Good evening, and welcome to Custom Truck One Source's First Quarter 2021 Earnings Conference Call. Please note, this conference call is being recorded. After today's market close, Custom Truck issued a press release announcing Nesco's first quarter results available on Custom Truck's Investor Relations website at investors.customtruck.com.

Management's comments on today's call regarding first quarter results will pertain to the premerger perform of Nesco. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control.

Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of the company's filings with the SEC..

take care of our customers. This has been true through COVID, and it's been true now as we join forces to provide even better service in the future..

Thank you, Fred. Customer demand and the industry outlook are robust. Customers eager to play catch-up following COVID project delays were strong renters and buyers of whole goods during the first quarter.

Rental demand is also strong, with both legacy Custom Truck and legacy Nesco fleets achieving over 78% utilization during the first quarter and seeing further utilization gains into the second quarter.

Our customers are communicating that there is pent-up demand and a need to make up last year's project delays, and they increasingly feel well prepared to operate safely. So far this quarter, we have continued to see increases in equipment on rent and unit sales as new projects are being started by our customers.

At its core, our role is to provide, repair and maintain specialty equipment for essential utility, telecom and other critical projects.

The proposed infrastructure bill could add additional tailwinds as the recovery accelerates, with $100 billion dedicated to the electric grid, $100 billion to the broadband network and $174 billion to increase reliance on electric vehicles. Spending on new construction that would utilize our equipment could see a significant boost.

Even prior to any proposed infrastructure bill, industry fundamentals are strong. The power outages in Texas earlier this year highlight the need for upgrades to our nation's transmission and distribution systems in a highly publicized way..

Thanks, Ryan. Good evening, everyone. As mentioned at the opening of the call, with the transaction closing after the end of Q1, our discussion of financial performance at this time is limited to Nesco. Custom Truck's first quarter results are currently being reviewed with our external auditor, and we will release those as soon as they're available..

The first question is from Scott Schneeberger from Oppenheimer. Please go ahead..

For my first question, I'd like to ask just, it sounds like from your comments, a nice momentum from March into April and now May.

Just curious if you could delve into the end markets a little bit and what you're seeing, maybe contrast with the past few quarters as well since it looks like we've had a progression during the pandemic to better? And then one last part to this question, given that there was a little mix dynamic between transmission and distribution in the quarter for Nesco, if you could just speak to the trend you're seeing those two vis-a-vis each other as we're moving into the second quarter and looking to the summer season?.

Sure. I'll start by saying, you're right. We have seen very good trends coming out of Q1 into Q2. I'd highlight maybe a couple of numbers that we previously mentioned. But utilization for the quarter was just over 78%. And as we said, finished north of 82% in to March, and we're seeing that trend continue into Q2.

And I think, Scott, your question is right, because I think it highlights really strong demand in all four of our end markets. So we are seeing good demand on both the transmission and distribution side of things. We've got - there are several new projects that have been announced on the transmission side, where we are seeing equipment out on rent.

And on the distribution side, we are seeing really good demand for both rental and for sales. And then I would highlight telecom. Also, Scott, we're seeing 5G is now materializing, so we're seeing good demand for rental equipment there, and we're seeing a lot of requests to purchase equipment also. And then rail is continuing to perform very well.

And then I'd highlight infrastructure too. So we are not assuming that there's an infrastructure bill pass, as we talk about the balance of this year, but we would think that it would be a very strong tailwind if it were to pass.

And I'd say as we are looking at backlog on some of our specialty vocational equipment, in particular, we're seeing a lot of demand there also..

Excellent. Yes, I did hear the commentary on the utilization, sounds good. I also heard you speak that it sounds like all asset classes regardless of size or absolute level of rental, are seeing rates improve. So that's good to hear. And correct me if I'm wrong, but I think that's what you said..

Sure. Yes. No, I'd echo your comment on the cost side, right? We're feeling really good about the $50 million plan that we've committed to. We think we're ahead of plan in terms of what we realized this year. And then yes, we are seeing early wins on the revenue side also, Scott.

So we've seen some really quick wins of selling whole goods to some of Nesco's legacy customers. And then we've also seen good cross-selling into the PTA equipment.

So we're happy with the progress on both of those initiatives, and we're seeing - we already have some wins on the board on both sides, which we feel really good about 45 days into the integration..

Great. Glad to hear that. I'm just going to sneak one more in here, and it's on the integration. There are a lot of systems that need to be combined, the ERP, the rental system, so - the CRM.

Just if you could give us an update on how that's going? Any issues you may be see arising? Or is it seamless and you're tracking well and on plan on that front?.

Yes, Scott, this is Brad. We are tracking on plan or ahead of plan. We're in kind of the middle of the rollout from the legacy custom sites. It's going incredibly smooth. I got to give a lot of credit to our IT and back office teams making that work really across the organization and in starting to develop the plans to bring in the Nesco team.

We should have their rental ops in our rental system in the next couple of months and then the balance towards the end of the year heading into Q1 of next year. So certainly on plan with our expectations and all going well as of right now..

The next question is from Stefanos Crist from CJS Securities. Please go ahead..

First, you touched on rental rates a little bit.

Could you go into a little more detail there and how you expect those to trend going forward?.

Yes. We did see, on a combined fleet basis, rate growth in the quarter. I mean the demand right now is very, very strong. It creates a good environment for us to drive price. So we've seen kind of month-on-month that rate going up kind of across the asset categories, whether it's distribution or transmission.

And we're also seeing from a pricing standpoint on sales, the same thing. So we expect to see that continue through Q2 as given kind of the demand and supply dynamic that exists right now..

Great.

And then in terms of CapEx, could you maybe go over CapEx goals over the next two years? And then also how much of CapEx is dedicated towards the PTA segment?.

I'd say from a core rental, what we have talked about before, during the proxy kind of pre-close was a fleet net maintenance CapEx number of $50 million to $70 million, somewhat dictated by customer buyouts. And we're defining that as the OEC we're putting in less the proceeds. So that's one component.

And then from a growth standpoint, our base case right now, we're running mid- to upper single-digit growth. We think that the market demand will be above that, though, and we'll look at making sure that we're making a prudent investment where rates are good, utilization is good.

But I could see us going a bit above that if the demand stays where it is right now. From a PTA segment, the investment on rental there is probably going to be in the low millions range, consistent with where it has been in the past. It's still something that as a team that we're bringing it together.

And when we think about the integration piece, we see a lot of upside, right, from PTA and the - bringing that to the Custom Truck Group, right, is certainly going to change that investment need, and we're still evaluating that right now..

This concludes the question-and-answer session. I would like to turn the conference back over to Fred Ross for any closing remarks..

Thank you. Well, this concludes our call today. Thanks, everyone, for the interest in Custom Truck. We look forward to speaking with you on our next quarterly earnings call. In the meantime, please don't hesitate to reach out with any questions. Thank you again. Good night..

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day. .