Custom Truck One Source (CTOS) FY Conference Transcript

Summary of Custom Truck OneSource (CTOS) FY Conference Call Company Overview - Company: Custom Truck OneSource (CTOS) - Industry: Specialty equipment rental and sales, focusing on electric, utility transmission and distribution, communications, and rail markets in North America - Business Model: One-stop shop offering rental, sales, and aftermarket parts and services [1][2] Key Points and Arguments Rental Fleet Characteristics - Fleet Size: Over 10,000 units, with 70% focused on utility markets, 10% on rail and telecom, and the remainder on specialty vocational trucks [5][6] - Asset Life: Equipment has a useful life of 10 to 20 years, with an average rental duration of just over one year [7][8] - Fleet Age: The average age of the fleet is just over three years, which is considered a competitive advantage [9] Integrated Production Capabilities - Production Model: Custom Truck sources attachments and chassis directly from major suppliers, allowing for economies of scale and cost advantages [11][12] - Customer Flexibility: The company caters to customer needs through rentals, sales, and aftermarket services, enhancing customer retention [13][14] End Markets and Demand Trends - Revenue Breakdown: 55% from utility, just under 30% from infrastructure, and each rail and telecom contributing just under 5% [15][16] - Market Drivers: Strong demand for utility grid upgrades, infrastructure projects, and ongoing investments in rail and telecom, with a noted softness in telecom [17][19] Growth Opportunities - Future Drivers: Anticipated growth from utility grid upgrades, electrification, manufacturing onshoring, and data center investments [20][21] - Q1 Performance: Reported a 13% growth in the ERS segment, with improved rental fleet utilization at 78% [25] Tariff Impact and Procurement Strategy - Tariff Resilience: The company is well-positioned with a young rental fleet and significant pre-tariff inventory, minimizing the impact of potential tariffs [26][27] - Supplier Relationships: Strong relationships with suppliers have allowed for proactive procurement strategies to mitigate cost increases [28][30] Capital Allocation and Free Cash Flow - Free Cash Flow Target: Aiming for $50 million in levered free cash flow, with significant investments in the rental fleet projected between$375 million and $400 million [52][53] - **Debt Reduction Priority**: Focus on reducing net leverage to below three times by the end of 2026 [54][56] Backlog and Long-Term Growth - **Backlog Status**: Increased backlog by over$51 million in Q1, with a healthy range of four to six months on hand [60][62] - Growth Projections: Expected long-term growth rates in the high single digits to low double digits, with targeted gross profit margins of 15% to 18% for new sales [66][68] Customer Dynamics - Demand from Customers: Both larger and smaller customers are showing good demand, with smaller customers leaning towards rentals due to capital expense hesitancy [70][72] Additional Important Insights - Greenfield Strategy: The company is expanding its footprint with new locations and acquisitions, targeting areas with customer demand [45][49] - Pricing Strategy: Adjusted gross profit margins targeted at low to mid-seventy percent for rentals and mid-twenty percent for asset sales, with recent price increases reflecting market conditions [41][42][43] This summary encapsulates the key insights and strategic directions discussed during the Custom Truck OneSource FY Conference Call, highlighting the company's operational strengths, market dynamics, and future growth potential.