8-K: Custom Truck One Source Reports Mixed 2024 Results, Projects Growth in 2025

Custom Truck One Source (CTOS) reported a decrease in full-year revenue and Adjusted EBITDA for 2024, but anticipates a return to growth in 2025 driven by strong demand and strategic initiatives.

Summary

• Custom Truck One Source, Inc. (CTOS) reported its financial results for the fourth quarter and full year ended December 31, 2024.
• Total revenue for the quarter was $520.7 million, a 16.4% increase compared to the third quarter of 2024.
• Full-year revenue reached $1,802.3 million, a 3.4% decrease compared to 2023.
• The company reported a quarterly net income of $27.6 million, compared to a net loss of $17.4 million in the previous quarter.
• However, the full-year net loss was $28.7 million, a stark contrast to the $50.7 million net income in 2023.
• Adjusted EBITDA for the quarter was $102.0 million, a 27.2% increase from the third quarter of 2024.
• Full-year Adjusted EBITDA was $339.7 million, a 20.4% decrease compared to the record $426.9 million in 2023.
• The company expects revenue between $1.97 billion and $2.06 billion and Adjusted EBITDA between $370 million and $390 million for 2025.
• CTOS aims to generate $50 million to $100 million of levered free cash flow and reduce its net leverage ratio to below four times by the end of fiscal year 2025.
• The company's Equipment Rental Solutions (ERS) segment saw increased rental revenue and rental equipment sales in the fourth quarter.
• The Truck and Equipment Sales (TES) segment experienced record quarterly and annual revenue, exceeding $300 million and $1 billion, respectively.
• Inventory declined by more than $150 million in the fourth quarter.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the full-year results show a decline, the company is projecting growth in 2025 and has taken steps to improve its financial position. The positive outlook and strategic initiatives contribute to the moderate sentiment.

Positives

• Sequential improvement in revenue, net income, and Adjusted EBITDA in the fourth quarter of 2024.
• Strong fundamentals in utility, infrastructure, rail, and telecom end markets.
• Highest rental fleet utilization since the third quarter of 2023, reaching nearly 79%.
• Record quarterly and annual revenue for the TES segment, exceeding $300 million and $1 billion, respectively.
• Significant reduction in inventory levels by more than $150 million in the fourth quarter.
• Expected growth in the ERS segment in 2025, supported by a record total OEC of $1.52 billion.
• Anticipated benefits from secular tailwinds such as data center investments, manufacturing onshoring, electrification, and utility grid upgrades.
• Sale leaseback transaction generated a gain of $23.5 million and net cash proceeds of approximately $52.5 million.
• Improved supply chain and availability of most products.

Negatives

• Decrease in full-year revenue compared to 2023.
• Net loss for the full year 2024, compared to net income in 2023.
• Decrease in full-year Adjusted EBITDA compared to 2023.
• Decline in used equipment sales in the ERS segment.
• Higher interest expense on variable-rate debt and floor plan liabilities.
• Reduction in backlog in the TES segment, although still within the historical normal range.
• After unexpected volatility in our ERS segment rental markets in 2024, primarily in the transmission and distribution utility market, we began to experience a return to strong demand in the second half of fiscal year 2024, that has continued into 2025.

Risks

• Increases in labor costs and potential changes in U.S. trade policy.
• Inability to obtain raw materials, component parts, and/or finished goods in a timely and cost-effective manner.
• Competition in the equipment dealership and rental industries.
• Sales order backlog may not be indicative of future revenues.
• Inability to attract and retain key personnel.
• Material disruptions to operations and manufacturing locations.
• Increases in the cost of new equipment.
• Disruptions in the supply chain.
• Impact of government spending on the business.
• Uncertainty relating to macroeconomic conditions and access to capital.
• Increases in the price of fuel or freight.
• Regulatory or technological changes in core end-markets.
• Risks associated with strategic initiatives, including acquisitions and divestitures.
• Volatility of the company's common stock market price.
• Significant indebtedness and related financial restrictions.
• Changes in interest rates.
• Disruptions or security compromises affecting information technology systems.
• Complex laws and regulations, including environmental and safety regulations.
• Risks related to climate change and sustainability initiatives.

Future Outlook

The company expects a return to growth in 2025, with revenue projected between $1.97 billion and $2.06 billion and Adjusted EBITDA between $370 million and $390 million. CTOS aims to generate $50 million to $100 million of levered free cash flow and reduce its net leverage ratio to below four times by the end of fiscal year 2025.

Management Comments

• Ryan McMonagle, Chief Executive Officer of CTOS, stated that the company achieved sequential improvement in revenue, net income, and Adjusted EBITDA in the fourth quarter, driven by strong fundamentals across primary end markets.
• McMonagle noted that the rental fleet saw average utilization of just under 79% in the fourth quarter, the highest of the year.
• McMonagle added that the company made progress reducing inventory in the fourth quarter, which sets them up well for 2025.
• McMonagle stated that the company is optimistic about fiscal 2025 and believes CTOS is well-positioned to benefit from secular tailwinds.
• McMonagle stated that the company's fiscal year 2025 outlook reflects the long-term strength of their end markets, strong strategic and competitive positioning, and continued focus on profitable growth.

Industry Context

The announcement highlights CTOS's position as a leading provider of specialty equipment to the electric utility, telecom, rail, and other infrastructure-related end markets. The company's performance is influenced by factors such as infrastructure investments, utility grid upgrades, and overall economic conditions. The anticipated growth in 2025 is tied to secular tailwinds like data center investments, manufacturing onshoring, and electrification, reflecting broader industry trends.

Comparison to Industry Standards

• Comparing CTOS's performance to industry peers requires considering companies with similar business models and end-market focus.
• Companies like United Rentals (URI) and Herc Rentals (HRI) are major players in the equipment rental industry, but their focus is broader than CTOS's specialty equipment niche.
• Within the specialty equipment market, companies like Altec and Terex Utilities are competitors in specific product lines.
• CTOS's rental fleet utilization rate of nearly 79% in Q4 2024 is a key metric, and benchmarking this against peers' utilization rates would provide valuable insights.
• The company's net leverage ratio of 4.5 times is another important metric to compare against industry standards and debt covenants of competitors.
• The projected revenue growth and Adjusted EBITDA margins for 2025 should be assessed in the context of industry growth forecasts and peers' performance.

Stakeholder Impact

• Shareholders: The mixed results and future growth projections will likely influence shareholder sentiment and stock price.
• Employees: The company's focus on growth and efficiency may impact employment opportunities and job security.
• Customers: Continued investment in rental fleet and product development should benefit customers with access to updated equipment.
• Suppliers: Strong relationships with suppliers are crucial for meeting demand and managing supply chain risks.
• Creditors: The company's deleveraging efforts and cash flow generation are important for maintaining creditworthiness.

Next Steps

• The company will hold a conference call on March 5, 2025, to discuss the financial results.
• CTOS will continue to focus on working capital management, free cash flow generation, and deleveraging.
• The company plans to further grow its rental fleet based on net OEC by mid-single digits.
• CTOS will continue to monitor and respond to trends in its end markets, including data center investments, manufacturing onshoring, electrification, and utility grid upgrades.

Key Dates