CTOS Custom Truck One Source Inc

Custom Truck One Source, Inc. (NYSE: CTOS), a leading provider of specialty equipment to the electric utility, telecom, rail, and other infrastructure-related end markets, today reported financial results for the fourth quarter and full year ended December 31, 2023.

CTOS Fourth-Quarter and Full-Year Highlights

• Total quarterly revenue of $521.8 million and annual revenue of $1,865.1 million, as a result of continued strong demand across our end markets
• Quarterly gross profit of $126.8 million, a decrease of $1.5 million, or 1.2%, compared to $128.3 million for fourth quarter 2022 and annual gross profit of $454.3 million, an increase of $70.5 million, or 18.4%, compared to $383.7 million for 2022
• Adjusted gross profit increased 1.2% to $171.1 million compared to $169.1 million for fourth quarter 2022 and annual adjusted gross profit of $624.9 million, an increase of $69.5 million or 12.5%, compared to $555.5 million for 2022
• Quarterly net income decreased $14.8 million to $16.1 million, compared to net income of $30.9 million in fourth quarter 2022 and annual 2023 net income increased $11.8 million to $50.7 million, compared to full-year 2022 net income of $38.9 million
• Quarterly Adjusted EBITDA of $118.4 million compared to $124.5 million in the fourth quarter 2022 and annual Adjusted EBITDA of $426.9 million, an increase of $34.0 million, or 8.6%, compared to 2022 full-year Adjusted EBITDA of $393.0 million

“Our fourth quarter results concluded a strong year despite some end-market pressures in the second half of the year. In 2023, our TES segment realized 29% revenue growth compared to 2022. In addition, our ERS segment realized 10% year-over-year revenue growth. Our entire team was instrumental in achieving record vehicle production this year, which helped drive the performance in both segments,” said Ryan McMonagle, Chief Executive Officer of CTOS. “As we head into 2024, we continue to see strong demand from customers across all our primary end-markets and in all three of our business segments. Our outlook for this year makes it clear that we expect 2024 to be another year of growth for Custom Truck. A strong focus on capital allocation this year will allow us to pursue our growth strategy and to deliver free cash flow generation and continued deleveraging, all of which will create long-term value for shareholders,” McMonagle added.

Summary Financial Results

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Rental revenue

$

120,244

 

$

127,829

 

$

478,910

 

$

464,039

 

$

118,209

Equipment sales

 

366,967

 

 

 

325,746

 

 

 

1,253,453

 

 

 

982,341

 

 

 

283,079

 

Parts sales and services

 

34,543

 

 

 

33,149

 

 

 

132,737

 

 

 

126,706

 

 

 

33,065

 

Total revenue

 

521,754

 

 

 

486,724

 

 

 

1,865,100

 

 

 

1,573,086

 

 

 

434,353

 

Gross profit

$

126,824

 

 

$

128,325

 

 

$

454,260

 

 

$

383,748

 

 

$

107,156

 

Net income

$

16,122

 

 

$

30,937

 

 

$

50,712

 

 

$

38,905

 

 

$

9,180

 

Adjusted EBITDA1

$

118,361

 

 

$

124,484

 

 

$

426,930

 

 

$

392,978

 

 

$

100,185

 

1

Adjusted EBITDA is a non-GAAP financial measure. Further information and reconciliations for our non-GAAP measures to the most directly comparable financial measure under United States generally accepted accounting principles (“GAAP”) are included at the end of this press release.

Summary Financial Results by Segment Our results are reported for our three segments: Equipment Rental Solutions (“ERS”), Truck and Equipment Sales (“TES”) and Aftermarket Parts and Services (“APS”). ERS encompasses our core rental business, inclusive of sales of rental equipment to our customers. TES encompasses our specialized truck and equipment production and sales activities. APS encompasses sales and rentals of parts, tools and other supplies to our customers, as well as our aftermarket repair service operations.

Equipment Rental Solutions

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Rental revenue

$

116,594

 

$

123,429

$

463,139

 

$

449,108

 

$

114,929

Equipment sales

 

68,023

 

 

 

78,472

 

 

 

263,028

 

 

 

212,146

 

 

 

52,175

 

Total revenue

 

184,617

 

 

 

201,901

 

 

 

726,167

 

 

 

661,254

 

 

 

167,104

 

Cost of rental revenue

 

28,222

 

 

 

26,735

 

 

 

118,236

 

 

 

106,598

 

 

 

29,613

 

Cost of equipment sales

 

49,799

 

 

 

57,504

 

 

 

198,510

 

 

 

158,167

 

 

 

37,828

 

Depreciation of rental equipment

 

43,230

 

 

 

39,836

 

 

 

167,199

 

 

 

167,962

 

 

 

41,652

 

Total cost of revenue

 

121,251

 

 

 

124,075

 

 

 

483,945

 

 

 

432,727

 

 

 

109,093

 

Gross profit

$

63,366

 

 

$

77,826

 

 

$

242,222

 

 

$

228,527

 

 

$

58,011

 

Truck and Equipment Sales

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Equipment sales

$

298,944

 

$

247,274

 

$

990,425

 

$

770,195

 

$

230,904

Cost of equipment sales

 

246,047

 

 

 

202,887

 

 

 

817,639

 

 

 

647,685

 

 

 

191,084

 

Gross profit

$

52,897

 

 

$

44,387

 

 

$

172,786

 

