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Custom Truck One Source(CTOS) - 2024 Q3 - Earnings Call Transcript
CTOSCustom Truck One Source(CTOS)2024-10-31 19:35
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Financial Data and Key Metrics Changes - For Q3 2024, the company generated 447millioninrevenue,447 million in revenue, 138 million in adjusted gross profit, and 80millioninadjustedEBITDA[23]−AverageOEConrentdecreasedyear−over−yearfromjustover80 million in adjusted EBITDA [23] - Average OEC on rent decreased year-over-year from just over 1.16 billion in Q3 2023 to 1.08billioninQ32024,butimprovedsequentiallyfrom1.08 billion in Q3 2024, but improved sequentially from 1.04 billion in Q2 2024 [23][24] - The company expects total revenue for 2024 to be between 1.8billionand1.8 billion and 1.89 billion, with adjusted EBITDA projected between 340millionand340 million and 350 million [20][36] Business Line Data and Key Metrics Changes - The ERS segment had 150millioninrevenueforQ32024,downfrom150 million in revenue for Q3 2024, down from 167 million in Q3 2023, but rental revenue increased by 5% sequentially [24] - The TES segment saw a 13% revenue growth compared to Q3 last year, with year-to-date revenue up 8% [17] - The APS business posted revenue of 36millioninQ3,aslightincreasefromthepreviousyear[31]MarketDataandKeyMetricsChanges−Theutilityendmarket,whichaccountsforabout6036 million in Q3, a slight increase from the previous year [31] Market Data and Key Metrics Changes - The utility end market, which accounts for about 60% of revenue, is experiencing robust demand due to increased electricity needs driven by AI and electrification trends [10][11] - The company anticipates a 24% to 29% increase in U.S. electricity demand by 2035, nearly double last year's forecast [11] - The TES backlog moderated to just under 400 million, down from a peak of over 12 months in early 2023 [28] Company Strategy and Development Direction - The company is strategically investing in its rental fleet to meet current and projected demand, with total OEC at just under 1.5billion,thehighestquarter−endlevel[16][27]−Managementisoptimisticaboutthelong−termdemanddriversintheindustryandexpectstoreturntodouble−digitadjustedEBITDAgrowthnextyear[21][38]−Thecompanyiscloselymonitoringupcomingchassisemissionregulationsandispreparedforanticipateddemandincreases[19]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementnotedthatsupplychainissuesareresolving,interestratesaremoderating,andregulatorydelaysaresubsiding,leadingtoexpectedimprovements[12]−Thecompanyisconfidentthatcurrentactivitylevelsandstrongmarkettailwindswilldrivegrowthin2025[21][38]−ManagementacknowledgedchallengesintheusedequipmentmarketbutexpectsimprovementsinQ4duetoseasonalbuyingpatterns[39]OtherImportantInformation−ThecompanyupsizeditsABLfacilityby1.5 billion, the highest quarter-end level [16][27] - Management is optimistic about the long-term demand drivers in the industry and expects to return to double-digit adjusted EBITDA growth next year [21][38] - The company is closely monitoring upcoming chassis emission regulations and is prepared for anticipated demand increases [19] Management's Comments on Operating Environment and Future Outlook - Management noted that supply chain issues are resolving, interest rates are moderating, and regulatory delays are subsiding, leading to expected improvements [12] - The company is confident that current activity levels and strong market tailwinds will drive growth in 2025 [21][38] - Management acknowledged challenges in the used equipment market but expects improvements in Q4 due to seasonal buying patterns [39] Other Important Information - The company upsized its ABL facility by 200 million to 950millionandextendedthematuritytoAugust2029[32]−BorrowingsundertheABLincreasedto950 million and extended the maturity to August 2029 [32] - Borrowings under the ABL increased to 628 million, primarily due to inventory increases and lower-than-expected adjusted EBITDA performance [31] Q&A Session Summary Question: Comments on the used market - Management noted some demand in the used market with sequential growth, but there is pricing pressure. They expect improvement in Q4 [39] Question: Fleet utilization expectations - Management indicated that high 70s to low 80s utilization rates are desirable and reflect current market conditions [40][41] Question: Class 8 vocational truck demand - Management confirmed good availability of Class 8 chassis and does not anticipate significant pre-buy orders at the beginning of 2025 [42][46] Question: Growth CapEx and OEC growth outlook - Management expects mid-single-digit fleet growth as T&D market conditions improve, with formal guidance to be provided in March [62] Question: ERS segment revenue guidance - Management clarified that the guidance reflects a normalization of backlog and anticipates growth in Q4 [55][50] Question: Telecom segment activity - Management reported increased activity in telecom, with larger orders for rental equipment, although it remains a small segment [58]