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Custom Truck One Source(CTOS) - 2022 Q4 - Annual Report
CTOSCustom Truck One Source(CTOS)2023-03-13 16:00
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Market Overview - The annual capital expenditure in the electric utility T&D end-market is approximately 65billion,drivenbytheneedforgridresiliencyandrenewableenergyinvestments[28].−Telecommunicationsinfrastructurespendinghasexceededapproximately65 billion, driven by the need for grid resiliency and renewable energy investments [28]. - Telecommunications infrastructure spending has exceeded approximately 80 billion annually, with a projected growth due to the deployment of 5G technology [33]. - The spend required by key telecom operators to deploy 5G technology is expected to grow at a 47.6% CAGR from 2022 to 2030, totaling approximately 198billion[35].−Thetotalinfrastructurecapitalexpenditurespendannuallyexceeds198 billion [35]. - The total infrastructure capital expenditure spend annually exceeds 200 billion, indicating a positive outlook for the infrastructure end-market [40]. - The backlog of projects required to attain a "state of good repair" for public transit is estimated at 90billion,projectedtogrowto90 billion, projected to grow to 122 billion by 2032 [38]. - The municipal solid waste revenue is projected to grow at a CAGR of 3.3% from 2020 to 2027, driven by increasing waste generation per capita [41]. - The six largest public railroads in North America spend more than 10billionannuallyincapitalexpenditures,withgrowthexpectedasfreightdemandsincrease[36].CompanyOperations−CustomTruckoperatesoneoftheindustry′slargestspecialtyrentalequipmentfleets,comprisingover10,000unitswithanaverageageofapproximately3.7years[21].−Therentalfleetconsistsofover10,000units,withanaverageageof3.7years,achievingover8010 billion annually in capital expenditures, with growth expected as freight demands increase [36]. Company Operations - Custom Truck operates one of the industry's largest specialty rental equipment fleets, comprising over 10,000 units with an average age of approximately 3.7 years [21]. - The rental fleet consists of over 10,000 units, with an average age of 3.7 years, achieving over 80% utilization on average over the last two years [51]. - The company serves more than 3,000 customers, with the top 15 customers representing approximately 25% of total revenue, and no single customer exceeding 4% of total revenue in 2022 [53]. - The company has identified additional attractive geographic markets for potential expansion, despite already operating more than 35 locations [52]. - The company maintains a diverse geographic footprint with over 100 third-party service locations to enhance customer service [52]. - The company has a diverse geographic footprint with over 35 equipment rental and service locations across the U.S. and Canada, focusing on a one-stop shop approach [151]. - The company has launched an e-commerce platform to sell proprietary Load King™ equipment parts and other specialty equipment parts [60]. - The company focuses on four primary end-markets: Electric Utility Transmission and Distribution, Telecom, Rail, and Infrastructure, with continued demand observed in these sectors [200]. Financial Performance - Total revenue for the year ended December 31, 2022, was 1,573,086, a 34.8% increase from 1,167,154in2021,drivenbystrongcustomerdemandandtheadditionofCustomTruckLP′srevenues[204].−Rentalrevenueincreasedto1,167,154 in 2021, driven by strong customer demand and the addition of Custom Truck LP's revenues [204]. - Rental revenue increased to 464,039, representing 29.5% of total revenue, up from 370,067(31.7370,067 (31.7%) in 2021, reflecting higher utilization and pricing gains [204]. - Equipment sales rose to 982,341, accounting for 62.4% of total revenue, a 41.3% increase from 695,334in2021,aidedbyimprovedsupplychainconditions[204].−Grossprofitfor2022was695,334 in 2021, aided by improved supply chain conditions [204]. - Gross profit for 2022 was 383,748, an 82.7% increase from 210,013in2021,resultinginagrossprofitmarginof24.4210,013 in 2021, resulting in a gross profit margin of 24.4% [204]. - Net income for the year was 38,905, a significant recovery from a net loss of 181,501in2021,markingachangeof181,501 in 2021, marking a change of 220,406 [210]. - Adjusted EBITDA for 2022 was 392,978,a41.5392,978, a 41.5% increase from 277,784 in 2021, reflecting improved operational performance [216]. - The overall effective tax rate for 2022 was 16.7%, with a tax expense of 7.8millionrecognized,comparedtoanegativerateof(2.5)7.8 million recognized, compared to a negative rate of (2.5)% and 4.4 million tax expense in 2021 [207]. Debt and Financial Risks - As of December 31, 2022, the company's total indebtedness was 1,394.4million,including1,394.4 million, including 920.0 million in 2029 Secured Notes and 437.7millionundertheAssetBasedLendingFacility[117].−Thecompanyfacessignificantrisksrelatedtoitshighlevelofindebtedness,whichcouldlimititsabilitytoobtainfuturefinancingandaffectitsoperationalflexibility[118].