Custom Truck One Source, Inc. · NYSE:CTOS
Custom Truck One Source — Nesco Holdings — Investor Presentation (November 2019)
37 slides from Custom Truck One Source's investor presentation, Nov 14, 2019
Slide 1: Investor Presentation November 2019
Investor Presentation November 2019
Slide 2: Disclaimer
Disclaimer SOME OF THE FINANCIAL INFORMATION AND DATA OF NESCO HOLDINGS, INC. (“NESCO”) CONTAINED HEREIN DOES NOT CONFORM TO SEC REGULATION S-X IN THAT IT INCLUDES CERTAIN FINANCIAL INFORMATION NOT DERIVED IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“GAAP”). ACCORDINGL
Slide 3: Table of Contents
Table of Contents 1. Company Overview 2. Industry Trends 3. Growth Strategy 4. Financial Overview 5. Appendix 2
Slide 4: Company Overview
Company Overview 3
Slide 5: Nesco Overview
Nesco Overview ▪ 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. ▪ Compelling
Slide 6: Nesco Is a Leader in Highly Specialized Rentals
Nesco Is a Leader in Highly Specialized Rentals Nesco is a leading North American provider of specialty rental equipment to electric utilities, telecoms, railroads and related contractors for critical maintenance, repair, upgrade and installation work Equipment Rental and Sales Parts, Tools and Acce
Slide 7: Young, Specialized Fleet
Young, Specialized Fleet As of September 30, 2019, Nesco has a young, specialized fleet of ~4,300 rental units with an average unit age of 3.6 years, far below the average unit’s useful life of up to 25 years # of % of Useful Average Equipment Equipment Description Units OEC OEC Life Age Cost Used t
Slide 8: Attractive Asset-Level Economics
Attractive Asset-Level Economics Long-lived equipment assets offer highly attractive economic returns with unlevered IRRs approaching 30% and unlevered MOICs over 2.5x ▪ Nesco’s scale, footprint and differentiated sales and service model have created a significant competitive advantage for the compa
Slide 9: Recurring, Longstanding Customer Relationships
Recurring, Longstanding Customer Relationships 95% of sales are to recurring customers and no customer represents more than 11% of sales ▪ Nesco serves as a key supplier to utilities, telecoms, railroads and related contractors for their specialty rental equipment needs, with most relationships on a
Slide 10: Broad Geographic Reach
Broad Geographic Reach 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 ▪ Nesco has broad geographic diversity, with no state, province or territory representing more than 15% of revenues (1) (
Slide 11: Highly Attractive Unit-Level Economics
Highly Attractive Unit-Level Economics Nesco’s specialty equipment and parts rental have attractive unit-level economics Specialty Equipment Parts(2) Useful Life of Primary Rental Assets 15 - 25 yrs 20 - 25 yrs (blocks) Average Age of Primary Rental Assets 3.6 yrs 1.4 yrs 2018 Utilization 82% 72% Pa
Slide 12: Industry-Leading Management Team
Industry-Leading Management Team Nesco’s current management team has successfully implemented several growth initiatives including the launch of the PTA segment, expansion into two new end-markets, internalization of equipment servicing, development of remounting capabilities and accretive acquisiti
Slide 13: Industry Trends
Industry Trends 12
Slide 14: Large and Growing End-Markets
Large and Growing End-Markets Annual capex spend in Nesco’s end-markets exceeds $100 billion and end-market growth has limited correlation with broader GDP $60bn+ Transmission and Distribution Spend $30bn+ Wireless $10bn+ Spend Class I Rail Spend Nesco Index Growth Has Limited Correlation with Broad
Slide 15: Nesco's End-Markets Provide Growth Without Sacrificing Stability
Nesco’s End-Markets Provide Growth Without Sacrificing Stability Nesco Has Best-in-Class End-Market Mix in the Specialty Rental Industry Nesco End-Markets(1) Specialty Rental End-Markets(2) No Construction End-Market Exposure Nesco’s End-Markets Are Highly Stable (Change in Spending During the Great
Slide 16: Electric Utilities: Early Years of Multi-Year Upcycle
Electric Utilities: Early Years of Multi-Year Upcycle Transmission and distribution industry, with an annual spend of over $60 billion, is in the early years of a decade long secular upcycle driven by utilities’ investments (1) to replace and strengthen an aging grid; (2) to integrate growing renewa
Slide 17: Telecom: Long-Term Tailwinds from 5G Spend
Telecom: Long-Term Tailwinds from 5G Spend 5G upgrade cycle is driving a new wave of infrastructure spending with 5G capex by the Big 4 wireless providers expected to total ~$240 billion over the next decade while growing at a 40% CAGR through 2023 ▪ 5G wireless infrastructure roll-out is expected t
Slide 18: Rail: Increasing Investment in U.S. Infrastructure
Rail: Increasing Investment in U.S. Infrastructure Urban congestion and increased freight transportation needs have driven a nationwide investment in improving rail infrastructure ▪ In 2019 the U.S. Senate approved spending of over $16 billion to support commuter rail and transit projects – Special
Slide 19: End-Market Shift to Rental Supports Growth
