Appraisal Kickoff: Production Equipment Fleet & Inventory Valuation

Hi everyone, how's it going?

Hey everybody.

Hi everyone.

Hey guys.

So everyone surviving the rainy morning in Los Angeles?

I'm not.

Did y'all get rain?

Like.

Um, Yeah, it's been pretty bad here just like the last day. Um, I thought you guys were based in Southern California too.

No, the company is. Um, I bounce back and forth. Yeah, I'd say also great to meet you. Are you in the— you're in LA? What part?

Yeah, I live in like Culver City. I'm sure you guys have assets on the Sony lot not too far. It's just a short walk down the road.

We do.

We also have a stage in Culver, and they're on Washington. Um, very small, mostly commercials.

Got it.

Okay, cool.

Cool.

Yeah, good morning, Christy. Say it back.

I made it, I made it on the call.

Terrific. Alrighty, guys, let's jump in. What are we doing?

Yeah.

So basically, Reece was going to go ahead and run through some questions he has on the asset list, get familiar with the data, and then Paz is going to coordinate the inspections.

Well, first off, dope vest, Reece. One of those Rouse vests for the whole call.

Thank you very much.

One of those bad boys. Yeah, that's it. And done.

Next appraisal for sure. We'll make sure each of you have one of these. Yeah, thanks. I'm so— I'm Reese. I'm going to be the analyst for the appraisal job. Contrary to the accent, I'm actually based in Canada, so a little bit colder. When Ryan complains about rain, it really hurts my feelings because we live in perpetual rain here in Canada. But yeah, I just wanted to go over the list today. Probably won't take too much of your time, but I'll start with the fleet list and then move across to inventory. So let me pull up my screen. So this is the primary listing. Gabe's given us a rundown. So primarily the major assets here are the casting trailers and the makeup trailers, right? And that's going to be supported by the pickups and vans within the fleet. So Paz will speak to the inspections later in the call, but It will be beneficial for us to see, I guess, each of the iterations of the casting trailers, so the 1, 2, 3 room, and then also the makeup trailers as well when we go out to inspect these assets. From, I guess, a valuation standpoint, when I look at this list, is it possible to pull in year and potentially cost if you have those available for these assets?

Total.

Yeah, year is pretty easy. It's all the same year.

Okay.

With the exception of like 8, I believe they were all purchased in the same year. Um, and then, um, cap cost, um, we have as well.

Oh, fantastic. Yeah, that'll make our lives a lot easier. Um, I know the bathroom trailers all were 2024, if I'm not mistaken, and we had costs attributed for those, so That bathroom trailer listing is perfect. Don't need anything additional there. When looking at the rest of these assets, looks like most of the vehicles have lift gates. So if you have a totalised cost for, I guess, van and lift gate, or you have that being separate, that would also be beneficial. Just whatever you have available and what's easy. We also don't need that per se, but any additional cost information is obviously fantastic. I think that's about it when looking at this main equipment listing. Yeah, you've broken it down perfectly for us. Just cost and year are the two points that stand out.

Cost and year for every asset?

Yeah, if available, right? Totally.

Yeah, no, it's easy.

Yeah, perfect. Awesome. Yeah, so bathroom trailers didn't have any notes on that, so let's move to inventory. The BCP list within inventory values. Yeah, no notes on that. That's exactly what we look for when we pull up an inventory listing and want to assign values to that. So no notes here. The HDR list. So when appraising these inventory values, are you wanting us to have individual line items for each of these particular tabs, or— I just was curious on what the breakdown of assets here are. We've got an HDR Pro Sups list, we've got a versatile inventory list. And then a BCP list. I was just curious, like, how you would like that broken down in the appraisal, or if you want it all under one, I guess, line item.

Is that a question to Kristy or for us?

Yeah, I think probably Kristy is probably the right stakeholder there.

Yeah, so I think timewise, is it a big time constraint to have it broken down for each asset pool, like for the 3 generators and the 8 generators, or how simple is it to break it down?

Yeah, it's, it's not too crazy of a lift to do it that way. It's more just preference for you, Christy.

Yeah, to, to also step in, like, we would have an itemized kind of appendix in the Excel with it like that, but maybe in like the main fleet detail and the PDF report, right, it might just be like Hey, this location inventory, this location inventory, to just like summarize it that way, right?

So I would have it both ways.

Yeah, you can have your cake and eat it too. Yes.

