Custom Truck One Source Inc
NYSE:CTOS
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Custom Truck One Source Inc
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Hello, and welcome. My name is Suzanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nesco Holdings First Quarter 2020 Results Conference Call. [Operator Instructions]
Noel Ryan, Investor Relations, you may begin your conference.
Good morning, and welcome to Nesco Holdings First Quarter 2020 Results Conference Call. Leading the call today are CEO, Lee Jacobson; and CFO, Bruce Heinemann. Also joining us is Dyson Dryden, a member of Nesco's Board. I'm Noel Ryan of VALLUM Advisors, the company's Investor Relations Counsel.
Earlier today, we issued a press release detailing our first quarter results. 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 our filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call in the press release issued today.
Today's call will begin with remarks from Lee Jacobson, who will provide an update on our first quarter results, general business conditions and outlook, followed by a financial review from Bruce Heinemann. At the conclusion of these prepared remarks, we will open the line for questions.
And with that, I'll turn the call over to Lee.
Thank you, Noel. In recent months, the emergence of COVID-19 has resulted in global health crisis of historic proportion, turmoil in the global economy and unprecedented government intervention through fiscal stimulus and other means. To that end, on behalf of our leadership team, we want to express our continued appreciation for the support of our customers, employees, investors, analysts and partners during this time, wishing you and your families well as governments begin to reopen their local and regional economies over the coming weeks.
Before we discuss our first quarter results, I'd like to share several important points. First, we want you to know that Nesco remains open for business with all of our locations continuing to support the needs of our customers. Fortunately, for Nesco, none of our service locations across the country require in-person contact or have a staff sales team because we do not have a storefront sales model. This allows our sales team to effectively do business in the same way they always have, albeit with reduced in-person meetings.
As a critical partner in maintaining our nation's energy, communications and transportation infrastructure, the operations of Nesco and our customers are considered essential by the U.S. Cybersecurity and Infrastructure Security Agency, meaning work must continue even while social distancing measures are in place. As a result, we have been and continue to remain fully operational while taking all necessary and appropriate actions to ensure the continued safety and general welfare of our employees, as outlined in the recent guidance provided by the U.S. Centers for Disease Control and Prevention. We are happy to report that, to our knowledge, none of our employees have contracted COVID-19.
Second, we want you to know that Nesco remains well capitalized and is proactively taking steps to mitigate the impact of the slowdown from COVID-19. Nesco had $10 million of cash and $75 million of availability on our asset-backed lending facility as of March 31, 2020. In recent weeks, we have implemented an action plan designed to preserve liquidity while providing flexibility to capture growth opportunities when COVID-19-related disruptions diminish. At the SG&A level, we have frozen all hiring, reduced head count, cut external consulting costs, limited discretionary expenditures and prohibited all nonessential travel.
Further, as Bruce will speak to shortly, we've reduced our 2020 planned capital expenditures. As the bulk of our capital expenditures in any given year are discretionary investments to support future growth, we have significant flexibility in managing our annual spend. While we continue to monitor the impact of COVID-19 on our business and the financial markets, we believe that our existing liquidity position, combined with the actions we have already taken to reduce costs and conserve capital will be sufficient to address our cash needs in 2020 and beyond.
Third, given the unprecedented and unpredictable nature of the current situation, we have decided to withdraw our full year guidance last communicated on March 12, 2020. Once shelter-in-place orders are loosened, many customers expect an acceleration in demand into the second half of this year given the indications of pent-up demand. However, there remains a good deal of uncertainty around when each region will restart their economy and the pace of recovery following that restart. While Nesco is on pace to meet its full year guidance exiting the first quarter, we believe it is prudent to withdraw guidance until there is more certainty in the market.
We intend to reinstate financial guidance once we believe we have sufficient clarity to determine the potential impact of COVID-19 on future performance. In summary, we're taking all necessary and appropriate action to protect our employees, reduce costs, preserve capital and ensure business continuity.
