Earnings call transcript Q3 2022

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Operator

Greetings. And welcome to the Custom Truck One Source Inc.

Third Quarter 2022 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Brian Perman. Mr. you, Thank Perman.

begin. You may

Brian Perman

and good you, afternoon. Thank

are Before management’s commentary begin, may forward-looking their we company’s of on would that you include nature, by which, remind to statements, and and control. call outside the like today’s we uncertain responses questions to

results forward-looking actual are and statements materially. these on management’s differ Although expectations current based beliefs, may

the the a SEC. company’s to differ, results discussion cause could actual the of For of refer some Risk to that filings section of with the factors Factors please

that the Additionally, reconciliations the issued note find please you during of historical can discussed measures the today. non-GAAP press financial call in release

press call this are The section afternoon, today’s the on presentation Investor Relations for issued we posted website. of and release our the

XX-Q discussion Truck is evening. the with the and We ended as be custom Inc., historical will SEC periods. basis September of XXth, for or Custom results of XXXX Today’s of One operations Source on a truck, or for filing our presented quarter prior months our this X XXXX, third

our include Truck as for the such can has forma we periods. discussing results One pro combined presented over X, and April Nesco information and combined Truck only together useful merger have company XXXX performed today Custom results since how the is for will the period combined LP had be believe Source operated compare if [Custom] While reported all date, We to time.

President Chris are and Joining CFO. and CEO; McMonagle, COO; me today Fred Ryan Ross, Eperjesy,

I will the to now turn over call Fred.

Fred Ross

our us production business The today’s customers slightly helping navigate can prior tirelessly strong modest suppliers EBITDA delivered at profits delivered Compared up share of industry record by gains market well to entire EBITDA issues the shareholders. all able as $XX us levels employees, our our thanking of the we adjusted so growing but the deploy chain and everyone, are million QX same to service team continues goals to quarter, and our challenges Supply value impact creating face. rental welcome, up the the quarter, of was begin our prior versus while maintain customers, merger. continued to for and to revenue our third quarter, the were as we versus work to We providing unrivaled growth. year million fulfill of gross fleet revenue on our X% of in support and call. I’d most adjusted into time, we the Brian, to like continues Thanks, who our and is QX and which $XX.X sense the XXXX. in year, to

challenges chain did equipment the see impacted expected. Supply new we sequential which unfortunately growth that sales, not

to chain supply improved our the XXXX footing. remain improve, the year are into working end issues While and much we continues to on diligently ahead

XXX very to points to of quarter utilization continues for well, ERS perform XXXX. Our increased points compared by the and business basis QX by with XXX basis

provide us Our ago. TES was to business $XXX and profitability for through new than Strong improving margin the see of demand on record it opportunity growing demand both a sales to strong what Xx with to more a backlog continues million rental year focus expansion. very

remain we leverage, later. reducing will Chris Finally, discuss focus net on on well-capitalized which our our

cyclicality. of foundation our provide as very model focus the QX momentum markets a us our acceptable results realization end year. forward and business continued reflect strong on fundamentals exhibit towards and quarter for of and are They to one-stop-shop that third consistently Our been for solid next less we’ve benefits underlying looking the

will confident these rest by issues that the outlook is to the impact continued our year our navigate we While the for continue team inflation, and of chain global effectively. of are tempered supply

quarter continued revenue-adjusted across strong see year, EBITDA business last margin During growth of expect to segments. the the we

Ryan. to over it turn will I that, With

Ryan McMonagle

Fred, Thanks, and afternoon, good everyone.

tremendous end employees in the T&D, X regarding very First, primary who another of selected I telecom, quarter. us each deliver helped of strategically strong our Fred’s solid markets: want our remains echo comments rail, efforts Demand to infrastructure. and

of We reported base, opportunities be excess of in to X% markets largest extremely by for our continue utility million future. GDP seen and foreseeable this This should well. We believe or fleet can and in compelling and offer continue which in our $XX QX be well at in grew levels. strong near the telecom our as backlogs the of to or long-term that than both growth and contractors, backlog, these in reflected more see the record performance the rental which customer TES

in $XX million we mentioned, the since XXXX. fleet early in the As most to rental quarter, our added the Fred merger we’ve added