−Thecompanyhasvariableratedebtof437.7 million under the Asset Based Lending Facility [117]. - The company faces significant risks related to its high level of indebtedness, which could limit its ability to obtain future financing and affect its operational flexibility [118]. - The company has variable rate debt of 437.7 million under the ABL Facility, exposing it to interest rate risk; a one-eighth percentage point increase in interest rates would increase interest expense by approximately 0.5millionperyear[127].−Thecompanyissubjecttosignificantoperatingandfinancialrestrictionsunderitsdebtagreements,whichmaylimititsabilitytocapitalizeonbusinessopportunities[126].−Thecompanymayneedtoadoptalternativessuchasrefinancingorsellingassetsifitcannotgeneratesufficientcashflowstomeetitsobligations[122].OperationalChallenges−Thecompanyfacesrisksrelatedtosupplychaindisruptions,includingsemiconductorshortages,whichcouldadverselyaffectrevenuegeneration[104].−Uncertaintyinmacroeconomicconditions,includingrisinginflationandsupplychaindisruptions,mayadverselyaffectdemandforthecompany′sproductsandservices[107].−Regulatorychangesincoreend−marketscouldleadtoreducedspendingbycustomersonthecompany′sproductsandservices,impactingrevenues[109].−Thecompanymayencounterdifficultiesinintegratingacquiredbusinesses,whichcouldleadtohighercostsanddelaysinrealizinganticipatedbenefits[110].−Cybersecurityriskshaveincreased,withthecompanyexperiencingongoingcyberattacksthatcouldadverselyaffectoperatingresultsandreputation[135].−Thecompanymaintainsinsurancecoverageforcybersecurityrisks,butthereisnoguaranteethatallcostsorlosseswillbecovered[137].−Thecompanymayincursignificantcoststocomplywithevolvingclimate−relatedregulationsandstandards,impactingfinancialconditionandoperations[145].EmployeeandCorporateGovernance−Thecompanyhasaworkforcethatincludes80.5 million per year [127]. - The company is subject to significant operating and financial restrictions under its debt agreements, which may limit its ability to capitalize on business opportunities [126]. - The company may need to adopt alternatives such as refinancing or selling assets if it cannot generate sufficient cash flows to meet its obligations [122]. Operational Challenges - The company faces risks related to supply chain disruptions, including semiconductor shortages, which could adversely affect revenue generation [104]. - Uncertainty in macroeconomic conditions, including rising inflation and supply chain disruptions, may adversely affect demand for the company's products and services [107]. - Regulatory changes in core end-markets could lead to reduced spending by customers on the company's products and services, impacting revenues [109]. - The company may encounter difficulties in integrating acquired businesses, which could lead to higher costs and delays in realizing anticipated benefits [110]. - Cybersecurity risks have increased, with the company experiencing ongoing cyberattacks that could adversely affect operating results and reputation [135]. - The company maintains insurance coverage for cybersecurity risks, but there is no guarantee that all costs or losses will be covered [137]. - The company may incur significant costs to comply with evolving climate-related regulations and standards, impacting financial condition and operations [145]. Employee and Corporate Governance - The company has a workforce that includes 8% military veteran employees, contributing valuable skills and attributes [75]. - The company emphasizes safety with a network of approximately 100 Safety Ambassadors to promote a safe workplace [80]. - The company is committed to lifelong learning, providing tuition assistance and training for employee development [77]. - The company offers competitive pay and benefits, including a 401(k) savings program with company matching [81]. - The company provided 20 paid internships and hired 11 full-time employees from a local behavior support organization in 2022 [76]. - The company has established reserves for legal claims and believes that existing legal matters will not materially affect its financial condition [85]. - The company does not expect any pending lawsuits or claims to have a material adverse impact on its financial condition [155]. Acquisitions and Stock Information - Custom Truck One Source, Inc. completed the acquisition of Custom Truck One Source, L.P. for a purchase price of 1.5 billion on April 1, 2021 [169]. - The company issued 148.6 million shares of common stock to Platinum at a price of 5.00pershareaspartoftheacquisitionfinancing[169].−Thecompanyhasneverdeclaredorpaidcashdividendsanddoesnotanticipatedoingsointheforeseeablefuture[162].−Astockrepurchaseprogramwasauthorizedforupto5.00 per share as part of the acquisition financing [169]. - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future [162]. - A stock repurchase program was authorized for up to 30 million of the company's common stock, with no expiration date [163]. - During Q4 2022, the company purchased 1,443,797 shares at an average price of $6.31 per share [164]. - The company has approximately 68 holders of record of its common stock and 14 holders of record of warrants as of March 8, 2023 [159]. - The company operates a total of 68 properties, with a mix of owned and leased locations across the United States and Canada [153].