Custom Truck One Source(US:CTOS)2025-05-01 14:02Financial Data and Key Metrics Changes - The company generated $422 million in revenue for Q1 2025, with adjusted gross profit of $136 million and adjusted EBITDA of $73 million [16] - Average utilization of the rental fleet was just under 78%, up from 73% in Q1 2024, indicating improved operational efficiency [16][17] - The total OEC (Original Equipment Cost) in the rental fleet reached $1.55 billion, marking a $95 million increase year-over-year [18] Business Line Data and Key Metrics Changes - The ERS (Equipment Rental Services) segment reported $154 million in revenue, a 13% increase from $136 million in Q1 2024, with both rental revenue and rental asset sales showing significant year-over-year growth [17][18] - The PES (Product Equipment Sales) segment saw equipment sales of $232 million, slightly down from the previous year, but with a backlog increase of $51 million or 14% [19][20] - The APS (Aftermarket Parts and Services) segment maintained revenue at $35 million, flat compared to Q1 2024, with a gross profit margin of 22% [21] Market Data and Key Metrics Changes - The company noted strong demand in core T&D (Transmission and Distribution) markets, driven by increased electricity demand and maintenance spending [6][7] - Average OEC on rent for Q1 was over $1.2 billion, reflecting a 13% year-over-year increase [7][16] - The backlog in the PES segment ended at just over $420 million, consistent with historical averages [20] Company Strategy and Development Direction - The company plans to continue investing in its rental fleet to meet current and projected demand, with a focus on maintaining strong relationships with suppliers [9][21] - Management expressed confidence in achieving growth targets for 2025, reaffirming revenue guidance of $1.97 billion to $2.06 billion and adjusted EBITDA guidance of $370 million to $390 million [23][24] - The company is monitoring U.S. tariff policies closely and has implemented strategies to mitigate potential impacts on operations [11][12] Management's Comments on Operating Environment and Future Outlook - Management remains cautiously optimistic about achieving growth targets despite economic uncertainties related to tariff policies [7][14] - The company highlighted the resilience of its end markets and the importance of long-term relationships with suppliers and customers [14] - Management expects to see continued strong demand in the second half of the year, particularly in the ERS and TES segments [29] Other Important Information - Borrowings under the ABL (Asset-Based Lending) at the end of Q1 were $655 million, with a net leverage of 4.8 times [22] - The company aims to reduce net leverage to below three times by the end of fiscal 2026 [23] Q&A Session Summary Question: What gives you conviction in the acceleration in revenue growth? - Management highlighted strong demand in the ERS segment, with 13% revenue growth in Q1 and a robust backlog, indicating positive trends for the remainder of the year [26][29] Question: Does the IJ pause by the Trump administration create questions for customers? - Management noted that they are not seeing delays in projects from customers and emphasized the flexibility of their rental model [30] Question: Can you provide more color on agreements with vendors to mitigate tariff exposure? - Management discussed strong relationships with chassis suppliers and proactive inventory management to mitigate tariff impacts [38] Question: How should we think about inventory reduction by year-end? - Management indicated that inventory reduction will be more second-half weighted, with continued inventory purchases in Q2 [41] Question: How quickly do orders convert to sales revenue? - Management explained that conversion times vary by product category, with some converting quickly and others taking three to six months [51] Question: What is the target leverage by year-end? - Management aims for meaningful movement in leverage, potentially getting close to or below four times if high-end cash flow targets are met [55]