Now we'll move on to a discussion of our first quarter results. Total revenue increased nearly 33% on a year-over-year basis to $81.7 million in the first quarter, contributing to the 15th consecutive quarter of year-over-year growth in adjusted EBITDA. The Truck Utilities acquisition completed in November 2019 continued to perform in line with expectations, delivering $12.5 million of revenue in the period. ERS segment revenue increased 21% to $63.7 million in the first quarter compared to $52.6 million for the same period in 2019. Equipment rental revenue increased 9.7% or 5.4% excluding Truck Utilities to $47.1 million. This growth was primarily due to a 10.5% increase in average equipment on rent, which grew to $500 million in the first quarter compared to $452 million in the same quarter of 2019.
Fleet utilization was 75.9% in the first quarter compared to 82.2% in the same period of 2019. First quarter utilization is typically lower than other quarters due to seasonality brought about from colder weather, absent any unusual activity, such as the California fire recovery in 2019. The first quarter of 2020 followed a typical trend with some additional impact from COVID-19 and equipment recently added to the fleet that has not yet gone on rent.
Our average rental rate per day was $137.8 and $137.5 in the first quarter of 2020 and 2019, respectively. Equipment sales revenue of $16.7 million was an increase from the prior year quarter of 71% or 43.5% excluding Truck Utilities. Equipment sales can vary quarter-to-quarter, but in the first quarter, we added focus on disposing of certain older fleet units, helping to reduce our average fleet age for 3.6 years on December 31, 2019 to 3.4 years on March 31, 2020.
PTA segment revenue grew 103.7% or 14.2% excluding Truck Utilities to $18 million in the first quarter compared to $8.8 million for the same period in 2019. PTA revenue growth was driven by a continued increase in penetration of our equipment rental customer base and a ramping of revenues at the newer PTA locations. COVID-19 social distancing measures limited first quarter PTA growth due to a reduction in new project starts, which is the primary driver of PTA revenue.
I'll turn now to a review of demand conditions, beginning with a broad review of current conditions, then stepping into a review by end market. The critical nature of our end markets has helped insulate the impact of the pandemic on our business. However, customer demand did slow in March due to COVID-19 related mitigation efforts. While existing projects have largely continued, some customers have decided to postpone new projects due to local shelter-in-place orders, resulting in a slowdown relative to the typical spring pickup.
This slowdown, combined with the recent completion of other existing customer projects, contributed to a decline in OEC on rent between mid-March and the end of April by 8% to approximately $460 million. It is important to note that most of the postponed work is still expected to commence in 2020. Overall, our customers have indicated that they expect the pace of activity to gradually ramp up to normalized levels once regional shelter-in-place orders are lifted, which is encouraging.
Within T&D, long-term demand fundamentals remain intact as customers continue to report elevated or, in some cases, record backlogs. However, over the near term, shelter-in-place measures introduced in response to the pandemic have resulted in a decline in distribution activity. While in transmission, we continue to see new project starts albeit at a slower pace than is typical for this time of year. We believe these relative declines are a function of the pandemic and that there continues to be significant pent-up demand for grid maintenance and hardening in the T&D end market.
Importantly, transmission-related holes, which represent equipment in our fleet reserve for upcoming rentals, are approximately 25% higher than they were at the same time last year. Small and medium-sized projects continue to drive T&D demand growth supported by multiyear master service agreement work secured by many of our contractor customers. We are currently seeing significant engineering and planning activity at key utilities and larger contractors, both of whom have indicated that they expect a gradual return to a normal pace of activity once quarantine orders are lifted. Several contractors have noted that some projects are stuck in the bidding phase, given the shelter-in-place orders. Once businesses open back up, we expect to see these bids translating into improved backlog for contractors.
During January and February, rental rates improved versus the prior year. Although growth in rental rates leveled off in March, the expectation for an acceleration in activity coming out of quarantine has helped to support stable pricing. In the current environment, our expectation would be for customers to favor rental over equipment purchase more than usual as they focus on capital conservation.