We utilization are seeing improve. continue to

the utilization For we ended quarter, of quarter averaged XX.X%, XX%. but north the

experiencing we in are demand indicator from demand. assets strong we a customers our to very fleet, rental which see Additionally, for strong the purchase positive sustained as

anticipate level to able being added of equipment steady, rental aged across continues strong the demand more we largest in across Pricing Given hold rental markets during margin segments. end continued assets has expansion fleet in in our sell the our and driving to the to quarter. on QX, the reflecting fleet the our we fourth of QX, which focus

We continue rates out on to at put than fleet rent our average. assets new higher

significant customer only meet Continued industry supply demand. ability to chain remains headwind our the to

customers ability issues inputs to impacted our receiving intermittent for to experience product QX. of adequate major to supply our trucks, the our during deliver which continue We

last remain flows XX% half. first with more second than and in during last the compared than inventory strong as fleet increase QX we from in as CapEx Through to our up QX, third already However, year. experience $XX efforts the positions mentioned, quarter this suppliers our to year versus the us by historically Fred vendor year half more well million production positive QX XX% gross inventory team, versus did our on the add indicator see we high management year-to-date to an continue up deliveries Overall, in target we increased remained rental of to and the the as which we a year. We of levels. near the in finish

Despite quarter-over-quarter TES. our growth continued to in revenue the past discussing fell sequential challenges remain both improvement in dedicated chain the in the we’ve of we TES in and revenue short the quarter. returning quarterly fourth year-over-year goal growth quarters, over supply been several to of We

consistent the our We wage the as costs rest continue of of experience well inputs. with inflation some production market to as higher for

our and strategic passing From increases how to on are through We and remain increases deliver service where certain production focused perspective, our input to customers our possible. cost reasonable customers. implementing optimizing we a price we

producing and continued strong of how value growth, now and EBITDA shareholder adjusted goal increasing Our we define gross revenue, our business. margin run

to to to that believe favorable demand, customer by tailwinds, market and year, team, next ahead look we goals. improving quarter supply continued fourth these we all and end As achieve us execution the position our solid robust chain

this we know We a challenges them. the financial as rental to delivering unprecedented thank the remain While that we asset fully purchases customer continue look employees expect demand to to XXXX. opportunities. to results you extend fourth benefit third and I’d supply service and from sincere chain currently obstacles, have these unmatched in our into for fiscal like take demonstrated quarter, and key quarter, advantage the inflation of We will growth to we are and in

will over Chris. to now I it turn

Chris Eperjesy

Ryan. Thanks,

mix margin the of from was XX.X%, XX.X% to and gross revenue up have strong X% driven forma to in QX. the period these was profit, margin up by Ryan favorable to we focus up of of we in Gross was an slightly points QX earlier revenues, QX continues the be improvement despite from to for is challenges up million up our EBITDA on the last XXXX $X.X segment $XXX decreased in compared indicated, pricing revenue XXX supply million with to excluding compared segments. issues. line QX, compared was quarter QX XXXX for and the forth face. another but $XXX compared XXXX for points XX% sequentially or XXX $XX quarter rental set million, adjusted all Total was which year-to-date representing continue million. The $XX chain QX QX versus despite depreciation X% Fred Total our slightly As quarter. is across basis a XXXX year. XX.X% to pro results. the of Adjusted was improvement SG&A expectations Net adjusted and million, pro-forma Year-to-date, for XXXX. basis loss QX revenue in EBITDA by quarter gross strategic

points to our quarter, strong the Turning referenced results. quarter. compared our was which XX% basis utilization for continued Fred from segment ERS and segment last to XXX within up for up QX XXXX XX%, our

up from QX, Despite the for compared under slightly million to for lower by XXXX. OEC the result QX chain just mainly previous yield supply on a more increased On-rent XX% was than than rent and was the mix $XX of as quarter. which challenges, quarter, XX% average

in more Our million $X.XX quarter. the billion, OEC than up ended at QX by $XX

will We heavily fleet in the to invest continue quarter. the in fourth

to was million, segment from adjusted for chain million up In revenues $XXX brunt issues. TES from rental $XXX a down essentially million Disappointingly, ERS QX. take was were the as $XX increase QX QX, continues ERS For excluding depreciation QX flat million QX, of and X.X% the from the ERS for improved to million, gross gross equipment XX.X%. were $XXX X% sales QX. profit, $XX this rental quarter margin revenue supply from of in sequentially versus X% impact

