Custom Truck One Source, Inc. · NYSE:CTOS
Custom Truck One Source — Nesco Holdings I — SPAC Merger (April 2019)
43 slides from Custom Truck One Source's SPAC merger presentation, Apr 8, 2019
Slide 1: Investor Presentation April 2019
Investor Presentation April 2019
Slide 2: Disclaimer
1 Disclaimer THIS PRESENTATION HAS BEEN PREPARED FOR USE BY CAPITOL INVESTMENT CORP. IV (“CAPITOL”) AND NESCO HOLDINGS I, LP (“ NESCO ”) IN CONNECTION WITH THEIR PROPOSED BUSINESS COMBINATION. SUCH PRESENTATION MAY BE PRESENTED TO CERTAIN OF CAPITOL’S STOCKHOLDERS, AS WELL AS OTHER PERSONS WHO MIGHT
Slide 3: Presenters
2 Presenters Lee Jacobson Chief Executive Officer Bruce Heinemann Chief Financial Officer Mark D. Ein Chairman & Chief Executive Officer L. Dyson Dryden President & Chief Financial Officer
Slide 4: Agenda
3 Agenda 1. Capitol Investment Thesis 2. Company Overview 3. Industry Trends 4. Growth Strategy 5. Financial Overview 6. Business Combination 7. Appendix
Slide 5: Capitol's Value-Creation Track Record
4 Note: SPAC ranking data as of April 5 , 2019. Comparison data only includes SPACs that raised ≥$100 million and is based on IPO investor returns. (1) Based on SPAC sponsors that have completed more than one deal since October 2009 in terms of total returns since business combination. (2) SPAC rank
Slide 6: Track Record of Growth and Creating Shareholder Value
5 43 % Return Since M erger vs. 20 % for S&P 62% Return Since M erger vs. 41 % for S&P 114% Return Since M erger vs. 124% for S&P Track Record of Growth and Creating Shareholder Value Source: Company filings, FactSet and Thomson One. Note: Data as of April 5, 2019 and based on IPO investor returns s
Slide 7: Extraordinary Team of Value Creators
6 Extraordinary Team of Value Creators William Plummer Jeffrey Stoops • Will help oversee Nesco’s growth as Chairman • As CFO of United Rentals from 2008 to 2018, he created tremendous value for shareholders • Will add valuable experience to Nesco’s board as an independent director • As CEO of SBA C
Slide 8: Capitol Investment Thesis
7 Capitol Investment Thesis ▪ Premier Industrial Growth Business. Nesco is a leading provider of specialty rental equipment to support critical maintenance, repair, upgrade and installation services for electric transmission and distribution, communications and rail infrastructure in North America ▪
Slide 9: Company Overview
8 Company Overview
Slide 10: Nesco Is a Leader in Highly Specialized Rentals
9 Nesco Is a Leader in Highly Specialized Rentals Note : 2018 revenue split excludes $2 million of revenue from Renta . 1. Excludes $11m of inventory held for UEO sales. 2018 Revenue 2018 Average OEC ‘16 - ’18 Revenue CAGR Revenue Mix Specialized rental services for utilities and utility contractors
Slide 11: Young, specialized fleet of ~4,000 rental units
10 Nesco has a young, specialized fleet of ~4,000 rental units with an average unit age of 3.8 years, far below the average unit’s useful life of up to 25 years Equipment Description # of Units OEC % of OEC Useful Life Average Age Cost Bucket Trucks Used to maintain and construct utility, rail or te
Slide 12: Attractive Asset-Level Economics
11 Attractive Asset - Level Economics Illustrative New Fleet Investment ROI ▪ Nesco’s scale, footprint and differentiated sales and service model have created a significant competitive advantage for the company in the marketplace enabling attractive returns on capital ▪ Equipment can either be sold
Slide 13: 90% of sales are to recurring customers
12 90% of sales are to recurring customers and no customer represents more than 11% of sales Recurring, Longstanding Customer Relationships Diverse Customer Base ▪ Nesco serves as a key supplier to utilities, telecoms, railroads and related contractors for their specialty rental equipment needs , wi
Slide 14: Broad Geographic Reach
13 Nesco has a broad geographic footprint across the U.S., Canada and Mexico and provides its customers a “one - stop shop” for all their rental and parts needs Broad Geographic Reach Note: 1. Alvarado, TX parts, tools and accessories co - located expansion opening in Q2 2019. 2. Tallahassee, FL par
Slide 15: Industry-Leading Management Team