 

$

122,510

 

 

$

39,820

 

Aftermarket Parts and Services

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Rental revenue

$

3,650

 

$

4,400

 

$

15,771

 

$

14,931

 

$

3,280

Parts and services revenue

 

34,543

 

 

 

33,149

 

 

 

132,737

 

 

 

126,706

 

 

 

33,065

 

Total revenue

 

38,193

 

 

 

37,549

 

 

 

148,508

 

 

 

141,637

 

 

 

36,345

 

Cost of revenue

 

26,613

 

 

 

30,470

 

 

 

105,791

 

 

 

105,185

 

 

 

26,203

 

Depreciation of rental equipment

 

1,019

 

 

 

967

 

 

 

3,465

 

 

 

3,741

 

 

 

817

 

Total cost of revenue

 

27,632

 

 

 

31,437

 

 

 

109,256

 

 

 

108,926

 

 

 

27,020

 

Gross profit

$

10,561

 

 

$

6,112

 

 

$

39,252

 

 

$

32,711

 

 

$

9,325

 

Summary Combined Operating Metrics

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Ending OEC(a) (as of period end)

$

1,455,708

 

 

$

1,455,820

 

 

$

1,455,708

 

 

$

1,455,820

 

 

$

1,466,000

 

Average OEC on rent(b)

$

1,159,164

 

 

$

1,267,600

 

 

$

1,183,253

 

 

$

1,187,950

 

 

$

1,155,600

 

Fleet utilization(c)

 

77.6

%

 

 

86.3

%

 

 

80.4

%

 

 

83.9

%

 

 

78.9

%

OEC on rent yield(d)

 

41.1

%

 

 

39.5

%

 

 

40.4

%

 

 

39.1

%

 

 

40.8

%

Sales order backlog(e) (as of period end)

$

688,559

 

 

$

754,142

 

 

$

688,559

 

 

$

754,142

 

 

$

779,295

 

(a)

Ending OEC — original equipment cost (“OEC”) is the original equipment cost of units at the end of the measurement period.

(b)

Average OEC on rent — Average OEC on rent is calculated as the weighted-average OEC on rent during the stated period.

(c)

Fleet utilization — total number of days the rental equipment was rented during a specified period of time divided by the total number of days available during the same period and weighted based on OEC.

(d)

OEC on rent yield (“ORY”) — a measure of return realized by our rental fleet during a period. ORY is calculated as rental revenue (excluding freight recovery and ancillary fees) during the stated period divided by the Average OEC on rent for the same period. For period less than 12 months, ORY is adjusted to an annualized basis.

(e)

Sales order backlog — purchase orders received for customized and stock equipment. Sales order backlog should not be considered an accurate measure of future net sales.

Management Commentary Total revenue in 2023 was characterized by strong year-over-year customer demand for equipment sales, rental equipment and for parts sales and service, with full-year revenue increasing 18.6% to $1,865.1 million, as compared to full-year revenue in 2022 of $1,573.1 million. In the fourth quarter of 2023, total revenue was $521.8 million, an increase of 7.2% from the fourth quarter of 2022. Equipment sales increased 12.7% in the fourth quarter of 2023 to $367.0 million, compared to $325.7 million in the fourth quarter of 2022, reflecting record levels of production, continuing improvements in the supply chain, and our ability to replenish inventory. Full-year 2023 equipment sales revenue improved 27.6% to $1,253.5 million, compared to full-year 2022 equipment sales revenue of $982.3 million. Fourth quarter 2023 rental revenue decreased 5.9% to $120.2 million, compared to $127.8 million in the fourth quarter of 2022, due to lower utilization and a decline in average OEC on rent. Full-year 2023 rental revenue improved 3.2% to $478.9 million, compared to full-year 2022 rental revenue of $464.0 million. Parts sales and service revenue increased 4.2% in the fourth quarter of 2023 to $34.5 million, compared to $33.1 million in the fourth quarter of 2022. Full-year 2023 parts sales and service revenue improved 4.8% to $132.7 million, compared to full-year 2022 parts sales and service revenue of $126.7 million.

In our ERS segment, rental revenue in the fourth quarter of 2023 was $116.6 million compared to $123.4 million in the fourth quarter of 2022, a 5.5% decrease. Fleet utilization declined to 77.6% compared to 86.3% in the fourth quarter of 2022, due to a decline in demand in the utility market. Average OEC on rent decreased 8.6% year-over-year, primarily as a result of the lower utilization in the quarter was impacted by a slowdown in transmission work caused by our customers’ supply chain delays, as well as regulatory and funding bottlenecks. Gross profit in the segment in the fourth quarter of 2023 and 2022 was $63.4 million and $77.8 million, respectively. Adjusted gross profit in the segment was $106.6 million in the fourth quarter of 2023, compared to $117.7 million in the fourth quarter of 2022. Adjusted gross profit from rentals, which excludes depreciation of rental equipment, decreased to $88.4 million in the fourth quarter of 2023 compared to $96.7 million in the fourth quarter of 2022.

