Custom Truck One Source(CTOS) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents Custom Truck One Source, Inc.'s unaudited condensed consolidated financial statements and related notes Unaudited Condensed Consolidated Balance Sheets Total assets increased to $2.81 billion by June 30, 2022, with liabilities rising to $1.94 billion and equity slightly increasing Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,814,415 | $2,683,766 | | Total Current Assets | $782,823 | $656,704 | | Inventory | $536,087 | $410,542 | | Goodwill | $705,973 | $695,865 | | Total Liabilities | $1,944,290 | $1,825,256 | | Total Current Liabilities | $531,259 | $440,583 | | Long-term debt, net | $1,349,964 | $1,308,265 | | Total Stockholders' Equity | $870,125 | $858,510 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company achieved $13.6 million net income in Q2 2022, a significant improvement from a $129.4 million net loss in Q2 2021 Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $362,106 | $375,111 | $728,582 | $453,410 | | Gross Profit | $82,758 | $46,690 | $167,251 | $66,909 | | Operating Income (Loss) | $18,745 | $(43,432) | $28,553 | $(46,486) | | Net Income (Loss) | $13,623 | $(129,356) | $10,350 | $(157,263) | | Diluted EPS | $0.05 | $(0.53) | $0.04 | $(1.07) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $21.4 million for the six months ended June 30, 2022, primarily due to increased inventories Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash flow from operating activities | $(21,364) | $57,225 | | Net cash flow from investing activities | $(92,689) | $(1,360,227) | | Net cash flow from financing activities | $106,654 | $1,326,800 | | Net Change in Cash | $(7,378) | $23,798 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the company's three segments, acquisition impacts, revenue disaggregation, debt structure, and an IRS audit - The company operates in three reportable segments: Equipment Rental Solutions (ERS), Truck and Equipment Sales (TES), and Aftermarket Parts and Services (APS)[23][100] - On April 1, 2021, the company acquired Custom Truck One Source, L.P. for $1.53 billion, and on January 14, 2022, acquired HiRail for $51.0 million[34][38][50] Segment Gross Profit (in thousands) | Segment | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | ERS | $44,656 | $23,391 | $97,583 | $39,444 | | TES | $27,129 | $20,310 | $50,914 | $20,887 | | APS | $10,973 | $2,989 | $18,754 | $6,578 | | Total | $82,758 | $46,690 | $167,251 | $66,909 | - The Board of Directors authorized a stock repurchase program of up to $30 million, commencing in Q3 2022[77] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 revenue decline due to supply chain issues, improved gross profit, and a return to net profitability, highlighting strong demand - The decrease in total revenue for Q2 2022 compared to Q2 2021 was primarily due to a decline in equipment sales as a result of supply chain challenges, despite strong customer demand[152] - Gross profit for Q2 2022 increased by 77.2% year-over-year to $82.8 million, driven by higher rental revenues and improved margins in the TES and APS segments[150][170][174] Key Performance Measures | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Ending OEC (in thousands) | $1,399,500 | $1,338,700 | 4.5% | | Fleet utilization | 82.8% | 80.9% | 2.3% | | OEC on rent yield | 39.2% | 37.9% | 3.4% | | Sales order backlog (in thousands) | $663,619 | $222,661 | 198.0% | Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net income (loss) | $13,623 | $(129,356) | | Adjustments | $71,760 | $199,597 | | Adjusted EBITDA | $85,383 | $70,241 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate exposure on variable-rate debt and unhedged foreign currency fluctuations - The company's principal market risk is interest rate exposure on its $435.0 million of variable-rate debt under the ABL Facility as of June 30, 2022[225] - A one-eighth percentage point (12.5 bps) change in applicable interest rates would change annual interest expense by approximately $0.5 million[225] - The company has unhedged foreign currency exposure from its Canadian operations, which generated $19.4 million in revenue during the first half of 2022[228] Controls and Procedures Disclosure controls were ineffective as of June 30, 2022, due to material weaknesses in IT general controls, with remediation underway - The CEO and Interim CFO concluded that disclosure controls and procedures were not effective as of June 30, 2022[230] - Material weaknesses were identified in IT general controls (ITGCs) related to user access, segregation of duties, and program change-management for key financial systems following the Custom Truck LP acquisition[231][232] - A remediation plan is in process, highlighted by the implementation of a new ERP system in Q2 2022 to address segregation of duties and improve user access controls[233] PART II - OTHER INFORMATION Legal Proceedings The company is involved in routine legal claims and lawsuits, none expected to materially impact its financial condition or operations - No pending litigations, disputes, or claims against the Company are expected to have a material adverse effect on its financial condition, cash flows, or operations[237] Risk Factors No material changes to risk factors from the 2021 Annual Report, except for a new risk concerning macroeconomic uncertainty - No material changes to risk factors from the 2021 Annual Report, except for a newly highlighted risk related to macroeconomic uncertainty[238] - The new risk factor warns that negative economic conditions, credit market tightening, and commodity volatility could reduce demand for products and services and limit access to capital[239][240] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[242] Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None[242] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[242] Other Information No other material information is reported for the period - None[242] Exhibits This section lists exhibits filed with the Form 10-Q, including employment agreements, compensatory plans, and required certifications - Exhibits filed include employment agreements, compensatory plans, and required CEO/CFO certifications[244]