14 Title Years of Relevant Experience Kevin Kapelke Chief Operating Officer 25 Years Heath Northcutt Regional Vice President of Sales – T&D >25 Years Tim Bryan President – RLST 20 Years Kent Upton President – UEO >25 Years Dennis DePazza Chief Business Development Officer >25 Years Jameson Ringger E
Slide 16: Industry Trends
aa Se hat Industry Trends MESO ACAPITOLV 15
Slide 17: Large and Growing End-Markets
16 $10bn+ Class I Rail Spend Source: FactSet, Federal Reserve Economic Data and Wall Street research. Note : 1. Total construction spending from Federal Reserve Economic Data. 2. Based on current end - market mix of 81% T&D, 13% telecom and 6% rail excluding other end - markets, which is primarily c
Slide 18: Nesco's End-Markets Provide Growth Without Sacrificing Stability
17 Source: C ompany filings, FactSet, Federal Reserve Economic Data, USTelecom research and Wall Street research. Note: 1. Excludes other end - markets, which is primarily comprised of signage and lighting and represents under 2% of revenue. 2. Based on the average end - market mix of WillScot and M
Slide 19: Electric Utilities: Early Innings of Multi-Year Upcycle
18 $ 7,359 $ 354 $8,545 $ 610 Quanta Electrical Power & Infrastructure Mastec Electrical Transmission 2017A 2018A ▪ An estimated 40% - 50% of existing transmission and distribution infrastructure is at or beyond engineered lives ▪ Migration to renewables and gas requires extension of the power grid
Slide 20: Telecom: Long-Term Tailwinds from 5G Spend
19 $5,847 $ 3,628 $7,330 $ 4,276 Dycom Mastec Communications 2017A 2018A Telecom: Long - Term Tailwinds from 5G Spend ▪ 5G wireless infrastructure roll - out is expected to add up to 20 times more small cells than the existing macro structure ▪ Nesco’s equipment is well suited to service the typical
Slide 21: Rail: Increasing Investment in U.S. Infrastructure
20 ▪ In 2019 the U.S. Senate approved spending of over $16 billion to support commuter rail and transit projects – Special events like the 2028 Olympics in Los Angeles will require additional investment in transit projects ▪ Class I railroads spend more than $11 billion annually to maintain, upgrade
Slide 22: End-Market Shift to Rental Supports Growth
21 End - Market Shift to Rental Supports Growth ▪ Key drivers fueling Nesco’s end - markets to continue to shift to rental: 1. Avoidance of capital outlay 2. Improved asset utilization with significantly reduced storage and maintenance costs 3. Better risk management with dedicated customer care 4.
Slide 23: Growth Strategy
Growth Strategy MESO CAPITOL 22
Slide 24: Multiple Attractive Growth Levers
23 Multiple Attractive Growth Levers Increase Customer Penetration in Parts, Tools and Accessories 2 Invest in New Fleet to Fulfill Unmet and Growing Demand from Customers 1 Continued Robust End - Market Growth Actionable M&A Pipeline in Fragmented Market 3 Inorganic Organic
Slide 25: Invest in Fleet to Meet Growing Excess Demand
24 $56 $83 $38 ▪ The company expects to accelerate fleet investment in 2019 and 2020 – Growth capex will be allocated to product lines with the greatest excess demand, highest utilization and shortest payback per iod s Invest in Fleet to Meet Growing Excess Demand Nesco’s growing excess demand is ev
Slide 26: Increase Customer Penetration in Parts, Tools and Accessories
25 Meaningful opportunity to geographically expand Nesco’s cross - selling and rental of parts, tools and accessories to large utility, telecom and rail customer bases ▪ Nesco established the parts, tools and accessories division in 2015 – Acquisition of N&L (2018) added certified expertise in regul
Slide 27: Strong Record of Accretive M&A
26 ▪ Nesco has made six successful acquisitions since 2012, realizing 100%+ of expected synergies for every target ▪ The weighted average purchase EBITDA multiple of all six acquisitions is 5.7x, or 4.0x including realized synergies Pipeline of Actionable Future M&A Strong Record of Accretive M&A Fr
Slide 28: Financial Overview
27 Financial Overview
Slide 29: Strong Revenue Growth
28 ▪ In response to significant end - market demand, Nesco has grown revenue through expansion of the fleet, increased utilization and rapid build - up of the parts, tools and accessories business ▪ With an enhanced capital structure following the merger with Capitol, Nesco can capitalize on the dem