Revenue in our TES segment increased 20.9%, to $298.9 million in the fourth quarter of 2023, from $247.3 million in the fourth quarter of 2022, as a result of continued supply chain improvements, which allowed us to acquire more inventory and achieve record production levels that led to greater order fulfillments, as well as sustained strong customer demand. Gross profit improved by 19.1% to $52.9 million in the fourth quarter of 2023 compared to $44.4 million in the fourth quarter of 2022. At the end of the fourth quarter, TES saw a reduction in backlog of 11.6% to $688.6 million compared to the end of the third quarter of 2023, and a reduction of 8.7% from the fourth quarter of 2022, primarily for the reasons detailed above, as well as the fact that new equipment sales revenue increased 29.5% in the fourth quarter of 2023 compared to the third quarter of 2023.

APS segment revenue experienced an increase of $0.6 million, or 1.6%, in the fourth quarter of 2023, to $38.2 million, as compared to $37.5 million in the fourth quarter of 2022 as a result of growth in demand for parts, tools and accessories (“PTA”) sales. Gross profit in the segment improved 72.8% in the fourth quarter of 2023 to $10.6 million, as compared to $6.1 million in the fourth quarter of 2022 as a result of the Company’s focus on managing costs.

Net income was $16.1 million in the fourth quarter of 2023 compared to $30.9 million for the fourth quarter of 2022. The decrease in net income is primarily the result of higher interest expense on variable-rate debt and variable-rate floorplan liabilities.

Adjusted EBITDA for the fourth quarter of 2023 was $118.4 million, compared to $124.5 million for the fourth quarter of 2022. The decrease in Adjusted EBITDA was largely driven by higher costs associated with variable-rate floorplan liabilities as a result of higher rates and inventory levels in 2023 compared to 2022.

As of December 31, 2023, cash and cash equivalents was $10.3 million. Total Debt outstanding was $1,517.8 million, Net Debt was $1,507.5 million and Net Leverage Ratio was 3.5x as of December 31, 2023. Availability under the senior secured credit facility was $194.5 million as of December 31, 2023, and based on our borrowing base, we have an additional $323.6 million of availability that we can potentially utilize by upsizing our existing facility. For the twelve months ended December 31, 2023, Ending OEC decreased by $0.1 million as our fleet additions were more than offset by our continued focus on selling older equipment from our rental fleet at current advantageous residual values. With an average fleet age of 3.5 years, we believe our fleet is well positioned to capitalize from continuing strong rental demand. During the three months ended December 31, 2023, CTOS purchased approximately $18.9 million of its common stock.

2024 Outlook We are providing our full-year revenue and Adjusted EBITDA guidance for 2024 at this time. We expect 2024 to be another year of growth. We believe TES will continue to benefit from good demand and our strong backlog entering the year. We believe the ERS outlook from our rental customers for long-term demand and growth remains strong. In 2024, we are currently experiencing some near-term headwinds in our utility end markets, largely related to our customers’ supply chain issues and timing of the commencement of certain transmission projects, which is driving lower OEC on rent in our core T&D markets. As these markets recover and grow in 2024, we expect to further grow our rental fleet (based on net OEC) by mid-single digits. Regarding TES, supply chain improvements, healthy inventory levels exiting 2023, and historically high backlog levels will continue to improve our ability to produce and deliver even more units in 2024. Further, after a year of significant strategic investment in inventory levels in 2023, we expect to generate meaningful free cash flow in 2024, setting a target to generate more than $100 million of levered free cash flow1 and delivering a net leverage ratio of less than 3.0 times by the end of the fiscal year. “Our FY24 outlook reflects the long-term strength of our end markets and the continued focus by our teams to profitably grow our business. The outlook also reflects the risks associated with some continued challenges for our rental customers, particularly in the T&D sector, which we expect could persist through a large portion of the fiscal year,” said Ryan McMonagle, Chief Executive Officer of CTOS.

2024 Consolidated Outlook

 

Revenue

$2,000 million — $2,180 million

Adjusted EBITDA2

$440 million — $470 million

 

 

2024 Revenue Outlook by Segment

 

ERS

$730 million — $760 million

TES

$1,115 million — $1,255 million

APS

$155 million — $165 million

1

Levered Free Cash Flow is defined as net cash provided by operating activities, less cash flows from investing activities, excluding acquisitions, plus acquisition of inventory through floor plan payables – non-trade less repayment of floor plan payables – non-trade, both of which are included in cash flow from financing activities in our Consolidated Statements of Cash Flows.

2

CTOS is not able to present a quantitative reconciliation of its forward-looking Adjusted EBITDA for the year ending December 31, 2024 to its most directly comparable GAAP financial measure, net income, because management cannot reliably forecast net income on a forward-looking basis without unreasonable efforts due to the high variability and difficulty in predicting certain items that affect GAAP net income including, but not limited to, customer buyout requests on rentals with rental purchase options, income tax expense and changes in fair value of derivative financial instruments. Adjusted EBITDA should not be used to predict net income as the difference between the two measures is variable.

CONFERENCE CALL INFORMATION The Company has scheduled a conference call at 5:00 P.M. Eastern Time on March 7, 2024, to discuss its fourth quarter and full year 2023 financial results. A webcast will be publicly available at: investors.customtruck.com. To listen by phone, please dial 1‑800‑715‑9871 or 1-646-307-1963 and provide the operator with conference ID 6601040. A replay of the call will be available until 11:59 P.M. Eastern Time, Thursday, March 14, 2023, by dialing 1-800-770-2030 or 1-609-800-9909 and entering passcode 6601040.