XX% in gross in margin quarter, a the resulting XX.X%, marginally of from in revenues in QX. lower the Despite profit increased up gross QX,

Our strength million, continues strong this backlog QX to sales and growing very $XXX our activity broad-based be X% was with from by product extremely portfolio. to sequentially across

issues and strong ability believe discipline. for growth we headwinds sales backlog gains the chain are advantage the our our market in strong of supply demand, fully share indicative resulting demand our growing to reflects pricing near-term TES take the equipment, While of in to continued

We ongoing initiatives have production with our favorable implementation efficiency the of addition in inflationary price countering customers. gaining successful to pressures in been increases through

of results we show, are or confident As be the quarters, inflation. we TES over coming this with even improve levels hold quarter’s to margins able elevated will

leverage the Our APS position the during facility the of of mix. we negatively Maintaining previously margin for fleet shifts to purchased X% higher remain and product by to $X.X program, well and business in was announced and rental repurchase million priorities compared quarter. strategic posted M&A. in profit Pursuant the Gross do stock labor million, strong in our improving segment stock investing liquidity as as in us market open as our selective impacted revenue down growth through a pursuing QX. costs $XX

we the under September to a outstanding upsize $XXX balance available at by with ABL the During At $XX $XXX working our increased fund of suppressed under investments. million the we to ABL XXth, ending our facility. had $XXX ability million, mainly the the million of and capital availability million, borrowings quarter, the with portion

improvement of adjusted the with With X net quarter. EBITDA the down of LTM from and turn which we an since almost transaction million, QX the slightly finished of is of leverage X.XXx, close last $XXX

Approximately Xx will and in leverage we achieve remains one likely the our goal XXXX. later

our continue investments the rental we outlook, of to create value. million. to $XXX million they million we million $XXX results, incremental seek and adjusting guidance when TES our outlook acquisitions $X.XXX on year-to-date follows: We total believe billion for and $X.XXX $XXX revenue expect prudent in we With and will make our backlog, XXXX to long-term of respect $XXX to current to shareholder of billion. $XXX to fleet, are results based $XXX revenue ERS revenue This million revenue as of to million, APS

quarter equipment the impact chain will our as in supply that adjusted Ryan which particularly favorably is results rental the previously partially of continue fleet the demand that impact our $XXX in from rental headwinds fourth million, We asset noted to are benefit will the of segment. $XXX offset And we guidance for older TES purchases, EBITDA provided million within previously, projecting and range. to strong

delivered Fred’s closing, integration service. our EBITDA an Despite levels we to and transformational growth, want adjusted have challenges, environment, I of inflationary comments strong expanded and Nesco, executed to In leverage double-digit deliver customer echo ongoing reduced Ryan’s a margins continue performance. in regarding highest with the

turn to open will it for I over operator line questions. the that, the to With

Operator

Our Instructions] from of is DeBlase Nicole [Operator Deutsche question first Bank.

