Custom Truck One Source(US:CTOS)2024-05-02 20:40Financial Performance - Total revenue for the three months ended March 31, 2024, was $411.3 million, a decrease of 9.1% compared to $452.2 million in the same period of 2023 [156]. - Rental revenue decreased by 10.2% to $106.2 million, down from $118.3 million in Q1 2023, attributed to lower utilization and a decline in average OEC on rent [156]. - Equipment sales fell by 9.5% to $272.6 million in Q1 2024, compared to $301.3 million in Q1 2023, primarily due to excess supply of used equipment in the market [156]. - Gross profit for the three months ended March 31, 2024, was $90.7 million, down from $109.7 million in the same period of 2023, reflecting a decrease of 17.4% [156]. - Operating income fell by 53.9% to $18.4 million, down from $39.9 million in the same period last year [189]. - Net income (loss) for the three months ended March 31, 2024, was $(14.3) million, a significant decline from a profit of $13.8 million in the same period of 2023 [171]. - Adjusted EBITDA decreased by 26.4% to $77.4 million for the three months ended March 31, 2024, compared to $105.2 million in Q1 2023 [171]. - Net cash used in operating activities was $14.4 million for the three months ended March 31, 2024, compared to net cash provided of $3.9 million in the same period in 2023 [173]. - Interest expense increased by 11.9% to $25.0 million in Q1 2024, compared to $22.4 million in Q1 2023 [171]. - Income tax benefit for the three months ended March 31, 2024, was $1.9 million, resulting in an effective tax rate of (12.0)% [186]. Operational Metrics - As of March 31, 2024, the rental fleet consists of approximately 10,300 units, which can be utilized across various end-markets [129]. - Fleet utilization decreased to 73.3% in Q1 2024 from 83.6% in Q1 2023, indicating a decline in demand in the utility market [162]. - Average OEC on rent decreased by 12.2% year-over-year, primarily due to lower utilization in the quarter [162]. - The sales order backlog decreased by 37.2% to $537.3 million compared to $855.0 million in the same period of 2023 [160]. - Rental invoiced revenue was $5,412,000 for the three months ended March 31, 2024, compared to $7,178,000 in the same period of 2023 [198]. Related Party Transactions - Total revenues from transactions with related parties for the three months ended March 31, 2024, were $3,677,000, compared to $8,455,000 in 2023 [141]. - Expenses incurred from transactions with related parties included in cost of revenue were $466,000 for the three months ended March 31, 2024 [141]. - Accounts receivable from related parties increased to $1,904,000 as of March 31, 2024, from $695,000 on December 31, 2023 [141]. Debt and Cash Management - Net leverage ratio increased to 3.79 as of March 31, 2024, compared to 3.53 as of December 31, 2023 [172]. - As of March 31, 2024, the company's consolidated total debt ratio was not greater than 5.00 to 1.00, allowing for unlimited dividends under the Indenture [196]. - Cash and cash equivalents decreased by $2.3 million to $8.0 million from December 31, 2023 [199]. - Net cash used in investing activities was $33.4 million for the three months ended March 31, 2024, down from $39.9 million in the same period of 2023 [200]. - The decrease in cash used in investing activities was primarily due to a $33.6 million reduction in purchases of rental equipment [200]. Risk Management - The company faces risks including increases in labor costs, competition in the equipment dealership and rental industries, and disruptions in the supply chain [119]. - The company continues to manage risks from fluctuations in interest rates through derivative financial instruments [221]. - The company is monitoring global legislative activities related to the OECD's "Pillar Two" model rules, which introduce a global minimum tax of 15% effective January 1, 2024 [134]. Internal Controls and Compliance - The company identified control deficiencies related to information technology general controls (ITGCs) impacting financial reporting [224]. - Remediation efforts for the material weakness in internal controls have been ongoing since fiscal year 2021, with some improvements noted in fiscal year 2023 [225]. - No changes to internal control over financial reporting occurred during the quarter ended March 31, 2024, that materially affected the controls [226]. - The company records a liability when it is probable that a liability has been incurred and the amount can be reasonably estimated, reviewing these provisions quarterly [135]. Other Financial Information - The company utilizes rental purchase options (RPOs) that provide customers with a buyout option at a known price, allowing flexibility between rental and purchase [129]. - Interest income for the three months ended March 31, 2024, was $2,742,000, compared to $3,428,000 in the same period of 2023 [198]. - Operating expenses increased by 3.7% to $72.3 million, primarily due to higher general and administrative expenses [185]. - The company has a net operating loss carryforward and disallowed interest deduction carryforward assets available to offset future taxable income [126].