ABOUT CTOS CTOS is one of the largest providers of specialty equipment, parts, tools, accessories and services to the electric utility transmission and distribution, telecommunications and rail markets in North America, with a differentiated “one-stop-shop” business model. CTOS offers its specialized equipment to a diverse customer base for the maintenance, repair, upgrade and installation of critical infrastructure assets, including electric lines, telecommunications networks and rail systems. The Company's coast-to-coast rental fleet of more than 10,300 units includes aerial devices, boom trucks, cranes, digger derricks, pressure drills, stringing gear, hi-rail equipment, repair parts, tools and accessories. For more information, please visit customtruck.com.

FORWARD-LOOKING STATEMENTS This press release includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company's management’s control, that could cause actual results or outcomes to differ materially from those discussed in this press release. This press release is based on certain assumptions that the Company's management has made in light of its experience in the industry, as well as the Company’s perceptions of historical trends, current conditions, expected future developments and other factors the Company believes are appropriate in these circumstances. As you read and consider this press release, you should understand that these statements are not guarantees of performance or results. Many factors could affect the Company’s actual performance and results and could cause actual results to differ materially from those expressed in this press release. Important factors, among others, that may affect actual results or outcomes include: increases in labor costs, our inability to obtain raw materials, component parts and/or finished goods in a timely and cost-effective manner, and our inability to manage our rental equipment in an effective manner; competition in the equipment dealership and rental industries; our sales order backlog may not be indicative of the level of our future revenues; increases in unionization rate in our workforce; our inability to recruit and retain the experienced personnel, including skilled technicians, we need to compete in our industries; our inability to attract and retain highly skilled personnel and our inability to retain or plan for succession of our senior management; material disruptions to our operation and manufacturing locations as a result of public health concerns, equipment failures, natural disasters, work stoppages, power outages or other reasons; potential impairment charges; any further increase in the cost of new equipment that we purchase for use in our rental fleet or for sale as inventory; aging or obsolescence of our existing equipment, and the fluctuations of market value thereof; disruptions in our supply chain; our business may be impacted by government spending; we may experience losses in excess of our recorded reserves for receivables; uncertainty relating to macroeconomic conditions, unfavorable conditions in the capital and credit markets and our inability to obtain additional capital as required; increases in price of fuel or freight; regulatory technological advancement, or other changes in our core end-markets may affect our customer’s spending; difficulty in integrating acquired businesses and fully realizing the anticipated benefits and cost savings of the acquired businesses, as well as additional transaction and transition costs that we will continue to incur following acquisitions; the interest of our majority stockholder, which may not be consistent with the other stockholders; our significant indebtedness, which may adversely affect our financial position, limit our available cash and our access to additional capital, prevent us from growing our business and increase our risk of default; our inability to generate cash, which could lead to a default; significant operating and financial restrictions imposed by our debt agreements; changes in interest rates, which could increase our debt service obligations on the variable rate indebtedness and decrease our net income and cash flows; disruptions or security compromises in our information technology systems or those of our critical services providers could adversely affect our operating result by subjecting us to liability, and limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, or implement strategic initiatives; we are subject to complex laws and regulations, including environmental and safety regulations that can adversely affect cost, manner or feasibility of doing business; material weakness in our internal control over financial reporting which, if not remediated, could result in material misstatements in our financial statements; we are subject to a series of risks related to climate change; and increased attention to, and evolving expectations for, sustainability and environmental, social and governance initiatives. For a more complete description of these and other possible risks and uncertainties, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2023, and its subsequent reports filed with the Securities and Exchange Commission. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements.

CUSTOM TRUCK ONE SOURCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s except per share data)

2023

 

2022

 

2023

 

2022

 

2023

Revenue

 

 

 

 

 

 

 

 

 

Rental revenue

$

120,244

 

 

$

127,829

 

 

$

478,910

 

 

$

464,039

 

 

$

118,209

 

Equipment sales

 

366,967

 

 

 

325,746

 

 

 

1,253,453

 

 

 

982,341

 

 

 

283,079

 

Parts sales and services

 

34,543

 

 

 

33,149

 

 

 

132,737

 

 

 

126,706

 

 

 

33,065

 

Total revenue

 

521,754

 

 

 

486,724

 

 

 

1,865,100

 

 

 

1,573,086

 

 

 

434,353

 

Cost of Revenue

 

 

 

 

 

 

 

 

 

Cost of rental revenue

 

28,444

 

 

 

27,481

 

 

 

120,198

 

 

 

110,272

 

 

 

29,874

 

Depreciation of rental equipment

 

44,249

 

 

 

40,803

 

 

 

170,664

 

 

 

171,703

 

 

 

42,469

 

Cost of equipment sales

 

295,846

 

 

 

260,391

 

 

 

1,016,149

 

 

 

805,852

 

 

 

228,912

 

Cost of parts sales and services

 

26,391

 

 

 

29,724

 

 

 

103,829

 

 

 

101,511

 

 

 

25,942

 

Total cost of revenue

 

394,930

 

 

 

358,399

 

 

 

1,410,840

 

 

 

1,189,338

 

 

 

327,197

 

Gross Profit

 

126,824

 

 

 

128,325

 

 

 

454,260

 

 

 

383,748

 

 

 

107,156

 

Operating Expenses

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

59,429

 

 

 

58,599

 

 

 

231,403

 

 

 

210,868

 

 

 

56,955

 

Amortization

 

7,134

 

 

 

6,940

 

 

 

27,110

 

 

 

33,940

 

 

 

6,698

 

