Custom Truck One Source(US:CTOS)2021-05-16 16:00PART I FINANCIAL INFORMATION This section covers the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Unaudited Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for the three months ended March 31, 2021, show a slight decrease in total revenue to $78.3 million from $81.7 million year-over-year, with a significantly wider net loss of $27.9 million compared to a $15.9 million loss in the prior-year period, primarily driven by $10.4 million in transaction expenses related to the Custom Truck acquisition Condensed Consolidated Balance Sheets This section presents the company's financial position as of March 31, 2021, showing a slight decrease in total assets to $750.2 million and an increased total stockholders' deficit of $68.7 million Condensed Consolidated Balance Sheet Highlights (in $000s) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $104,346 | $103,242 | | Rental equipment, net | $323,705 | $335,812 | | Goodwill and other intangibles, net | $304,878 | $305,631 | | Total Assets | $750,244 | $768,404 | | Total Current Liabilities | $65,074 | $71,351 | | Long-term debt, net | $725,677 | $715,858 | | Derivative and warrants liabilities | $23,647 | $7,012 | | Total Liabilities | $818,911 | $799,471 | | Total Stockholders' Deficit | $(68,667) | $(31,067) | Condensed Consolidated Statements of Operations This section details the company's financial performance for the three months ended March 31, 2021, reporting a total revenue of $78.3 million and a net loss of $27.9 million Condensed Consolidated Statements of Operations (in $000s, except per share data) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total Revenue | $78,299 | $81,743 | | Gross Profit | $20,219 | $21,403 | | Transaction and other expenses | $10,448 | $1,452 | | Operating (Loss) Income | $(3,054) | $6,796 | | Net Loss | $(27,907) | $(15,969) | | Basic and Diluted Net Loss Per Share | $(0.57) | $(0.33) | Condensed Consolidated Statements of Cash Flows This section outlines the company's cash flow activities for the three months ended March 31, 2021, showing a net cash use from operating activities of $12.1 million and a net change in cash of $(0.2 million) Condensed Consolidated Statements of Cash Flows (in $000s) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash flow from operating activities | $(12,086) | $(2,819) | | Net cash flow from investing activities | $3,972 | $(27,190) | | Net cash flow from financing activities | $7,893 | $33,943 | | Net Change in Cash | $(221) | $3,934 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements, including information on the Custom Truck acquisition and warrant reclassification - On April 1, 2021, after the reporting period, Nesco Holdings, Inc. acquired Custom Truck One Source, L.P. and changed its name to Custom Truck One Source, Inc. (CTOS Inc.), with the financial statements presented on a historical basis for Nesco Holdings24 - The acquisition of Custom Truck One Source, L.P. closed on April 1, 2021, with a preliminary purchase price of $1.5 billion, and the company expensed approximately $10.4 million in related transaction costs during the three months ended March 31, 20215254 - In connection with the acquisition, the company issued $920 million of 5.50% senior secured notes due 2029 and entered into a new $750 million ABL facility, repaying its existing Senior Secured Notes and 2019 Credit Facility555659 - The company reclassified its Non-Public Warrants from equity to a liability based on SEC guidance for SPACs, resulting in a reclassification of $10.3 million from Additional paid-in capital and a recognized expense of $7.6 million in Q1 2021 for the fair value remeasurement102103 Revenue by Segment (in $000s) | Segment | Q1 2021 Revenue | Q1 2020 Revenue | | :--- | :--- | :--- | | Equipment Rental and Sales (ERS) | $62,717 | $63,723 | | Parts, Tools, and Accessories (PTA) | $15,582 | $18,020 | | Total | $78,299 | $81,743 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 4.2% year-over-year revenue decline to a decrease in rental revenue and parts sales, partially offset by higher sales of used rental equipment, with the significant increase in net loss primarily due to transaction costs and warrant liability re-measurement - The acquisition of Custom Truck One Source, L.P. closed on April 1, 2021, with a preliminary purchase price of $1.5 billion, funded through a combination of equity issuance and new debt financing133 - Total revenue for Q1 2021 decreased by 4.2% YoY to $78.3 million, driven by a 5.3% decrease in rental revenue and a 14.6% decrease in parts sales and