End-Market Shift to Rental Supports Growth Nesco’s growth is supported by the ongoing secular shift from equipment ownership to rentals among its customers ▪ Key drivers fueling Nesco’s end-markets to continue to shift to rental: 1. Avoidance of capital outlay 2. Improved asset utilization with sign
Slide 20: Growth Strategy
Growth Strategy MEHOD 1
Slide 21: Multiple Attractive Growth Levers
Multiple Attractive Growth Levers 3 Actionable M&A 2 Pipeline in Fragmented Increase Market Customer 1 Penetration in Invest in New Parts, Tools and Fleet to Fulfill Accessories Unmet and Growing Demand from Inorganic Continued Customers Robust End- Market Growth Organic 20
Slide 22: Invest in Fleet to Meet Growing Excess Demand
1 Invest in Fleet to Meet Growing Excess Demand Nesco continues to turn down a significant number of customer requests to rent its equipment simply due to a lack of equipment availability ▪ Demand environment is strong – Nesco turned away more than 4,000 rental opportunities from 2017 to 2018 due to
Slide 23: Increase Customer Penetration in Parts, Tools and Accessories
2 Increase Customer Penetration in Parts, Tools and Accessories 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 – A
Slide 24: Pipeline of Actionable Future M&A
3 Pipeline of Actionable Future M&A Fragmented market with many regional and local players allows Nesco to leverage its national platform and act as a preferred consolidator ▪ Nesco has made six successful acquisitions since 2012, realizing 100%+ of expected synergies for every target – The weighted
Slide 25: Financial Overview
Financial Overview 24
Slide 26: Strong Revenue Growth
Strong Revenue Growth ▪ 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 capit
Slide 27: Significant EBITDA Growth
Significant EBITDA Growth ▪ Adj. EBITDA(1) margin has increased 700 basis points from 2016 to 2018 primarily due to increased utilization of the fleet ▪ Investment in selling, general and administrative expenses has largely been completed, providing operating leverage Adj. EBITDA(1) Growth ($ in mil
Slide 28: Attractive Unlevered Free Cash Flow
Attractive Unlevered Free Cash Flow ▪ Attractive tax attributes on a levered FCF basis, driven in part by U.S. federal and state net operating loss carryforwards of over $300 million and approximately $200 million, respectively, as of year end 2018 Unlevered Free Cash Flow Growth(1)(2) ($ in million
Slide 29: Q3'19 Results
Q3’19 Results ▪ In Q3’19, Nesco continued the rollout of its growth plan, including: – Continued equipment purchase program, spending $23.0 million of growth capex to purchase new fleet – Launched two new PTA locations, one in Yuma and one in El Monte(1) Revenue Adj. EBITDA(2) ($ in millions) ($ in
Slide 30: 2019 Guidance
2019 Guidance ▪ In Q3, Nesco provided updated guidance for the full year 2019 as follows Guidance YoY Growth Low High Low High Revenue $255 $262 4% 6% Adj. EBITDA(1) (2) $125 $129 3% 6% Adj. EBITDA pro forma for a full $132 $136 9% 12% year of Truck Utilities(1) (2) (3) Net Capex(4) $65 $70 Note: Se
Slide 31: Appendix
Appendix 30
Slide 32: Board of Directors
Board of Directors ▪ Former CFO and Executive Vice President of United Rentals for 10 years until October 2018 ▪ Helped United Rentals grow its market capitalization from $385m to $11.4bn while increasing its stock price by 21.5x (compared to 3.4x for S&P 500) ▪ Over 20 years of financial leadership
Slide 33: Debt Capitalization
Debt Capitalization September, 30, 2019 Rate Maturity Amt. ($mm) Adj. EBITDA Cash and cash equivalents $0 New $350mm ABL L + 175 2024 193 Capital leases Various 2023 29 Net total first lien debt $222 1.74x New senior secured second lien notes 10.0% 2024 475 Net total secured debt $697 5.47x Notes pa
Slide 34: Shares Outstanding
Shares Outstanding (in millions) Shares Shares Outstanding (excl. Lock-Up Shares)(1) 45.89 Lock-Up / Earnout Shares (2) Share Price Target Lock-Up Shares Tranche 1 $13.00 1.40 Lock-Up Shares Tranche 2 16.00 1.40 Lock-Up Shares Tranche 3 19.00 0.35 Earnout Shares Tranche 1 $13.00 0.90 Earnout Shares
Slide 35: Adjusted EBITDA Reconciliation
Adjusted EBITDA Reconciliation Reconciliation of Net Loss to EBITDA and Adjusted EBITDA(1) ($ in millions) Year Ended December 31, Three Months Ended September 30, 2016A 2017A 2018A 2018A 2019A Net Loss ($48.0) ($27.1) ($15.5) ($3.7) ($18.0) Depreciation and amortization 59.1 64.7 67.1 16.0 18.7 Int
Slide 36: Capex Reconciliation
Capex Reconciliation Reconciliation of Total Capex to Maintenance and Growth Capex and Net Capex ($ in millions) Year Ended December 31, 2016A 2017A 2018A Purchases of equipment - rental fleet (1) $36.7 $47.1 $58.5 Plus: Purchases of other property and equipment 0.5 0.4 0.7 Less: Other (2) (0.1) --
Slide 37: Unlevered Free Cash Flow Reconciliation
Unlevered Free Cash Flow Reconciliation Reconciliation of EBITDA and Adjusted EBITDA to Unlevered Free Cash Flow ($ in millions) Year Ended December 31, 2016A 2017A 2018A Net cash from operating activities $18.1 $17.2 $41.0 Add: Interest expense 48.2 53.7 56.7 income tax expense 1.3 (3.5) 1.7 Amorti
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