Nicole DeBlase

you made outlook? you quarter XX%. starting little utilization into just exited talk the comment that maybe about can a quarter, guess that’s the I XQ? through the saying that sustain XX% that bit So the assumption we you could exited with the baked Or that, XQ Is utilization around

Chris Eperjesy

sometime did question. great Yes, hold quarter. in we’ve decline after holidays. far in that’s a peaks fourth typically, November, a and bit the it Thanksgiving seen exit or But we early so it and the then and into strong at utilization will September XX%, October Yes,

quarter. a more for back the historical -- expect So we’d down fourth historical it that to normal would average more come

low in So to the we’d that year. is what expect mid-XXs for would be

Nicole DeBlase

then clear Or per just just the the raising Okay. respect are as to I Got than that of gross amount guys first you’re stronger wasn’t half CapEx -- outlook, is half actually expectations? CapEx on, CapEx expecting you it spend? it. your prior And just to with second

Chris Eperjesy

It’s Yes, half half. the first latter. than the second is stronger

QX think from probably where than QX will I strong. come little So it a CapEx perspective, a came lighter be gross still will but in

will this half year. be half the first of second the So more meaningfully than

Operator

from is question Hauke Next Justin Baird. of

Justin Hauke

there million, for Yes. sequentially background is implying, range guess in $XXX at $XXX is visibility I on through TES somewhere you is I the there and to is the quarter -- would side growth. million sales fourth The revenue the has the in there, halfway The million terms for here. almost just demand apologize guess, of year. the last just the on my the here helpful. the backlog noise the I the for have guidance quarter, the this deliveries be around been question XX% that in but I’m $XXX obviously, midpoint, business.

Ryan McMonagle

things that’s today that’s why and you’re so had the Yes, on we’ve number on far but to are historical guidance right call. well quarter. the bring in fourth last trending down the And that performance,

best is allows So how is is it of we us we’re build share But trying you’re right, what But be continues the put risk information to out. the is and demand where the -- able chain to strong. with supply to have to deliver. we are just

even the building backlog October. in saw it’s You in quarter, third and still build the

So really what able demand out. It’s just good we’re to we’re seeing trends. get

Justin Hauke

and question price talking contribution I’m margins that’s were like going the were the was was in side, on seems that curious able trended margins. if new Okay. here, is strong about higher. your I the some on maybe business. I XX% the second here previously guess positive to the particularly fleet rental you It cost offsetting the out recover you’re up just in know it’s range. inputs

So some there. maybe commentary just

Ryan McMonagle

rates Sure. new still Yes, in on things are Justin. range, out going new that

above overall digits double trending fleet still where it’s averaging. So the is

So When though, is assets a seeing we’re of the that What we’re assets increasing, lot trend. is also is we’re seeing out. of utilization duration happening, putting increase.

market have And so been we to yes, churning dictates, opportunity some trying obviously, as that the And of the not as out many we’re into But as good when fleet. are still to we’re rate. assets seeing can much. comes as it the rental add assets

Operator

is question Securities. Crist next CJS from Our Stefanos of

Stefanos Crist

terms Could the expectations you talk about capital of just free cash flow working well? for year and just in as

Chris Eperjesy

this Yes, Chris. is

free levered of cash guess I focus terms flow. I’ll In cash flow, free on

would in If you out at we’re right we’ve for -- adjust cover fleet. if is look X. high investment significant I the I levered X, cash through free year-to-date, acquisition, the out first we’re to cash you X think able point is free around the rail flow flow rental that been pretty a quarters, but

CapEx we had. net $XX think of million I a the any quarter of it was third of alone, net in proceeds

from we levered flow For standpoint. to cash be able positive free year, expect be a to the

flow So through we QX. that should in see

you’ve significantly, being set in enter In net by capital, invested some to of on think we to we working QX of year. comments, really plan. as seen QX inventory. of well really particular next But terms That’s in partially of that floor we’ve and some up us that Ryan’s that’s going offset

low created rather levels year. constraint at were we some entered as the levels inventory our year, last remember You’ll and that

of expect as first we the next going but so the us of set that well And some for to that it’s up year. investment exit year, we have we’ll half

Stefanos Crist

another one you, for Chris. And it. Got

Can Truck, getting you’re so anything about far you’d Or changes you last like I think you’d like any seeing make? you on? your talk to improve just Custom the call, on were at the that started. to time timing just of

Chris Eperjesy

the think loved up So days, love true. -- would counting before I I’m a I I’m me at created did going being positioning business, and and all way especially that a now so for improvement, of is this are months things opportunity company months end I Fred, the instead X.X I and as Like end of joined No, I I diligence the opportunities lot describe point. the markets. love I part of. about company, it business to there’s quickly the a public being through challenges the given what of love he’s my grown always and an of the that’s any background. I company. you’ve the be

brought strategy I think here. I and story heard, in that’s what the terms it’s an that can exactly area where the help. of But me you’ve

So no today, I reassurance what far. just, I’m I’ve pearls wisdom and why so really is things of the guys you all the I guess, here, seen that about the in business like like but confidence

Operator

is question Dilts Noelle next from of Our Stifel.