Perfect.

You get to eat the cake.

Yeah, yeah, yeah.

As far as like the main reporting, yeah, just a preference on like how to consolidate. So if— yeah, if we can just do it by the main reporting can.

Be Yeah, the main reporting can be like, all right, the HDR assets are X and the various, like, OLV, that sort of thing. And then if there's an Excel, that would be helpful too, just so we can kind of back into it.

Okay.

Good with us. Yeah, I think this listing was pretty good. My questions pretty much lie within this tab for the G&A. So for generators and trucks within this inventory listing, it obviously makes up a big chunk of that total cost, looking at just over $2.2 mil there. So my question is, do you have any more details on what these generators are from a make, model, and year standpoint? And then similarly for the trucks, obviously we have cost here and we can provide value. However, to give the most accurate value possible, make, model, and year would obviously be beneficial. So just seeing if there's any more details to these particular line items, specifically to trucks and generators.

I'd have to look. These trucks, these trucks actually might be duplicated because I don't think there's any G&E specific rental inventory. So I'm going to have to double-check and make sure that that's not, or if it is duplicated, that we get that removed. Okay.

For the generator, like, there's a 10-ton in there.

Yeah, I don't— yeah, I, I'd be surprised if that wasn't.

Duplicated.

Um, yeah, these are the trucks.

Yeah. Okay. Uh, the generators, I don't know, James, do you think we can get more detail on the generators themselves?

No. Yeah, I mean, it's not too bad, right? Like, if you look at— like, I.

Think we can get you approximate year. We might be able to get you a make.

I, I think year would probably be the biggest driver here. If you look at the descriptions, we've got, I guess, uh, the capacity of these generators. So you would be that missing piece, or an approximate year that would really help.

Us. Okay, JD, you're going to have to just pull that out of like wherever they used to stash it in QuickBooks.

Yeah, but that's that inventory listing. That's my only ask there. And then if we look at the versatile inventory listing, This one I had some questions. I guess around most of these tabs, I think all of them actually, we don't have any cost available. Is that true, or do you have estimates based on cost for these assets at a total.

Level? We have an aggregate cost estimate based off of deal docs, JD?

Maybe.

I want to say they were like approximating a $600,000 total value of the assets in this particular tranche.

Um, we can ask and see if there's like data backing up.

Those. I would be surprised if they had it broken down by cost in this particular dataset, but we'll.

See. Yeah, because that's probably, yeah, a question for Christie. I mean, we can assign estimated costs and I guess years to these assets, but we will have to obviously rely on you to see how conservative we need to be if we're not provided cost, year, and any further details for these particular assets, and we only have quantity and I guess a general description, how conservative would you need us to be, Kristy? And do you feel comfortable us valuing these, or would you need some further information here from.

Avon? I'm fine with you guys valuing them, and I think maybe if we take a step back. Avon's already our customer and this is already our collateral, so— okay, we— I mean, we're just trying to get a general idea with the understanding that it would be a monster for you guys to go through and audit the full inventory, but if we can get a ballpark, that would be extremely helpful for us.

Sure, yeah, no.

Problem. I will say on the versatile side, it will be easier-ish to get you better descriptions and/or granularity. Like, I don't want to say like we're going to be able to just like furnish it all because again, but like, I think, I think a lot of customary stuff will be line of sight within.

Reach.

But we'll see.

Awesome. All good. And I think the only thing I highlighted here was the quantity of these Sprinter vans. That's a, that's a sizable fleet.

Is that— I believe that's a Sprinter 2500, not 2,500 Sprinters.

Yeah. Yeah.

Fantastic.

Good to know.

So we just, you just have one.

Yeah.

Yeah.

No worries.

We almost got that one through.

Damn. You caught us.

Our LTV is ruined now.

All right, yeah, I think that's about it from a data standpoint, just those asks that I've highlighted. Um, okay, otherwise everything's great in my eyes. And yeah, we can move to the inspections piece. Paz, if you wanted to, uh, take over, ask any questions for the team.

Here. Hi everyone, um, I'm Paz. I'm going to plan the inspections. So I know that we have to inspect, uh, one of each of the trailers. I understand that there are, uh, 5 trailers, right? The single, 2, and 3-room cast trailers, then the 8-station makeup trailers, and the bathroom trailers, right? Am I missing something or not?

No, that, that's all 5 trailer types.

Okay.

Great.