services, while sales of rental equipment increased 15.3%145 - Net loss widened to $27.9 million in Q1 2021 from $16.0 million in Q1 2020, largely due to $10.4 million in transaction expenses for the acquisition and a $7.6 million non-cash charge related to the change in fair value of warrant liabilities149 Key Performance Metrics | Metric | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Adjusted EBITDA (in $000s) | $27,531 | $32,061 | (14.1)% | | Fleet utilization | 78.5% | 77.3% | +1.6% | | OEC on rent yield | 35.0% | 36.5% | (4.1)% | - Post-acquisition, the company's debt structure consists of a $750 million ABL facility maturing in 2026 and $920 million of 5.50% senior secured notes due 2029, with previous credit facilities repaid171181 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk associated with its variable-rate debt under the new ABL Facility, with a 0.125% change in interest rates impacting annual interest expense by approximately $0.5 million - The company is exposed to interest rate risk from its variable-rate ABL Facility, with $415.0 million in variable-rate debt post-acquisition200 - A 0.125% change in the applicable interest rate would change the company's annual interest expense by approximately $0.5 million, excluding the impact of the existing interest rate collar200 - The company utilizes an interest rate collar agreement to manage a portion of its interest rate risk, which is not designated for hedge accounting201 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2021205 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls206 PART II OTHER INFORMATION This section includes legal proceedings, risk factors, unregistered sales of equity securities, and other miscellaneous information Legal Proceedings The company is involved in various claims and litigation in the ordinary course of business, which management does not expect to have a material adverse impact on its financial condition or results of operations - The company is not currently involved in any pending litigation that is expected to have a material adverse effect on its financial condition, cash flows, or results of operations208 Risk Factors The company highlights several key risks, including the difficulty and cost of integrating the Nesco and Custom Truck businesses, substantial indebtedness incurred for the acquisition, and the majority equity ownership by Platinum - Integration Risk: The company faces challenges in integrating Nesco and Custom Truck, which is a complex and costly process, with a risk that anticipated benefits and cost savings may not be fully realized229230 - Indebtedness Risk: The company has significant indebtedness following the acquisition, which could adversely affect its financial position, limit access to capital, and increase the risk of default, with debt agreements imposing significant operating and financial restrictions238239246 - Majority Shareholder Risk: Platinum owns a majority of the company's equity, giving it control over affairs, policies, and the election of directors, whose interests may conflict with those of other shareholders237 - Operational Risk: The company faces risks related to managing its long-life rental equipment, potential supply chain disruptions for raw materials and components, and the potential for increased unionization of its workforce211212214 Unregistered Sales of Equity Securities and Use of Proceeds On April 1, 2021, the company issued 176,600,000 shares of common stock at $5.00 per share for a total of $883.0 million to finance the acquisition of Custom Truck One Source, L.P., under an exemption from registration - On April 1, 2021, CTOS Inc. issued 176,600,000 shares of Common Stock at $5.00 per share, raising $883.0 million in aggregate254 - The proceeds were used to finance the acquisition of Custom Truck One Source, L.P., with the issuance made under an exemption from registration pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506(c) of Regulation D254 Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported255 Mine Safety Disclosures Not applicable - Not applicable256 Other Information No other information was reported - No other information was reported258 Exhibits This section lists the exhibits filed with the Form 10-Q, including the Purchase and Sale Agreement for the acquisition, the new Indenture and Revolving Credit Agreement, and various officer certifications - The report includes key legal documents as exhibits, such as the Purchase and Sale Agreement, new debt agreements (Indenture and ABL Credit Agreement), and officer certifications required by the Sarbanes-Oxley Act259