Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Custom Truck One Source Inc (CTOS, Financial) achieved sequential revenue and adjusted EBITDA growth in the second quarter.
- The TES segment delivered sequential revenue growth of more than 3% in the quarter, with revenue up 6% year-to-date compared to the same period in 2023.
- High levels of demand for specialty products like dump trucks and hydro excavators are positively impacted by federal infrastructure investments.
- The company is well-positioned for anticipated demand increases due to upcoming chassis emission regulations.
- Custom Truck One Source Inc (CTOS) has strong relationships with vendors, aiding in record TES production levels.
Negative Points
- The company lowered its revenue guidance for the ERS, TES, and APS segments due to near-term challenges in the utility sector.
- Average utilization of the rental fleet declined to just under 72% from almost 82% in Q2 of the previous year.
- Persistently high interest rates and election uncertainty are impacting smaller customers' purchase decisions.
- Adjusted gross profit and adjusted EBITDA were significantly impacted by a slowdown in utility utilization.
- The APS segment experienced a decrease in rentals and higher material costs, impacting its performance.
Q & A Highlights
Q: Can you elaborate on the recovery in your core utility T&D markets in Q3?
A: Ryan Mcmonagle, CEO: We are seeing positive trends with OEC on rent up by over $30 million in July, primarily in utility. Utilization is up by about 200 basis points. Transmission is showing more quoting activity, a good leading indicator, while distribution is normalizing but impacted by inflation on core products.
Q: What is the lead-time for equipment rental turnaround?
A: Ryan Mcmonagle, CEO: It varies. Some activities are immediate, with quoting and shipping happening now, while others are planned for later this fall. We are already seeing some pickup in activity.
Q: With lower cash flow and EBITDA, what is the expected leverage by year-end?
A: Christopher Eperjesy, CFO: We don't expect a significant change from current leverage levels. We anticipate a modest decrease as inventory levels reduce towards year-end and more significantly next year.
Q: How should we think about CapEx in 2025 given the current demand weakness?
A: Christopher Eperjesy, CFO: We haven't provided 2025 guidance yet, but expect a return to normal levels. If demand rebounds faster, we can quickly react and grow the fleet more rapidly.
Q: Does the revised guidance still assume a half-on-half step up in EBITDA in the second half?
A: Christopher Eperjesy, CFO: Yes, we expect sequential improvement in Q3 and significant growth in Q4, driven by seasonal strength and potential tailwinds from resolved regulatory and funding issues.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
