | 182,720 | $ | 15,276 | $ | 197,996 |
| Sales of rental equipment | 31,533 | — | 31,533 | 23,767 | — | 23,767 | ||||||
| Sales of new equipment | 25,099 | — | 25,099 | 10,308 | — | 10,308 | ||||||
| Parts sales and services | — | 50,617 | 50,617 | — | 31,964 | 31,964 | ||||||
| Total revenue | 236,565 | 66,174 | 302,739 | 216,795 | 47,240 | 264,035 | ||||||
| Cost of revenue | 103,547 | 44,217 | 147,764 | 76,573 | 30,346 | 106,919 | ||||||
| Depreciation of rental equipment | 74,376 | 4,156 | 78,532 | 66,228 | 4,340 | 70,568 | ||||||
| Gross Profit | $ | 58,642 | $ | 17,801 | $ | 76,443 | $ | 73,994 | $ | 12,554 | $ | 86,548 |
Net Capital Expenditures (unaudited)
| Twelve Months Ended December 31, | ||||
|---|---|---|---|---|
| (in $000s) | 2020 | 2019 | ||
| Purchase of equipment - rental fleet | $ | 67,546 | $ | 106,641 |
| Purchase of other property and equipment | 874 | 3,065 | ||
| Total Capital Expenditures | 68,420 | 109,706 | ||
| Less: | ||||
| Proceeds from sale of equipment and parts | (34,923) | (26,794) | ||
| Insurance proceeds from damaged equipment | (4,010) | (1,658) | ||
| Net Capital Expenditures | $ | 29,487 | $ | 81,254 |
Free Cash Flow (unaudited)
| Twelve Months Ended December 31, | ||||
|---|---|---|---|---|
| (in $000s) | 2020 | 2019 | ||
| Net cash flow from operating activities | $ | 42,829 | $ | 18,792 |
| Net capital expenditures | (29,487) | (81,254) | ||
| Free cash flow | $ | 13,342 | $ | (62,462) |