Non-rental depreciation

 

2,683

 

 

 

2,112

 

 

 

10,656

 

 

 

9,414

 

 

 

2,602

 

Transaction expenses and other

 

4,104

 

 

 

9,026

 

 

 

14,143

 

 

 

26,218

 

 

 

2,890

 

Total operating expenses

 

73,350

 

 

 

76,677

 

 

 

283,312

 

 

 

280,440

 

 

 

69,145

 

Operating Income

 

53,474

 

 

 

51,648

 

 

 

170,948

 

 

 

103,308

 

 

 

38,011

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

Interest expense, net

 

36,370

 

 

 

26,582

 

 

 

131,315

 

 

 

88,906

 

 

 

34,144

 

Financing and other income

 

(3,699

)

 

 

(6,425

)

 

 

(18,443

)

 

 

(32,330

)

 

 

(5,745

)

Total other expense

 

32,671

 

 

 

20,157

 

 

 

112,872

 

 

 

56,576

 

 

 

28,399

 

Income Before Income Taxes

 

20,803

 

 

 

31,491

 

 

 

58,076

 

 

 

46,732

 

 

 

9,612

 

Income Tax Expense

 

4,681

 

 

 

554

 

 

 

7,364

 

 

 

7,827

 

 

 

432

 

Net Income

$

16,122

 

 

$

30,937

 

 

$

50,712

 

 

$

38,905

 

 

$

9,180

 

 

 

 

 

 

 

 

 

 

 

Net Income Per Share:

 

 

 

 

 

 

 

 

 

Basic

$

0.07

 

 

$

0.13

 

 

$

0.21

 

 

$

0.16

 

 

$

0.04

 

Diluted

$

0.07

 

 

$

0.13

 

 

$

0.21

 

 

$

0.16

 

 

$

0.04

 

CUSTOM TRUCK ONE SOURCE, INC.

CONSOLIDATED BALANCE SHEETS

 

(in $000s)

December 31, 2023

 

December 31, 2022

Assets

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

$

10,309

 

 

$

14,360

 

Accounts receivable, net

 

215,089

 

 

 

193,106

 

Financing receivables, net

 

30,845

 

 

 

38,271

 

Inventory

 

985,794

 

 

 

596,724

 

Prepaid expenses and other

 

23,862

 

 

 

25,784

 

Total current assets

 

1,265,899

 

 

 

868,245

 

Property and equipment, net

 

142,115

 

 

 

121,956

 

Rental equipment, net

 

916,704

 

 

 

883,674

 

Goodwill

 

704,011

 

 

 

703,827

 

Intangible assets, net

 

277,212

 

 

 

304,132

 

Operating lease assets

 

38,426

 

 

 

29,434

 

Other assets

 

23,430

 

 

 

26,944

 

Total Assets

$

3,367,797

 

 

$

2,938,212

 

Liabilities and Stockholders' Equity

 

 

 

Current Liabilities

 

 

 

Accounts payable

$

117,653

 

 

$

87,255

 

Accrued expenses

 

73,847

 

 

 

68,784

 

Deferred revenue and customer deposits

 

28,758

 

 

 

34,671

 

Floor plan payables - trade

 

253,197

 

 

 

136,634

 

Floor plan payables - non-trade

 

409,113

 

 

 

293,536

 

Operating lease liabilities - current

 

6,564

 

 

 

5,262

 

Current maturities of long-term debt

 

8,257

 

 

 

6,940

 

Current portion of finance lease obligations

 

—

 

 

 

1,796

 

Total current liabilities

 

897,389

 

 

 

634,878

 

Long-term debt, net

 

1,487,136

 

 

 

1,354,766

 

Finance leases

 

—

 

 

 

3,206

 

Operating lease liabilities - noncurrent

 

32,714

 

 

 

24,818

 

Deferred income taxes

 

33,355

 

 

 

29,086

 

Warrants and other liabilities

 

—

 

 

 

3,015

 

Total long-term liabilities

 

1,553,205

 

 

 

1,414,891

 

Commitments and contingencies

 

 

 

Stockholders' Equity

 

 

 

Common stock

 

25

 

 

 

25

 

Treasury stock, at cost

 

(56,524

)

 

 

(15,537

)

Additional paid-in capital

 

1,537,553

 

 

 

1,521,487

 

Accumulated other comprehensive loss

 

(5,978

)

 

 

(8,947

)

Accumulated deficit

 

(557,873

)

 

 

(608,585

)

Total stockholders' equity

 

917,203

 

 

 

888,443

 

Total Liabilities and Stockholders' Equity

$

3,367,797

 

 

$

2,938,212

 

CUSTOM TRUCK ONE SOURCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Twelve Months Ended December 31,

(in $000s)

2023

 

2022

Operating Activities

 

 

 

Net income

$

50,712

 

 

$

38,905

 

Adjustments to reconcile net income to net cash flow from operating activities:

 

 

 

Depreciation and amortization

 

218,993

 

 

 

223,483

 

Amortization of debt issuance costs

 

5,653

 

 

 

4,860

 

Provision for losses on accounts receivable

 

8,522

 

 

 

12,650

 

Share-based compensation

 

13,309

 

 

 

12,297

 

Gain on sales and disposals of rental equipment

 

(67,721

)

 

 

(55,213

)

Change in fair value of derivative and warrants

 

(2,485

)

 

 

(20,290

)