Noelle Dilts

I at over implied revenue fourth-quarter quarters. levels ERS I a dig a suggests average to revenue guidance the to little and levels X into wanted about increase XX% in that bit think looking first

So help sales. I’m equipment confidence you assuming rental from most you strong the jump? of us that in again fourth-quarter what’s that is giving understand But coming could just

Ryan McMonagle

I’ll you’re This in Chris start we demand our Yes. But it We buyouts. remarks is of the mentioned and Fred some certainly prepared and about or we’re Ryan. about fourth-quarter seeing add-in. Sure. can think, right.

able for about able million equipment so talked quarters. about several take we’re to being talked to older of that this two, for demand things heading going equipment, see into that increase indicator X really as demand is year. good which are the next got into quarter, customer some we’ve that just of we’ve really CapEx deploy $XX able sustained One, of to last been out fleet, the a strong the So gross we rental on. the we’ve what we’ve And from comfortable been we then the

in think with put QX. really for planning amount this the So the able we’re into quarter we’re makes CapEx and of and we’re then quarter and to sense strong [LEAP] it, that last seeing QX demand we it for

Noelle Dilts

Sorry, ahead. go

Fred Ross

No, that they going just our on believe in say I good on base it’s if it. customer and they’re to a won’t the then CapEx indication position was again, return get an don’t spend to

And our equipment. to older equipment again, so any sight it’s mostly And off get we that distribution business. into don’t in selling end see we like newer to and the

Noelle Dilts

here, Okay. for equipment if assuming us up paying any been would you have guess, newer give dynamics. the understand give in you Yes, know units should wind about we I how fleet into don’t year. sense of fleet I’m heading potential get ‘XX? to size past. heading can think guidance will more think than next sense us I’m you’re trying those rental the you of and I Can a I but where a you just the into growth

Ryan McMonagle

of couple a things in there. So

right we’ve rental So rate on units. talked increasing, about

So offset from standpoint. that some the increase input cost of will an

price digits unit putting and So you’re right, what we’re years of mid-single the partners higher higher receiving can cost was the those of just our we’re But there. at as add we comfortable today is out assets, that rates. offset -- it in because that, we’re past inflation new the than from also putting and OEM we’re

was quarter, be that to your still is quarter, number have then there’s good In give you I which a an you third there. perfect trade asked. see happens the we’re don’t but fourth that standpoint, a from CapEx it the So significant in will as we’ll expecting question a I account first less of the said, gross there, out significant. comment, than but equipment, And

about from December out. will alone -- it at will exactly until be coming it not just will some from are same what think what’s in. be about quarter to But the And what’s we coming that resolved out going of pieces the as fourth think just be so I looking

maintain. down with more the that goes older equipment not easy on the thing we’re to and equipment to is always replace older substantially it’s The the equipment other And of new that money new to R&M remember equipment costs chasing and cost repairing.

Operator

from is Scott Oppenheimer. Schneeberger question last of Our

Scott Schneeberger

the I’m that But impacting? it it bit segments, all impacting -- it this And curious, a us into speak been each give into year most. the panned have we out. of and to you a it’s optimism that would little can you chain you could delve obviously, hasn’t supply it’s how improve, little of persistent. insight Could TES issues remains from points the like seems There more?

in So just a Or bit for longer? are good still we thoughts it on mired has this improved?

