Custom Truck One Source, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Rental Trends: ERS saw rental revenue up 15% sequentially in Q4, second consecutive quarter of sequential growth. Average OEC on rent for Q4 was over $1.2 billion, a 12% sequential increase. Average utilization was just under 79%, a 570 basis points sequential improvement. Rental asset sales were up 13% sequentially in Q4.
• TES Activities: TES had a record Q4 revenue, strong demand from forestry and vegetation management customers. Inventory levels were reduced by over $150 million in Q4. Closed a sale-leaseback transaction for net proceeds of over $52 million and jointly purchased CITAS shares.
• Other Initiatives: Monitored tariffs and chassis emission regulations. Invested in rental fleet and opened a new branch in Portland, Oregon.

Segment Performance

• ERS Segment: Q4 revenue was $172 million, down from $185 million in Q4 2023. However, rental revenue was up 15% sequentially due to improved utilization and average OEC on rent. Adjusted gross profit for ERS was $105 million in Q4, down marginally from Q4 2023 but up 20% sequentially. Adjusted gross margin was 61% in Q4.
• TES Segment: Q4 TES revenue was a record $308 million, up 3% from Q3 2023 and up 18% sequentially. Full-year TES revenue exceeded $1 billion for the first time. Gross margin in Q4 was 16.6%, down from Q4 2023 but up 45 basis points from the previous quarter.
• APS Segment: Q4 revenue was $41 million, up more than 6% from Q4 2023 and up 11% sequentially. Adjusted gross profit margin in the segment was more than 29% in Q4, slightly lower than Q4 2023 but up substantially compared to Q2 and Q3 2024.

Guidance

• Expect 2025 to be a year of growth across all segments. Total revenue expected to be between $1.97 and $2.06 billion. Adjusted EBITDA projected between $370 million and $390 million. ERS revenue guidance: $666-$690 million; TES revenue: $1.16-$1.21 billion; APS revenue: $150-$160 million. Projected net rental CapEx just under $200 million. Aim to generate levered free cash flow of $50-$100 million in 2025 and work towards net leverage below three times.

Risks

• Impact of tariffs on operations, needing to develop plans to mitigate effects. Monitoring upcoming chassis emission regulations from CARB and EPA, and potential changes under the new administration. Economic factors influencing customer hesitation to buy, such as high interest rates.

Q: Justin Hauke asked about TES revenue guidance and backlog disconnect.

A: Ryan and Chris responded that normalized backlog is 4-6 months, net orders are up, and there's opportunity to grow share in end markets.

Q: Scott Schneeberger inquired about margins and tariffs.

A: Chris discussed margin ranges for rental, used equipment sales, and TES, and Ryan mentioned working with suppliers to mitigate tariff impacts.

Q: Tami Zakaria asked about utilization progression.

A: Ryan stated utilization is expected to remain in the high seventies to low eighties range, driven by utility customer demand.

Q: Brian Brophy asked about emergency restoration benefits and real estate sales.

A: Ryan said there's still some benefit from emergency restoration but less than Q4, and real estate sale-leaseback was a one-time action with no plans for future similar actions.