Longer term, we believe the changing energy generation mix towards renewable sources such as solar and wind and the adoption of clean fossil fuel with natural gas replacing coal create incremental growth opportunities for new transmission lines, a dynamic we expect to accelerate over the next 5 years. For example, according to a Wood Mackenzie forecast published March 31, the U.S. will add nearly 15 gigawatts of onshore wind capacity in 2020, an increase of more than 40% versus the prior year.
Natural gas power plant additions continue with a 9.3 gigawatt expected add in 2020 and over 10 gigawatts to be added in 2021, according to EIA. The shifting generation mix, together with the existing hardening, maintenance and repair activities that remain ongoing at major utilities are expected to support a stable book of business for our transmission and distribution end markets for years to come.
Within our telecom market, we believe the fundamental demand drivers in the market remain intact but have experienced a decline in new project activity due to COVID-19. We view this as a near-term disruption. With employers moving employees increasingly toward remote working environments, the strains in our wireline and wireless networks have increased. According to OpenVault, the average subscriber currently consumes nearly 30% more gigabytes per month of data than they did in 2018. Increased data usage is expected to result in sustained growth in both fiber deployments and 5G small cell sites, representing a significant opportunity for contractors and equipment suppliers serving major carriers, including Nesco. Verizon recently increased its capital spending guidance from 2020 to prepare for 5G rollout and for a surge in data traffic related to COVID-19.
Further, we anticipate that the closing of the T-Mobile and Sprint transaction will drive an acceleration in the installation of 5G infrastructure over the medium term. Nesco is positioned as a key supplier of specialty rental equipment to several large telecom contractors, which should allow us to capitalize on wireless and wireline activity once COVID-19 social distancing measures are loosen. In anticipation of this, over the last few years, we have invested in specialized equipment that can serve both the telecom and electric distribution end markets, allowing for an increased level of deployment flexibility and optimal fleet utilization.
Within our rail market, we experienced an increase in activity during the first quarter as railroads began to shift maintenance and upgrade spending away from internal resources in favor of third-party contractors and equipment suppliers. Given significant volatility in the oil market, we wanted to note that less than 1% of Nesco's total fleet services the oilfield. All of this deployed equipment is mainstream distribution equipment, meaning it can all be redeployed to electric distribution, telecom or rail as market conditions warrant. No equipment in our fleet has a specification or design exclusive to the oilfield.
During the first quarter, the average open contract length was 13.1 months as contractors continue to lock in equipment availability required to service large multiyear contracts with utilities, telecom carriers and railroads. The average OEC on rent within our T&D and RLST end markets increased 9% and 14%, respectively, in the first quarter, illustrating broad-based demand across all key end markets.
With one of the youngest specialty equipment fleets in North America at 3.4 years, we are uniquely positioned to capitalize on long-term trend that favors equipment rental over equipment purchase, providing our customers cost-effective, on-demand solutions designed specifically for the niche markets in which they operate. In addition, if required, in the event of a downturn, our young equipment age gives us the flexibility to turn down capital spending and age our fleet.
As a national specialty equipment rental company scale, Nesco is a trusted partner to more than 4,000 utilities, telecom carriers, railroads and contractors, supporting communications, energy and transportation infrastructure. Given the growing demands placed on this infrastructure, there remains a continuous need for maintenance, system expansion and upgrades to ensure safe and reliable network performance, resulting in more than $100 billion in annualized capital investment across the end markets we serve. We continue to see a steady backlog of activity in our core end markets, work that we are well positioned to equip and participate in as regional economies reopen and shelter-in-place orders are lifted over the coming weeks.
With that, I will turn the call over to Bruce.
Thanks, Lee, and welcome, everyone. Today, I would like to begin with a discussion of our balance sheet and capital allocation, followed by a discussion of the actions we have and will take to reduce costs and discretionary spending throughout the business. While our business remains less impacted than most, current market conditions require that we do more with less while conserving capital to support the long-term growth of our company.