Um, I just wanted to check like which was going to be the location to, to do the inspection.

12580 Saticore Street, North Hollywood.

Okay, can you repeat again?

Sorry, 12580 Saticore Street in Hollywood. I'm not saying it again. One, we're gonna— how about this? Or like the AI chatbot. Someone's got an AI chatbot on and it'll send it to you. Uh, we're gonna email you the address so that you don't have to write it.

Okay, thank you. Um, yes, and also, um, I was going to ask you, because I can see here that you are like the main point of contact, but I don't know if there is someone inside, like site that could be contacted by our inspection team?

Yeah, Ronald.

Okay, we'll give you his information as well.

Okay, amazing. Um, let's coordinate that with Richard as well, just so that they have someone that can kind of like emcee their time there.

Okay, okay, Ronald and Richard.

Yeah. Okay, and there is any like particular time and date that you would like us to try to set up the inspection day or something like that?

Um, if we can avoid Mondays and Fridays, those typically are busiest days. So Tuesday, Wednesday, Thursday, um, is.

Preferable.

We got teams there on Saturday and Sunday as well, if that's convenient or easier for you.

Okay. And also, since we are going to do like one day of inspection, we usually inspect like around like 30, 40 assets per day. So I was wondering if in that location there are like some extra— like.

You would have a sample of every type of asset, any spreadsheet you choose from.

Okay, okay, that's great. So we are going to focus on that, but since we are going to have like extra time, we're going to inspect like more units. Okay. Great. So I think that on my side, I don't have any other questions. Of course, I will, I will send you like an email with the location and maybe you too. Send me the point of contact, but overall I don't have any other.

Questions. Yeah, perfect. That's it from me. Do you have any questions for.

Us?

Not at this time.

Kristi? No, I'm good. Just let me know when the onsite is scheduled, just so I have an idea.

Sure.

Okay.

Um, and just quickly, how much experience in this weird corner of equipment rental do you guys have? Which is to say production and/or studio equipment.

A decent amount, right? Like, there's not that many companies that operate in this space. We've done two others. Yeah, so we, uh, you will be number 3 that we've done in the last year.

And that's 50% market share, Ryan.

That is, you're killing it. And I mean, what I'll say too is like how we've sort of gotten into this, right, is like our business has historically been like around general construction rental. And so, you know, Herc used to own Cinelease. By virtue of working with Herc, we have done the Cinelease appraisal for the last decade. They obviously sold that off last year. But had a lot of experience with that. Sunbelt has a business up in Canada, William F. White, that we work with. And we've done a couple of other, you know, film and TV businesses much like yours, you know, sort of starring, casting, trailer-type assets that we've done over the last couple of years as well. So, so yeah, we have, we have a good amount of familiarity with.

These. Okay, so to that end, and I asked this of Gabe and he punted to the team. There we go. Actually, I, I, I guess for us, we want to understand almost like sources and means and your approach and thoughtfulness on intangible assets like cash trailers, wherein there's a cap cost but there's very little, if any, secondary market. Yeah, and so the actual value assigned to it is derived almost from either like contracts or cash flow, more or less, or potential of those metrics. So help us, maybe since JD was not on that call and he's better at this and smarter, help us understand why, or kind of y'all's approach to.

That. Ultimately, it is a fixed asset. What we're engaged to tell First Source is this is their collateral, someone throws them the keys, how do they turn it into cash and what can they turn it.

Into?

The reality is it's a depreciating asset with a— that's why we're asking a lot of times for what is the fully built-out cost. When you're thinking about marketing something like this is What's the fully built-out cost brand new, and this is an asset of not brand new, right? Where is it sort of between, you know, zero and a fully brand new asset? And so we're looking at, you know, how do similar assets depreciate, what's an estimate of useful life. And we have seen, like, through some of these other businesses that we work with, like, there's not an active secondary market by any means, but that's not to mean that there's a non-existent secondary market, right? So we have seen some transactions of, you know, assets like this. Like another business that we worked with earlier this year had sold, I think, like a dozen of them to, you know, a major studio operator rather than rent them. The studio operator said, I'd like to buy some of these. And so there are some data point transactions that we have around these. But like you said, there's some aspect of art and science since it's a, you know, if we're valuable. So for the example of the generators or pickup trucks, like as a liquid secondary market, you're just looking at sort of comps and matching up, matching up and aligning what we actually see things sell for. Some of these other trailers, like it's important for us to understand what they cost brand new and how old they.