Ryan McMonagle

it more Yes, flow, I’ll then too, fast improved, color, hasn’t but as this couple numbers give as you and is you expected time improved in Scott. can give last some it Fred we it a look, But certainly of year, has but improving.

of a of than couple the million up quarter is it $XXX at of end year. was things. So the Inventory today third beginning the the at

So we are more inflows. seeing

last quarter, And have under been versus I think up inflows XX% up just On QX were XX%. year. year-to-date, QX inflows the about

earlier, is So which up more how it’s seeing in, we are Chris’ for we’re will feeling good set why about to next product comment come it us year.

all the having of we now. be a to dealing build with And continues challenge unit. what completed things need The we’re that’s to

So we’ve in situations, got chassis. certain

In other the got We have match better situations, attachment, inflows we chassis. the right with we’ve it. of on waiting that chassis but we’re

we’re -- to the that’s But so what exactly And in predict able to going it -- been made getting it macro, is what quarter. build what’s better. that’s to the that’s be challenging

inflows, are next seeing QX think us up year We reasonably and heading it’s into ‘XX. well setting in I more

Fred Ross

and most that But the of set of]. at in to go the work ideas and next that super it’s small side is back of we’re more up where different we big the come we’re small The excited attachments. us a parts I’ve we’re first parts year. quarter really times, a can quite this getting because the up product better. I’m parts, excited at bit or are with in seen holding on a most we’re And flex big in the gotten a versus lot But truck where is on now. trucks on the It’s has [lieu deal which into that while can how

it, a Do feel really But bullish about I good X coming here. it and month now. getting And we earlier? we it. it. is Sure. got getting wish here it it months are early in I’m is really it So on would or

Scott Schneeberger

is X Are that after issue. not items. it’s clarity for It any various there just sounds follow-up or uncertain? And that. the -- one are there. better have like sounds X it’s or that just like it’s you. that it parts sounds don’t and like still But getting And are a more then X It particular

Fred Ross

It’s cylinder valving something or anything. the can’t the here really you -- doesn’t dump get or nothing or a you digger pumps the it’s or again, componentry versus do -- smaller Maybe change here, doesn’t major it’s can get If can’t pieces. that there’s here really you body about it.

So these are all takes put is again, smaller up, truck trucks bigger seen, that’s you’ve inventory still grown to showing pieces out. parts us that to the build allow why now our the it has And those to which with. going together because are

happening. actually it’s it today. I’m it pretty with I where pretty is earlier, happy where excited but again, So was wish it today. is about Again,

Scott Schneeberger

you that on in say selling lot just just aged And you’ll a heard in be think it I then I of the units sounds And ERS, quarter. fourth Great. be will December. like a of in lot determined

on come. thoughts have new into you if for might all well. the get that CapEx concern the that And and was on still it’s capacity-constrained Just you do confident year? to order there? very those too on You commentary fleet like there a this And sounds it but any before, but and the How margin be sound discussed sell as is heading So used me. sales? you anticipate that’s can’t you pricing you much maybe on be

Ryan McMonagle

we’re And values I’ll think high start, good a right now. I Scott, residual Yes, Sure. seeing it’s question.

sell it of feel like equipment a time continue we used is out of the good some to the fleet. to So

environment So there’s because seeing demand is strong, so good -- there. the we’re values

our look, And and there. into margin with through So plans modeling we’re I year we’re comfortable heading as feel how next or with are we X. comfortable flowing then that CapEx

that what believe quarter in, optimism the year fleet to this able in And we what be as we’ll we able so put and be good talked to we’ll add to into the about, about next well. Fred heading just feel

Operator

now And the like Fred closing session. I sir. Ladies of turn call the and go to have the we to gentlemen, back comments. would ahead, question-and-answer end Please Ross reached over for

Fred Ross

the today Thanks. Thank look your And time out again. with with hesitate quarterly to speaking any Thanks, interest on night. you the earnings Good for to Custom don’t in call. We questions. forward next in please Truck. reach meantime, everyone, our you and

Operator

That concludes us. you our conference. Thank joining for

now may disconnect your lines. You

Custom Truck One Source (CTOS) 8 Nov 222022 Q3 Earnings call transcript