Slide 30: Significant EBITDA Growth
29 Adj. EBITDA Margin ▪ Adj. EBITDA margin has increased 700 basis points from 2016 to 2018 primarily due to increased utilization of the fleet ▪ In order to address demand for its fleet, Nesco plans to invest $177 million over the next three years adding ~1,775 new pieces of equipment – Average uni
Slide 31: Attractive Unlevered Free Cash Flow Growth
30 Growth Capex Adj. EBITDA ▪ Growth capex in 2019 and 2020 to meet excess demand is expected to result in over 60% unlevered FCF growth by 2021 – Consistent unlevered FCF growth excluding growth capex ▪ Attractive tax attributes on a levered FCF basis, driven in part by U.S. federal and state net o
Slide 32: Swift Deleveraging Delivers Value to Equity Holders
31 ▪ Significant EBITDA growth and free cash flow generation is expected to result in rapid deleveraging ▪ Net leverage declines to leverage target of 3.0x by year end 2020 with ~1.0x deleveraging accreting to equity holders Swift Deleveraging Delivers Value to Equity Holders Note : See the disclaim
Slide 33: Business Combination
Business Combination MESO ACAPITOLV 32
Slide 34: Transaction Overview
33 Shares Outstanding 63.0 Share Price $10.00 Equity Value $630 Plus: Net Debt 513 Less: NPV of NOLs (57) Adj. Firm Value $1,086 Transaction Multiples FV / 2019E Adj. EBITDA ($137M) 7.9x FV / 2020E Adj. EBITDA ($170M) 6.4x Sources Capitol Cash Investment $411 New Senior Notes 400 Draw on New ABL 75
Slide 35: Highly Attractive Unit-Level Economics
34 Source: Company filings and Wall Street research. Note: 1. Blocks comprise approximately 60% of parts, tools, and accessories rental revenue. 2. Portable storage comprises 80% of Mobile Mini’s revenue. Tanks / Trailers comprise the remaining 20%. 3. As of 2017 year end. 4. Rental revenue adjusted
Slide 36: An Attractive Valuation
35 An Attractive Valuation… Firm Value / 2019E Adj. EBITDA Firm Value / 2020E Adj. EBITDA Source : C ompany filings, management guidance and Wall Street research. Note: Market data as of April 4, 2019. Firm value adjusted for NPV of NOLs where applicable. See the disclaimers at the beginning of this
Slide 37: With Compelling Financial Metrics
36 With Compelling Financial Metrics 2016 - 2018 Revenue Growth 2018 - 2020E Revenue Growth Source : Company filings, management guidance and Wall Street research. Note: See the disclaimers at the beginning of this presentation for important qualifications and limitations on the use of pr oje ctions
Slide 38: Attractive Opportunity for Investor Returns
37 As of As of As of ($ per share) 3/31/2019 12/31/2019 12/31/2020 FV / Forward Adj. EBITDA 7.9x 7.9x 7.9x Implied Stock Price $10.00 ~$13.00 ~$15.50 Total Return ~30% ~55% Note : See the disclaimers at the beginning of this presentation for important qualifications and limitations on the use of pro
Slide 39: Board of Directors of the Combined Company
38 Board of Directors of the Combined Company Lee Jacobson Director & CEO Jeffrey Stoops Director Dyson Dryden Director Doug Kimmelman Director Rahman D’Argenio Director William Plummer Chairman ▪ CEO, President and Director of SBA Communications since 2002, 2000 and 1999, respectively ▪ Previously
Slide 40: Appendix
Appendix MESHO CAPITOL 39
Slide 41: Adjusted EBITDA Reconciliation
40 Year Ended December 31, 2016A 2017A 2018A GAAP Net income (loss) ($48.0) ($27.1) ($15.5) Depreciation and amortization 59.1 64.7 67.1 Interest expense 48.2 53.7 56.7 Income tax expense (benefit) 1.3 (3.5) 1.7 GAAP EBITDA $60.6 $87.9 $110.0 Non-cash purchase accounting impact 12.9 4.3 3.6 Transact
Slide 42: Capex Reconciliation
41 Year Ended December 31, 2016A 2017A 2018A Purchase of equipment - rental fleet $36.7 $47.1 $58.5 Plus: Purchase of other property and equipment 0.5 0.4 0.7 Less: Other (0.1) (0.0) -- Total capex $37.1 $47.5 $59.2 Less: Cost of new equipment sales (13.0) (8.7) -- Total capex excluding cost of new
Slide 43: Unlevered Free Cash Flow Reconciliation
42 Year Ended December 31, 2016A 2017A 2018A Adjusted EBITDA $78.8 $98.6 $121.7 Less: Maintenance capex (24.1) (28.0) (41.8) Plus: Proceeds from sale of equipment - rental fleet 35.6 26.6 33.3 Less: New equipment sales (14.4) (10.1) -- Less: Non-cash purchase accounting impact (12.9) (4.3) (3.6) Les