Deferred tax expense

 

4,241

 

 

 

7,387

 

Changes in assets and liabilities:

 

 

 

Accounts and financing receivables

 

(20,879

)

 

 

(36,821

)

Inventories

 

(388,063

)

 

 

(194,691

)

Prepaids, operating leases and other

 

3,518

 

 

 

(11,936

)

Accounts payable

 

28,339

 

 

 

(5,589

)

Accrued expenses and other liabilities

 

4,339

 

 

 

8,108

 

Floor plan payables - trade, net

 

116,563

 

 

 

63,920

 

Customer deposits and deferred revenue

 

(5,924

)

 

 

(1,102

)

Net cash flow from operating activities

 

(30,883

)

 

 

45,968

 

Investing Activities

 

 

 

Acquisition of businesses, net of cash acquired

 

—

 

 

 

(49,832

)

Purchases of rental equipment

 

(364,190

)

 

 

(340,791

)

Proceeds from sales and disposals of rental equipment

 

229,559

 

 

 

205,852

 

Purchase of non-rental property and cloud computing arrangements

 

(41,967

)

 

 

(34,165

)

Net cash flow from investing activities

 

(176,598

)

 

 

(218,936

)

Financing Activities

 

 

 

Proceeds from debt

 

21,417

 

 

 

—

 

Share-based payments

 

792

 

 

 

(1,838

)

Borrowings under revolving credit facilities

 

221,046

 

 

 

153,036

 

Repayments under revolving credit facilities

 

(106,377

)

 

 

(110,249

)

Repayments of notes payable

 

(7,679

)

 

 

(1,012

)

Finance lease payments

 

(2,682

)

 

 

(3,955

)

Repurchase of common stock

 

(38,845

)

 

 

(10,279

)

Acquisition of inventory through floor plan payables - non-trade

 

789,199

 

 

 

619,896

 

Repayment of floor plan payables - non-trade

 

(673,622

)

 

 

(491,599

)

Payment of debt issuance costs

 

(373

)

 

 

(104

)

Net cash flow from financing activities

 

202,876

 

 

 

153,896

 

Effect of exchange rate changes on cash and cash equivalents

 

554

 

 

 

(2,470

)

Net Change in Cash and Cash Equivalents

 

(4,051

)

 

 

(21,542

)

Cash and Cash Equivalents at Beginning of Period

 

14,360

 

 

 

35,902

 

Cash and Cash Equivalents at End of Period

$

10,309

 

 

$

14,360

 

 

Twelve Months Ended December 31,

(in $000s)

2023

 

2022

Supplemental Cash Flow Information

 

 

 

Interest paid

$

122,868

 

$

81,177

Income taxes paid

 

2,133

 

 

 

567

 

Non-Cash Investing and Financing Activities

 

 

 

Property and equipment purchases in accounts payable

 

2,120

 

 

 

68

Rental equipment sales in accounts receivable

 

22,517

 

 

11,283

CUSTOM TRUCK ONE SOURCE, INC. NON-GAAP FINANCIAL AND PERFORMANCE MEASURES

In our press release and schedules, and on the related conference call, we report certain financial measures that are not required by, or presented in accordance with, United States generally accepted accounting principles (“GAAP”). We utilize these financial measures to manage our business on a day-to-day basis and some of these measures are commonly used in our industry to evaluate performance by excluding items considered to be non-recurring. We believe these non-GAAP measures provide investors expanded insight to assess performance, in addition to the standard GAAP-based financial measures. The press release schedules reconcile the most directly comparable GAAP measure to each non-GAAP measure that we refer to. Although management evaluates and presents these non-GAAP measures for the reasons described herein, please be aware that these non-GAAP measures have limitations and should not be considered in isolation or as a substitute for revenue, operating income/loss, net income/loss, earnings/loss per share or any other comparable measure prescribed by GAAP. In addition, we may calculate and/or present these non-GAAP financial measures differently than measures with the same or similar names that other companies report, and as a result, the non-GAAP measures we report may not be comparable to those reported by others.

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial performance measure that we use to monitor our results of operations, to measure performance against debt covenants and performance relative to competitors. We believe Adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of operating performance, without regard to financing methods or capital structures. We exclude the items identified in the reconciliations of net income (loss) to Adjusted EBITDA because these amounts are either non-recurring or can vary substantially within the industry depending upon accounting methods and book values of assets, including the method by which the assets were acquired, and capital structures. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historical costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an indication that results will be unaffected by the items excluded from Adjusted EBITDA. Our computation of Adjusted EBITDA may not be identical to other similarly titled measures of other companies.

We define Adjusted EBITDA as net income or loss before interest expense, income taxes, depreciation and amortization, share-based compensation, and other items that we do not view as indicative of ongoing performance. Our Adjusted EBITDA includes an adjustment to exclude the effects of purchase accounting adjustments when calculating the cost of inventory and used equipment sold. When inventory or equipment is purchased in connection with a business combination, the assets are revalued to their current fair values for accounting purposes. The consideration transferred (i.e., the purchase price) in a business combination is allocated to the fair values of the assets as of the acquisition date, with amortization or depreciation recorded thereafter following applicable accounting policies; however, this may not be indicative of the actual cost to acquire inventory or new equipment that is added to product inventory or the rental fleets apart from a business acquisition. Additionally, the pricing of rental contracts and equipment sales prices for equipment is based on OEC, and we measure a rate of return from rentals and sales using OEC. We also include an adjustment to remove the impact of accounting for certain of our rental contracts with customers containing a rental purchase option that are accounted for under GAAP as a sales-type lease. We include this adjustment because we believe continuing to reflect the transactions as an operating lease better reflects the economics of the transactions given our large portfolio of rental contracts. These, and other, adjustments to GAAP net income or loss that are applied to derive Adjusted EBITDA are specified by our senior secured credit agreements.