Are.

Does that answer your— does that answer your question? Or at least a little bit? Yeah, sure.

I have a follow-on that's unrelated to your initial response. And more theoretical. But JD, let's get them our sales value history as well, because what he— as he was talking, it kind of reminded me of the other times that we have gone through this and had to more or less like demarcate how a 16-foot dry van, kind of conventional box truck, the sales value for that does not equal kind of the sales value for this more, I would say, production-focused cube truck. Yeah. And the difference in like sales value that we get because of that, to your point, like maybe smaller total addressable market in resale or secondary market marketability, but not non-existent And that on that piece where we're probably more overweight than we are in trailers, we have a lot of data and we have a lot more of assets there. So there's that separately. And this is more theoretical but relevant to a different project that we're working on. When you think about that smaller but not non-existent secondary market for cast trailers, and you're valuing a fleet of several hundred older, fully depreciated cash.

Trailers.

How'd— okay, and then so there's that as kind of a building block. And then as a separate building block, you have kind of the, generally speaking, um, macro headwinds facing the sector. Which is to say it's in complete and total collapse. How do you think about, like, forced liquidation value, orderly liquidation value, like any type of liquidation value for— yeah, we have 60, so it's relatively de minimis. You actually probably would have an easier time moving that. Yeah, than.

600.

And so just kind of curious, and then I'll let y'all go because we're at time, but it is— it would be a helpful thought experiment, if you will, for us to understand.

Yeah, I mean, I think one point, just like market dynamic that you mentioned, is like it's a product that almost necessitates like a rental use, right? The people who are using these products, the end users who are renting them, actively do not want to own it, right? In, in terms of like those cast trailers, right? I mean, like, they're moving around. They're not in the business of doing those trailers. They're in the business of making movies and commercials and, and stuff, right? Like, they want to pay someone to bring these things, take them away, and not deal with it, right? It's a little bit different than some other rental businesses where it's more of like a cost decision. Like, this is like an operational perspective of like, so you're available, but this there's a very limited amount of available buyers. It has to be someone who also wants to come in and operate a rental business, either a competitor or a private equity firm who thinks if they can get the assets at a cheap enough rate, that all of a sudden changes the ROI dynamics on it. And so to answer your question, I think when there are larger step-downs from a fair market value to an orderly liquidation value to a forced liquidation value for assets of this nature. Because there does have to be sort of like that— like if you have to sell these in a short amount of time to a limited number of people, there has to be a more quantitative incentive for those people to sort of pull the trigger. And that's what we're trying to model for the bank. If you're, if you're, if you're holding these and you need to get them out in 6 months, there might have to be heavier discounting than assets like, you know, trucks or, you know, pickup trucks, excavators, things like.

That. Brian, what's your role in this engagement?

So I'm, I'm the, I'm the director on the team. So Reese is the analyst sort of overseeing this. And so Reese will be the guy mainly crunching the numbers. And he and I are sort of working together on this on sort of the final review process.

Christie, who's paying for this? Am I ultimately paying for this? Correct. Okay, Ryan, I'm gonna find some time with you in the next couple of weeks because I have a bunch of questions for you.

Okay, yeah, we'd be happy to. Are you— you mentioned you come back and forth, um, how often are you in Los Angeles? Would you be interested in grabbing a coffee or something?

Yeah, for sure. Why don't we plan on having you up to one of the offices Um, maybe first week of March, I'll probably swing back through.

Um, yeah, I'm around and you have my contact information, so whenever works for you, I'd be happy to get together.

Okay, cool. Awesome. All right, um, pause. Peace, we will be on the lookout for your scheduling email. Reese, we have what we need, an understanding to get you the data that you need. To get started. Christy, you get to have your cake and eat it too. Thanks for jumping on the call. Great contributions as always.

Thank you.

I don't think we could have done it without you. And Gabe, way to go, man. You're really doing it.

Where are you right now?

Thanks.

On the terrace of the Midwest, uh, Cincinnati, Ohio.

Okay.

Gabe's from— does Gabe told you he's from Ohio?

Northeast Ohio.

He might have.

Yeah, I might have mentioned it. It's unknown.

Um, cool.

Well, thanks guys. Yeah, this was a super good call, so we'll get right on this.

Nice to meet you all.

Thank you.

Yep.

Thanks guys.

Thanks everybody.

Take care.