Custom Truck One Source(US:CTOS)2023-11-10 13:42Financial Data and Key Metrics Changes - Total revenue for Q3 2023 was $434 million, representing a 21% increase compared to Q3 2022 [31][122] - Adjusted gross profit was $150 million, up 14% year-over-year, resulting in an adjusted gross margin of over 34% [31][122] - Adjusted EBITDA reached $100 million, a 9% improvement compared to Q3 of last year [31][122] - Net income for the quarter was $9.2 million, marking the fourth consecutive quarter of positive net income [14] Business Line Data and Key Metrics Changes - The ERS segment reported rental revenue of $115 million, a 3% increase versus Q3 2022, with used equipment sales at $52 million, up almost 41% year-over-year [117] - TES segment revenues were $231 million, up 33% from Q3 2022, with gross profit increasing by more than 46% [16][34] - APS business posted revenue of $36 million, up 4% versus Q3 of last year, with an adjusted gross profit margin of 28% [41] Market Data and Key Metrics Changes - Average utilization for the rental fleet was just under 79%, with a sequential improvement to over 81% by the end of Q3 [9][38] - Backlog ended the quarter at $779 million, a 10% increase compared to the previous year [34][40] - Year-to-date, realized rental rates on core products were up 7% compared to the same period in 2022 [15] Company Strategy and Development Direction - The company continues to focus on optimizing production capacity and service footprint to meet customer expectations [11] - Strategic investments in the rental fleet are ongoing, with a reduction in fleet age to 3.5 years, believed to be the youngest in the industry [10][59] - The company is increasing its projected total revenue guidance range to $1.765 billion to $1.87 billion, affirming adjusted EBITDA guidance of $425 million to $445 million [19][36] Management's Comments on Operating Environment and Future Outlook - Management noted that while there has been volatility among utility customers impacting Q3 results, long-term growth opportunities remain compelling [8] - The company expects continued strong demand for new equipment sales and rental fleet performance, with favorable end market dynamics [12][32] - Supply chain improvements and robust customer demand are anticipated to support strong revenue and adjusted EBITDA growth moving forward [12][31] Other Important Information - The company has repurchased approximately $30.6 million of its stock, including $15.8 million in the quarter [41] - Borrowings under the ABL at the end of Q3 were flat at $492 million, with net leverage improving to 3.3x [18][42] - The company is experiencing mixed inflation impacts, with some raw material costs decreasing while others remain elevated [111] Q&A Session Summary Question: What is the visibility for the utility end market? - Management expects improvement in the utility end market by the end of the year, with compelling long-term demand despite current supply chain delays [23][24] Question: Can you elaborate on the fourth quarter outlook for rental revenue? - Management feels positive about overall rental performance, with expectations for utilization to remain consistent with Q3 levels [45][46] Question: What is the status of inventory levels? - Inventory has increased sequentially, with a mix of finished goods and work-in-progress, and is expected to normalize over time [67][68] Question: Why is the company selling used equipment despite high demand? - Selling used equipment is part of the strategy to manage fleet age and optimize capital deployment, with a focus on maintaining a healthy return on invested capital [70][80] Question: What are the implications of the new production facilities? - New production facilities are performing well, with high levels of output, and additional locations are planned for 2024 to expand service capabilities [92][93]