Custom Truck One Source(US:CTOS)2025-03-05 17:16Financial Data and Key Metrics Changes - Custom Truck One Source, Inc. generated $521 million in revenue for Q4 2024, with adjusted gross profit of $168 million and adjusted EBITDA of $102 million [26] - Average utilization of the rental fleet for Q4 was just under 79%, compared to 73% in Q3 and under 78% in Q4 of the prior year [27] - Total OEC (Original Equipment Cost) in the rental fleet ended the year at $1.52 billion, up $60 million versus year-end 2023 and up $22 million versus the end of Q3 [31] Business Line Data and Key Metrics Changes - The ERS segment had $172 million of revenue in Q4, down from $185 million in Q4 of 2023, but rental revenue was up 15% sequentially [28] - TES segment revenue for Q4 was over $308 million, a quarterly record, and total TES revenue for the year exceeded $1 billion for the first time, up almost 7% versus 2023 [15][32] - APS business posted revenue of $41 million in Q4, up more than 6% from Q4 of the previous year [35] Market Data and Key Metrics Changes - Approximately 55% of total revenue comes from the utility end market, which is experiencing significant growth due to increased electricity demand driven by AI and grid upgrades [10] - Net orders improved in Q4 to $280 million, up over 90% on a sequential basis and up 35% compared to Q4 of 2023 [34] - The company expects total revenue for 2025 to be between $1.97 billion and $2.06 billion, with projected adjusted EBITDA between $370 million and $390 million [22][39] Company Strategy and Development Direction - The company plans to continue investing in its rental fleet and expanding its physical presence, including opening a new branch in Portland, Oregon [14][24] - Management emphasized the importance of long-term relationships with strategic suppliers and a diversified customer base as key to success [23] - The company aims to achieve a net leverage ratio below three times by fiscal 2026, with a target to get below four times by the end of fiscal 2025 [40][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term demand drivers in the industry, despite some demand weakness experienced in certain utility markets [41] - The company anticipates double-digit adjusted EBITDA growth across its consolidated business in 2025, driven by strong market tailwinds [25][41] - Management noted that high interest rates and economic caution influenced customer purchasing behavior, but they are closely monitoring order intake [17] Other Important Information - The company closed on a sale-leaseback transaction on eight properties for net proceeds of over $52 million, which were used to reduce borrowings [21] - Inventory management efforts resulted in a reduction of more than $150 million in Q4, contributing to lower balances on floor plan lines and reduced borrowings [37] - The company is monitoring developments involving tariffs and chassis emission regulations, with approximately 30% of total purchases coming from Mexico and Canada [19][20] Q&A Session Summary Question: Concerns about TES Revenue guidance and backlog - Management explained that the normalized backlog is four to six months and emphasized the increase in net orders as a positive indicator for revenue growth [45][46] Question: Seasonality of revenue and EBITDA - Management expects a similar split of revenue and EBITDA between the first and second halves of the year, with slight variations [52][54] Question: Impact of sale-leaseback on lease expenses - Management clarified that the sale-leaseback will result in an incremental lease expense of approximately $4.5 to $5 million annually, primarily affecting cost of goods sold [56] Question: Margin outlook and tariff impacts - Management provided insights on margin targets, indicating low to mid-seventy percent margins for rental and mid-teens for TES, while also discussing strategies to mitigate tariff impacts [65][69] Question: Infrastructure bill benefits - Management noted that benefits from the infrastructure bill are still emerging and described the current situation as mid-innings in terms of impact [74] Question: Utilization progression in the full year guide - Management indicated that utilization is expected to remain in the high seventies to low eighties range, driven by strong demand from utility customers [78][82]