Adjusted Gross Profit. We present total gross profit excluding rental equipment depreciation (“Adjusted Gross Profit”) as a non-GAAP financial performance measure. This measure differs from the GAAP definition of gross profit, as we do not include the impact of depreciation expense, which represents non-cash expense. We use this measure to evaluate operating margins and the effectiveness of the cost of our rental fleet.

Net Debt. We present the non-GAAP financial measure “Net Debt,” which is total debt (the most comparable GAAP measure, calculated as current and long-term debt, excluding deferred financing fees, plus current and long-term finance lease obligations) minus cash and cash equivalents. We believe this non-GAAP measure is useful to investors to evaluate our financial position.

Net Leverage Ratio. Net leverage ratio is a non-GAAP financial performance measure used by management and we believe it provides useful information to investors because it is an important measure to evaluate our debt levels and progress toward leverage targets, which is consistent with the manner our lenders and management use this measure. We define net leverage ratio as net debt divided by Adjusted EBITDA.

CUSTOM TRUCK ONE SOURCE, INC.

SCHEDULE 1 — ADJUSTED EBITDA RECONCILIATION

(unaudited)

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Net income

$

16,122

 

 

$

30,937

 

 

$

50,712

 

 

$

38,905

 

 

$

9,180

 

Interest expense

 

24,712

 

 

 

21,432

 

 

 

94,694

 

 

 

76,265

 

 

 

24,044

 

Income tax expense

 

4,681

 

 

 

554

 

 

 

7,364

 

 

 

7,827

 

 

 

432

 

Depreciation and amortization

 

56,909

 

 

 

52,362

 

 

 

218,993

 

 

 

223,483

 

 

 

54,552

 

EBITDA

 

102,424

 

 

 

105,285

 

 

 

371,763

 

 

 

346,480

 

 

 

88,208

 

Adjustments:

 

 

 

 

 

 

 

 

 

Non-cash purchase accounting impact (1)

 

6,190

 

 

 

8,268

 

 

 

19,742

 

 

 

23,069

 

 

 

5,884

 

Transaction and integration costs (2)

 

4,104

 

 

 

9,026

 

 

 

14,143

 

 

 

26,218

 

 

 

2,890

 

Sales-type lease adjustment (3)

 

2,722

 

 

 

1,411

 

 

 

10,458

 

 

 

5,204

 

 

 

1,640

 

Share-based payments (4)

 

2,997

 

 

 

2,771

 

 

 

13,309

 

 

 

12,297

 

 

 

2,843

 

Change in fair value of derivative and warrants (5)

 

(76

)

 

 

(2,277

)

 

 

(2,485

)

 

 

(20,290

)

 

 

(1,280

)

Adjusted EBITDA

$

118,361

 

 

$

124,484

 

 

$

426,930

 

 

$

392,978

 

 

$

100,185

 

 

Adjusted EBITDA is defined as net income (loss) plus interest expense, provision for income taxes, depreciation and amortization, and further adjusted for non-cash purchase accounting impact, transaction and process improvement costs, including business integration expenses, share-based payments, the change in fair value of derivative instruments, sales-type lease adjustment, and other special charges that are not expected to recur. This non-GAAP measure is subject to certain limitations.

(1)

Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment and inventory sold. The equipment and inventory acquired received a purchase accounting step-up in basis, which is a non-cash adjustment to the equipment cost pursuant to our credit agreement.

(2)

Represents transaction and process improvement costs related to acquisitions of businesses, including post-acquisition integration costs, which are recognized within operating expenses in our Consolidated Statements of Comprehensive Net Income (Loss). These expenses are comprised of professional consultancy, legal, tax and accounting fees. Also included are expenses associated with the integration of acquired businesses. These expenses are presented as adjustments to net income (loss) pursuant to our ABL Credit Agreement.

(3)

Represents the adjustment for the impact of sales-type lease accounting for certain leases containing RPOs, as the application of sales-type lease accounting is not deemed to be representative of the ongoing cash flows of the underlying rental contracts. This adjustment is made pursuant to our credit agreement.

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Equipment sales

$

(1,529

)

 

$

(14,518

)

 

$

(58,064

)

 

$

(41,525

)

 

$

(12,760

)

Cost of equipment sales

 

1,362

 

 

 

14,509

 

 

 

55,716

 

 

 

37,582

 

 

 

11,714

 

Gross profit

 

(167

)

 

 

(9

)

 

 

(2,348

)

 

 

(3,943

)

 

 

(1,046

)

Interest income

 

(3,770

)

 

 

(4,303

)

 

 

(16,065

)

 

 

(12,130

)

 

 

(4,461

)

Rental invoiced

 

6,659

 

 

 

5,723

 

 

 

28,871

 

 

 

21,277

 

 

 

7,147

 

Sales-type lease adjustment

$

2,722

 

 

$

1,411

 

 

$

10,458

 

 

$

5,204

 

 

$

1,640

 

(4)

Represents non-cash share-based compensation expense associated with the issuance of stock options and restricted stock units.

