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 14, 2023
CUSTOM TRUCK ONE SOURCE, 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) | (IRS Employer<br>Identification No.) | |
| 7701 Independence Avenue<br><br>Kansas City, Missouri | 64125 | ||
| (Address of principal executive offices) | (Zip code) |
(816) 241-4888
(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 | CTOS | New York Stock Exchange |
| Redeemable warrants, exercisable for Common Stock, $0.0001 par value | CTOS.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 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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 14, 2023, Custom Truck One Source, Inc. (the "Company") issued a press release announcing its financial results for the fiscal year and quarter ended December 31, 2022. The press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The information in this Item 2.02, including Exhibit 99.1, 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 (the "Securities Act"), 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 7.01. Regulation FD Disclosure.
On March 14, 2023, the Company posted an updated investor presentation on its website at www.customtruck.com.
The information in this Item 7.01 shall be deemed “furnished” and not “filed” for purposes of Section 18 of 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 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 of Custom Truck One Source, Inc. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
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 14, 2023 | Custom Truck One Source, Inc. |
|---|---|---|
| /s/ Christopher J. Eperjesy | ||
| Christopher J. Eperjesy<br>Chief Financial Officer |
Document
EXHIBIT 99.1
Custom Truck One Source, Inc. Reports Record Results for the Fourth-Quarter and Full-Year 2022
KANSAS CITY, Mo, March 14, 2023 (BUSINESS WIRE) – 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 in 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<br>Ended<br>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<br>Actual | 2021<br><br>Pro Forma (1) | 2022<br>Actual | 2021<br><br>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<br>Ended<br>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<br>Ended<br>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<br>Ended<br>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<br>Ended<br>September 30, 2022 Actual | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in $000s) | 2022<br>Actual | 2021<br>Pro Forma | 2022<br>Actual | 2021<br>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.
INVESTOR CONTACT
Brian Perman, Vice President, Investor Relations
(844) 403-6138
investors@customtruck.com
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<br>Ended<br>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<br>Ended<br>September 30, 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in $000s) | 2022<br>Actual | 2021<br>Actual | 2022<br>Actual | 2021<br>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<br>Ended<br>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<br>One Source, Inc. | Custom Truck LP<br>(Three Months<br>Ended March 31,<br>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<br>Ended<br>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<br>Ended<br>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<br>Ended<br>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<br>Ended<br>December 31, 2022 | |
|---|---|---|
| Net debt | $ | 1,380,034 |
| Divided by: Adjusted EBITDA | $ | 392,978 |
| Net leverage ratio | 3.51 |