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] - Total OEC (Original Equipment Cost) in the rental fleet reached $1.55 billion, marking a $95 million increase year-over-year [19] Business Line Data and Key Metrics Changes - The ERS (Equipment Rental Services) segment reported revenue of $154 million, a 13% increase from $136 million in Q1 2024, driven by strong rental demand [17][18] - 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% [20][21] - APS (Aftermarket Parts and Services) business revenue remained flat at $35 million, with adjusted gross profit margin at 22% [22] Market Data and Key Metrics Changes - The company noted sustained demand in core T&D (Transmission and Distribution) markets, with strong order flow and rental demand expected to persist through 2025 [6][10] - The backlog in the PES segment is at just over $420 million, aligning with historical averages, indicating a healthy pipeline for future sales [21] 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][22] - 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 [24][25] Management's Comments on Operating Environment and Future Outlook - Management acknowledged economic uncertainties due to evolving U.S. tariff policies but maintained a positive outlook based on strong demand drivers and customer engagement [6][14] - The company is monitoring potential impacts of chassis emission regulations and believes its current inventory levels will support production needs [12][13] 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 [23] - The company aims to reduce net leverage to below three times by the end of fiscal 2026, targeting significant free cash flow generation in 2025 [24] Q&A Session Summary Question: What gives conviction in the acceleration of revenue growth? - Management highlighted strong demand in the ERS segment, with a 13% revenue growth in Q1 and a robust backlog, indicating positive trends for the remainder of the year [28][31] Question: Does the IJ pause by the Trump administration pose any issues? - Management indicated that they are not seeing delays in projects from customers and emphasized the flexibility of their rental model [32] Question: Can you provide more color on tariff mitigation strategies? - Management discussed strong relationships with chassis suppliers and proactive inventory management to mitigate tariff impacts [40][41] Question: How should we think about inventory reduction by year-end? - Management stated that inventory reduction will be more second-half weighted, with continued inventory purchases expected in Q2 [43] Question: How quickly do orders convert to sales revenue? - Management noted that conversion times vary by product category, with some converting within a month and others taking three to six months [54]