Custom Truck One Source(CTOS) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q2 2023 was $457 million, representing a 26$154 million, up 22% year-over-year, resulting in an adjusted gross margin of 34% [15] - Adjusted EBITDA reached $103 million, a 21$11.6 million, marking the third consecutive quarter of positive net income [33] Business Line Data and Key Metrics Changes - The rental segment (ERS) generated $118 million in revenue, a 9$251 million, up nearly 39% from Q2 2022, with gross profit increasing by over 69% [16] - APS business posted revenue of $37 million, a 4$864 million, a 30% increase compared to Q2 2022 [8] - Utilization in the rental fleet finished at just under 82%, which is historically strong [5] - Average OEC on rent increased by more than $53 million compared to Q2 2022 [33] Company Strategy and Development Direction - The company is focused on investing in and optimizing production capacity and service footprint to meet customer expectations [14] - Expansion projects in Kansas City and Union Grove are expected to enhance production capacity [14] - The company aims to maintain net leverage below 3x by the end of fiscal 2023 while continuing to grow the rental fleet [17] Management's Comments on Operating Environment and Future Outlook - Management noted strong demand across strategically selected end markets, including utility, telecom, rail, and infrastructure, which are expected to grow well above GDP [13] - The company is increasing its total revenue guidance range to$1.725 billion to $1.83 billion and adjusted EBITDA range to$425 million to 445 million for 2023 [6] - Management expressed confidence in sustaining margins despite inflationary pressures [8] Other Important Information - SG&A expenses were 58 million for Q2, representing 12.7% of revenues, an improvement from 13.5% in Q2 2022 [7] - The company has repurchased approximately $15 million of its stock since initiating the stock repurchase program [34] Q&A Session Summary Question: Can you help us understand the ending OEC and expected growth? - Management confirmed that they expect to achieve mid to high single-digit growth for the year, despite some fluctuations in OEC [21][40] Question: What are the expectations for free cash flow in the second half? - Management indicated that inventory investment has been a drag on free cash flow, but they anticipate a release of free cash flow in the latter half of the year as sales activity moderates [23] Question: Can you elaborate on the guidance increase and factors considered? - Management noted that the outperformance in Q2 and strong demand were key factors in the updated guidance for the second half [24][50] Question: How is the company addressing the supply chain constraints? - Management acknowledged ongoing supply chain constraints but noted improvements in chassis availability, which should support production and sales goals [19][62] Question: What is the outlook for the telecom segment given recent issues? - Management stated that telecom represents less than 5% of revenue and has not significantly impacted operations, but they are monitoring the situation closely [67]