As of March 31, 2020, the company had total cash of $10.2 million and availability on its asset-based lending facility of $75.4 million. Total debt outstanding, including capital leases, was $790.6 billion (sic) [ $790.6 million ] at the end of the first quarter. We do not have any near-term debt maturities with both our credit facility and senior secured notes maturing in 2024. In the first 3 months of the year, we invested $23.8 million in growth and $13.7 million of maintenance capital expenditures. Average fleet count increased to 4,627 units in the first quarter of 2020 from 3,913 units in the same period in 2019. We received $10 million from sale of rental equipment and parts and insurance proceeds of $400,000 from damaged equipment in the first quarter, resulting in total net capital expenditures of $27.2 million.
As Lee referenced at the out of this call, we have withdrawn our full year 2020 guidance given current market uncertainty. We will look to reinstate formal guidance at such time COVID related uncertainty subsides. While we are not issuing formal guidance, we have reduced our planned net capital expenditures for the year by approximately 1/3, which will reduce full year 2020 net capital expenditures to be less than half of our spend in 2019.
As Lee mentioned, we have canceled or pushed out previous equipment orders. Strong vendor relationships provide us with the ability to flex delivery times of new units, so we retain the flexibility to reactivate these initiatives as dictated by customer demand. In addition to capital expenditures, as Lee mentioned, we have implemented an action plan to reduce fixed costs and optimize our working capital. We are also managing our variable costs, such as equipment servicing, to ensure they appropriately reflect the demand environment, allowing us to maximize our margin as much as possible.
We believe that approximately 70% of our cost structure is variable, and the remaining 30% is fixed or semi-variable, which should allow us to remain agile in the short term. In the event of a protracted downturn, we have developed a playbook to further reduce fixed costs. Lee, myself and the rest of the management team are evaluating the situation constantly and will be ready to take additional action if the slowdown continues or pivot when demand returns.
With that, we'll return the call back to the operator and open the line for questions.
[Operator Instructions] And our first question comes from the line of Tim Thein of Citigroup.
Maybe, the first question, just I'll start on T&D. And just in light of the declining loads and efforts being made just to defer and cut costs and CapEx, just I'm curious if you could expand a little bit, Lee, in terms of how that's playing through to Nesco as we look through the balance of the year. And then maybe more importantly, if you could just maybe help us frame from a historical perspective, if we do see load decline similar to the '08, '09 period, how do you think that -- what are the industry dynamics that may or may not make the impact to -- on Nesco different than what the company experienced during that period. I know it's not -- there's a little bit of apples and oranges, but just basically, if we see a similar magnitude of decline in terms of loads, again, size the activity response for Nesco.
Tim, the -- I do think it is apples and oranges. But I think '08, '09, '10 is a pretty good indicator to the impact to us. And in 2008 to '09, if you recall, we saw a decline in our top line of roughly 8% or 9% decline in our EBITDA of about 12%. And the subsequent year, '10, we popped up to a level of performance, both in top line and EBITDA performance, that exceeded actually 2008. And we believe with great conviction because of the caliber of our end markets, that we're laid in, we have a high floor and we're early out. And we see the same thing here.
In the back half of this year, we fully expect a great deal of pressure, whatever the load demand implications are in a number of regions of the country for an escalation of the overall work effort. And I'll just pick on California as probably the leading example and one that has, we think, a sense of urgency to execute that maintenance, hardening, et cetera. PG&E is exiting bankruptcy, we all think, in the next month or so. And they -- and Southern Cal have both put forth to the California Public Utility Commission pretty darn aggressive plans around fire prevention, hardening of their system and so on.
And the California Public Utility Commission, if you look across the country, is one of the most militant. And that commission is going to hold them to their commitments, and I think hold them to the commitments, crisis or not. And so we expect with fundamentally a very slow start around that work before the crisis and then, obviously, during this period, a continuation of that. We expect them to take off because they have to. Fire season will be upon them and without a substantial amount of effort -- again, whether it makes up 100% sense given loads or not, they need to execute that maintenance and hardening to comply with their commitments to the CPUC. And we believe they will. And it's not just cross-your-fingers belief. It's dialogue with the utilities. It's dialogue, maybe most importantly, to us, with the contractors that they do business with and as our primary customer.