(5)

Represents the charge to earnings for our interest rate collar and the change in fair value of the liability for warrants.

Reconciliation of Adjusted Gross Profit

(unaudited)

 

The following table presents the reconciliation of adjusted gross profit:

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Revenue

 

 

 

 

 

 

 

 

 

Rental revenue

$

120,244

 

$

127,829

 

$

478,910

 

$

464,039

 

$

118,209

Equipment sales

 

366,967

 

 

 

325,746

 

 

 

1,253,453

 

 

 

982,341

 

 

 

283,079

 

Parts sales and services

 

34,543

 

 

 

33,149

 

 

 

132,737

 

 

 

126,706

 

 

 

33,065

 

Total revenue

 

521,754

 

 

 

486,724

 

 

 

1,865,100

 

 

 

1,573,086

 

 

 

434,353

 

Cost of Revenue

 

 

 

 

 

 

 

 

 

Cost of rental revenue

 

28,444

 

 

 

27,481

 

 

 

120,198

 

 

 

110,272

 

 

 

29,874

 

Depreciation of rental equipment

 

44,249

 

 

 

40,803

 

 

 

170,664

 

 

 

171,703

 

 

 

42,469

 

Cost of equipment sales

 

295,846

 

 

 

260,391

 

 

 

1,016,149

 

 

 

805,852

 

 

 

228,912

 

Cost of parts sales and services

 

26,391

 

 

 

29,724

 

 

 

103,829

 

 

 

101,511

 

 

 

25,942

 

Total cost of revenue

 

394,930

 

 

 

358,399

 

 

 

1,410,840

 

 

 

1,189,338

 

 

 

327,197

 

Gross Profit

 

126,824

 

 

 

128,325

 

 

 

454,260

 

 

 

383,748

 

 

 

107,156

 

Plus: depreciation of rental equipment

 

44,249

 

 

 

40,803

 

 

 

170,664

 

 

 

171,703

 

 

 

42,469

 

Adjusted gross profit

$

171,073

 

 

$

169,128

 

 

$

624,924

 

 

$

555,451

 

 

$

149,625

 

Reconciliation of ERS Segment Adjusted Gross Profit and Adjusted Gross Profit from Rentals

(unaudited)

 

The following table presents the reconciliation of ERS segment adjusted gross profit:

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Revenue

 

 

 

 

 

 

 

 

 

Rental revenue

$

116,594

 

$

123,429

 

$

463,139

 

$

449,108

 

$

114,929

Equipment sales

 

68,023

 

 

 

78,472

 

 

 

263,028

 

 

 

212,146

 

 

 

52,175

 

Total revenue

 

184,617

 

 

 

201,901

 

 

 

726,167

 

 

 

661,254

 

 

 

167,104

 

Cost of Revenue

 

 

 

 

 

 

 

 

 

Cost of rental revenue

 

28,222

 

 

 

26,735

 

 

 

118,236

 

 

 

106,598

 

 

 

29,613

 

Cost of equipment sales

 

49,799

 

 

 

57,504

 

 

 

198,510

 

 

 

158,167

 

 

 

37,828

 

Depreciation of rental equipment

 

43,230

 

 

 

39,836

 

 

 

167,199

 

 

 

167,962

 

 

 

41,652

 

Total cost of revenue

 

121,251

 

 

 

124,075

 

 

 

483,945

 

 

 

432,727

 

 

 

109,093

 

Gross profit

 

63,366

 

 

 

77,826

 

 

 

242,222

 

 

 

228,527

 

 

 

58,011

 

Plus: depreciation of rental equipment

 

43,230

 

 

 

39,836

 

 

 

167,199

 

 

 

167,962

 

 

 

41,652

 

Adjusted gross profit

$

106,596

 

 

$

117,662

 

 

$

409,421

 

 

$

396,489

 

 

$

99,663

 

The following table presents the reconciliation of ERS adjusted gross profit from rentals:

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

Three Months

Ended

September 30,

(in $000s)

2023

 

2022

 

2023

 

2022

 

2023

Rental revenue

$

116,594

 

$

123,429

 

$

463,139

 

$

449,108

 

$

114,929

Cost of rental revenue

 

28,222

 

 

 

26,735

 

 

 

118,236

 

 

 

106,598

 

 

 

29,613

 

Adjusted gross profit from rentals

$

88,372

 

 

$

96,694

 

 

$

344,903

 

 

$

342,510

 

 

$

85,316

 

Reconciliation of Net Debt

(unaudited)

 

The following table presents the reconciliation of net debt:

 

(in $000s)

December 31, 2023

Current maturities of long-term debt

$

8,257

 

Long-term debt, net

 

1,487,136

 

Deferred financing fees

 

22,406

 

Less: cash and cash equivalents

 

(10,309

)

Net debt

$

1,507,490

 

Reconciliation of Net Leverage Ratio

(unaudited)

 

The following table presents the reconciliation of the net leverage ratio:

 

(in $000s)

Twelve Months

Ended

December 31, 2023

Net debt

$

1,507,490

Divided by: Adjusted EBITDA

 

426,930

 

Net leverage ratio

 

3.53

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240307514164/en/

INVESTOR CONTACT Brian Perman, Vice President, Investor Relations (816) 723-7906 investors@customtruck.com