And so we see actually, based upon that dialogue -- heavy dialogue that, with just a moderation of the shelter-in-place guidelines, a resumption of significant activity there starting within this quarter. That's illustrative. That's illustrative, but we have other regions of the country where there's similar circumstances. It is, by no means, an expectation that we'll see a hockey stick straight up and away we go. But we do have strong evidence of a return to positive forecast.
Okay. Yes. That's helpful. And then maybe just on telecom. As you mentioned, the carriers seem to be sticking to their 5G timetables. I think most are talking about national launches expected during the second half of the year. I'm curious, from your standpoint and just in terms of the visibility you have, at this point. And then just what is the risk of permit delays for cell site and fiber deployment?
It's been predicted pretty consistently that the second half of this year would be a step-up in the level of activity finally in 5G, and a lot of that over the last 6 months or so is spun around the T-Mobile and Sprint merger, which is now finalized, which will be helpful. Again, the virus health crisis has curtailed activity in telco in this second quarter. And so that -- if Verizon came out the other day actually increasing their guidance around their infrastructure spend in 2020. That tells us that their plans are to significantly move forward in the second half, and we think they will. It has been a permitting battle. There's an interesting play between the utilities and the telecommunications companies, where the utilities, to a large degree, control the poles, municipalities thrown in there as a third measure. But that's the normal landscape of this anyway.
And now we've had a couple of years of planning and preparation, and we think that, again -- not to say the market demand is going to go crazy because there's going to be numerous points of caution, but we see a solid pressure to increase the activity. And Verizon is a great example. They've said, we're going to spend more, and that's got to be in the second half here. So we see a strengthening market there and one that we're fully prepared to participate in from our alliances with the major contractors in that space and the second-tier contractors as well. We're in a very good position with leaders such as MasTec and Dycom and Quanta as it reenters the telecommunications business.
Right. Okay. Got it. Then maybe last one for me, Lee, just on the flexibility of the fleet. And as you alluded to earlier, the shutdown and shelter-in-place orders are likely to be varied across the different states. And I would think that the -- just the national footprint you have will end up being a positive here. But how easily can you or will you shift fleet between your sites?
And just maybe help us think about the interplay there between -- I mean not -- maybe with pickup and delivery or other maintenance expenses related to that and then -- but then how do you toggle back between just underlying utilization. So again, a bit of a number of part question, but just how that -- as we go through this and the unpredictability, I guess, in terms of when these shelter-in-place orders are lifted. But how that ultimately impacts operating expenses and how you plan to again think of -- and the implications on just broader utilization?
Sure. The starting point that's very good is we do have a national fleet, which was concentrated where the action was prior to the moderation in activity. We would expect that the -- where the action was, will again be where the action is, again, subject to that timing. A terrific characteristic of our business is our customers typically pick up 90%-plus of the cost of transportation of equipment from one location to another. That gives us a cost buffer there, although we certainly deploy that as a negotiating tool around securing deals. But that does give us a very substantial cost buffer to be able to move equipment quickly to where contracts are being let, activity is being mobilized.
We've got a dedicated transportation department, terrific logistics management software, so we think we're pretty well prepared there. We've got experienced personnel, good relationships from a supply standpoint, and it puts us in a position of quick response, accurate response. And we're not necessarily going to just trust our customers to pull the equipment there. Though if we do see regions evolving quickly or slowly, we may take it upon ourselves on our nickel to move the equipment in advance of the demand. Obviously, our preference is to get it done from a customer standpoint. But we evaluate those things on a daily basis, and we'll continue to do so until we get to more normal. I'm not sure, Tim, if I answered all the parts. Have I missed it?
It wasn't an easy question to answer. That's very helpful, and I appreciate it.
And the next question comes from the line of Richard Kus with Jefferies.
So the first one for me is, you guys noted that -- fully understand the withdrawal of guidance and all that. Totally appreciate it. The comment about the fact that you're still on pace to get there as you exited the quarter. I'm curious, as you got towards the end of April and you've continued to see things decline, which pieces of getting to that guidance level, I guess, are most uncertain or are you seeing the most pressure on? Is it the PTA sales piece to it? Is it rates and volumes? Or what are the moving pieces there that are a little bit more uncertain, I guess, more than others?
We've actually seen a most significant impact in our business of the crisis on our PTA sales. A good portion of those occur connected with new project mobilization. And logically, with mobilizations down, that revenue stream has been impacted most. At the same time, in the past 60 days, we've seen an improvement in rental of our PTA fleet. And that's really, we think, indicative of customers thinking of allocating capital towards other uses and renting in lieu of purchasing, which is, for us, a very positive trend. So that's been the most impacted at this point in time.
Again, we do see that upside will exist there as the mobilizations begin to restart. And we're certainly, again, much like in the equipment sector, hearing a lot of the planning process around that. And it's hard to measure the exact magnitude, but we certainly expect to see a bounce back of that as the mobilizations begin with equipment, that being a critical part. There's really 3 legs to mobilization. You got manpower, equipment and PTA. And we are obviously a provider of the last 2 legs. They go hand-in-hand. And actually, PTA tends to be a little bit of an indicator for pending equipment activity. So we see opportunity there to regain lost ground.
Got it. That makes sense. And then you mentioned the new project mobilizations. I'm curious, in April, what -- I guess do you guys have a sense for what the level of new project mobilizations were down compared to the prior year? Just to give us a sense of how that's trending.
We really don't literally have that. As we commented, our OEC on rent declined from a mid-March peak of around $500 million down to about $460 million by the end of April. We are still at that level today. And that is a product of increased mobilization just over the last 1.5 weeks. And again, there's obviously a sense of increasing of that mobilization activity.
Got it. So I guess my next -- it leads well into my next question is, do you think April kind of represents the worst of this based upon what you've seen? And you're kind of getting into a place where you're starting to see that OEC on rent creep up after that trough.
I think it's a little too bold to say April is the end of it. It is the beginning of the end, certainly. The unpredictability of the situation, the -- I heard this morning on the news of a significant number of states with increased cases, the forecast of really significant modification or loosening of shelter-in-place. What was a good forecast yesterday may not be a good forecast today just based upon that number of additional cases. So I don't -- I think it's too bold to say we're really at that turning point. But what we clearly are is a difference in the level of new deployments that should get us there in very short order.
Okay. Got you. And then lastly for me, and I apologize if I missed this. You guys talked about cost-saving measures that you were taking. Can you give us a sense of the amount of fixed cost that you're expecting to be able to pull out of the business this year, and then maybe the cadence of when you expect that to begin to impact you?
Sure. Bruce, do you want to take that?
Yes. No problem. Thank you. To date, we've cut costs for the remainder of 2020 on an annualized basis of about $3 million. Those major cuts to date include the head count reductions, as Lee mentioned, a hiring freeze on budget staff, significantly reduced subcontracting and outsourcing spend, a reduce in our marketing budget for the remainder of the year, field service and support customer, uptime reductions. And as a part of the CARES Act, we've taken advantage of the deferring the payroll tax payments to the delayed payments as a part of that. We took advantage of that as well.
And the next question comes from Abe Landa with Stifel.
I just wanted just some color around just how results trended during the quarter. How has the utilization fleet on rent pricing in the first 2 to 2.5 months before the drop-off related to COVID?
In our business, we have a natural seasonality that makes the first quarter the lightest level of utilization. Second quarter will improve. Third quarter will improve yet again, and fourth quarter will improve even more. We had a couple of years recently where that first quarter drop-off from Q4 has not really been realized. It wasn't realized in '18 because of the Puerto Rico storm recovery. It wasn't realized in '19 because of the California fire recovery effort.
This year was a normal year. We went from the annual highest level of utilization in Q4. We saw a drop-off starting Q1, which is, again, totally normal. It's usually about a 4 percentage point drop-off. That occurred. February, we saw improvement. And then March, where you usually see a very significant and solid uptake, it went the other direction, we believe, really centered around the pandemic. There's nothing to indicate that the core demand of any of the 3 primary markets has any inherent softening. It just appears to be centered around simply the curtailed activity, shelter-in-place and dead center to the pandemic impacts.
So you also mentioned during the call that, I believe, equipment holds were up 25%, kind of an indication that potential future demand. How is that across all those equipment holds? How is that across all end markets or types of projects? I guess when do you expect to get back to normal forecasted levels?
The holds are up relative to the transmission sector. And really, you could split our markets: T&D, split T&D into transmission, distribution; and then telecommunications and rail, and you have 2 categories fundamentally. Transmission and rail have seen solid, not spectacular, but solid new project starts. Distribution and telecommunications, on the other hand, have been softer. And there's some real solid logic or sound logic to that. Both distribution and telecommunications activity does happen in closer proximity of the population. And it seems quite apparent that the project sponsors have backed off of the level of new project activity. They really haven't terminated any significant volume of in-process jobs, but they have deferred starts of additional activity, so the existing projects have stretched out. And that's just around safety measures.
As an example, some utilities started deploying trucks with one individual in the vehicle instead of the usual 2 or 3, and the work practices include more social distancing disciplines. So that activity did slow. Again, as we look to the activity being planned, engineered and so on right now, it does include a significant level of distribution work. And we've talked previously about telecommunications, a good deal of activity in pent-up demand. Again, if we rely upon Verizon's outlook, they expect to spend a lot of money in the second half of this year on their infrastructure investment, which will benefit our leading contractors in the telco space and ourselves.
So do we expect like a return to earlier forecasted levels in the second half or sometime around then? Or do you expect us to be at a new lower level kind of on a go-forward basis?
It's really tough again to forecast the little level of acceleration of work. So at this point, we certainly are confident of improvement. And part of our backing off of guidance is how rapid is that improvement? Where does that really put us? And we've declined to predict that for what we think is good reasons, just a degree of uncertainty.
Again, I said it earlier, what was a good forecast yesterday may not be today because of the incidence of cases of COVID-19. So we definitely will see improvement in our minds, degree and pace to be determined.
And then just lastly, just a housekeeping question. So is your target for CapEx roughly in that $30 million area for this year? And then also, do you have an age target on your fleet?
Bruce, do you want to handle that?
Yes. So the range of our initial guidance was the $45 million to $55 million, and we mentioned that we've reduced that by 1/3 for the year. And you noticed in our first quarter financial performance that we spent about $32 million in the first quarter towards that. So we expect to be about 1/3 of the guidance for the CapEx for total 2020 of that initial $45 million to $55 million that we set out back in March.
And you don't currently have a target age -- target fleet average age?
At this point in time, as Lee mentioned, we have unpredictable markets and certainly unprecedented. And as the market returns, we've got significant flexibility with our supply base in order to react accordingly, either further reductions, if necessary, or to be able to recover quickly as demand dictates the need for additional equipment. So we think we're in a really good place related to relationships with our suppliers and the current unprecedented environment to react either way as the market changes here in the next few months.
Specifically, the age of fleet, we are at 3.4 years at the end of March. And I think for the year, we'll probably be in that 3.5 range. Really 2 factors pushing it -- opposing direction. Obviously, with reduced CapEx spend, that will have the tendency to increase the age of the fleet, but we're doing a pretty good job right now of defleeting through sales of the older units. And so you've got the factor of not a lot of influx of new units bringing down that measure offset by defleeting the proper targets. And we think that will continue over the course of the year. We've implemented a new dedicated used sales effort, and we think it's producing solid results to defleet the right units. So I think we'll be in the 3.5, maybe 3.75 year by the end of the year.
And there are no further questions in the queue. I turn the call back to Lee Jacobson for closing remarks.
Well, thanks very much, everyone, for joining us today. This concludes our call. In the interim, should you have any questions, our Investor Relations team can be reached at investors@nescospecialty.com. Thanks again for joining us today.
And this concludes today's conference call. You may now disconnect.