10-K: Custom Truck One Source Reports Mixed Results in 2024 Amid Market Headwinds

Custom Truck One Source's 2024 revenue declined slightly due to lower rental revenue and used equipment sales, while navigating supply chain and customer financing challenges.

Summary

• Custom Truck One Source, Inc. reported its financial results for the year ended December 31, 2024.
• Total revenue decreased by 3.4% to $1.802 billion, primarily due to lower rental revenue and a decrease in used equipment sales.
• The company faced challenges including customer supply chain constraints, environmental regulations, and customer financing factors, which impacted the timing of utilities transmission and distribution job starts.
• Cost of revenue, excluding rental equipment depreciation, decreased slightly due to lower equipment sales volume.
• Depreciation of rental equipment increased due to higher rental equipment levels.
• The company recognized a $23.5 million gain on a sale leaseback transaction.
• Other operating expenses increased due to new site openings and the launch of new lines of business.
• Other expenses increased primarily due to higher interest expense on variable-rate debt and floor plan financing liabilities.
• The company reported a net loss of $28.7 million, compared to a net income of $50.7 million in the previous year, primarily due to decreased gross profit and higher interest expense.
• The Equipment Rental Solutions (ERS) segment experienced a decrease in revenue due to lower equipment sales and rental revenue.
• The Truck and Equipment Sales (TES) segment saw an increase in equipment sales due to healthy inventory levels and robust demand.
• The Aftermarket Parts and Services (APS) segment experienced an increase in total revenue due to an increase in parts and services revenue.
• The company's ending original equipment cost (OEC) was $1.515 billion, a 4.1% increase from the previous year.
• Fleet utilization decreased to 74.3% from 80.4% in the prior year.
• Sales order backlog decreased to $368.8 million from $688.6 million.
• The company amended its ABL Facility, increasing borrowing capacity to $950.0 million and extending the maturity date to August 9, 2029.
• The company repurchased 8,143,635 shares of its common stock from affiliates of Energy Capital Partners for $32.6 million.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there are some positive aspects, such as the increase in equipment sales in the TES segment and the ABL Facility amendment, the overall tone is neutral to slightly negative due to the decrease in revenue, net loss, and decrease in fleet utilization.

Positives

• The Truck and Equipment Sales (TES) segment saw an increase in equipment sales due to healthy inventory levels and robust demand.
• The Aftermarket Parts and Services (APS) segment experienced an increase in total revenue due to an increase in parts and services revenue.
• The company amended its ABL Facility, increasing borrowing capacity to $950.0 million and extending the maturity date to August 9, 2029.
• A sale leaseback transaction generated a gain of $23.5 million.

Negatives

• Total revenue decreased by 3.4% to $1.802 billion.
• The company reported a net loss of $28.7 million, compared to a net income of $50.7 million in the previous year.
• The Equipment Rental Solutions (ERS) segment experienced a decrease in revenue due to lower equipment sales and rental revenue.
• Fleet utilization decreased to 74.3% from 80.4%.
• Sales order backlog decreased to $368.8 million from $688.6 million.

Risks

• The company faces risks related to effective management of rental equipment, obtaining raw materials, and component parts in a timely and cost-effective manner.
• Competition in the equipment dealership and rental industries could impact the company's ability to increase or maintain revenues or profitability.
• The company's sales order backlog may not be indicative of the level of future revenues.
• Unionization of the workforce could negatively impact production, profitability, and increase the risk of work stoppages.
• The company's inability to attract and retain key personnel, including management and skilled technicians, could hinder its success.
• Material disruptions to operation and manufacturing locations could adversely affect the company's ability to generate revenue.
• Increases in the cost of new equipment and the aging or obsolescence of existing equipment could have a material adverse effect on the company's business.
• Disruptions in the company's supply chain could impact its ability to meet customer demand and generate revenue.
• Government spending policies could impact the company's business.
• Uncertainty relating to macroeconomic conditions may reduce demand for the company's products and services.
• Increases in the price of fuel or freight could adversely affect the company's results of operations.
• Regulatory, technological advancement, or other changes in the company's core end-markets may affect its customers spending.
• Strategic initiatives, including acquisitions and divestitures, may not be successful and may divert management's attention.
• The interests of the majority stockholder may not be consistent with the other stockholders.
• The price of the company's common stock has been, and may continue to be, volatile.
• The company has, and may incur, significant indebtedness and may be unable to service its debt.
• The Indenture and the ABL Credit Agreement impose significant operating and financial restrictions on the company and its subsidiaries.
• The company's variable rate indebtedness subjects it to interest rate risk.
• Disruptions or security compromises affecting the company's information technology systems could adversely affect its operating results.
• The company is subject to complex laws and regulations, including environmental and safety regulations.
• The company is subject to a series of risks related to climate change.
• Increased attention to, and evolving expectations for, sustainability and environmental, social, and governance (ESG) initiatives could increase the company's costs.

Future Outlook

The company is positioned to capitalize on favorable trends across end-markets, including grid updates and maintenance, build-out of renewable resources, continued 5G expansion, and potential significant infrastructure spend.

Industry Context

The North American market has, and continues, to experience a secular shift from equipment ownership to rental. The Infrastructure Act includes approximately $1.2 trillion in spending in new and reallocated funds with positive impacts to each of our end-markets.

Comparison to Industry Standards

• The company owns one of the industry's largest fleets of specialty rental equipment focused on electric utility transmission and distribution (T&D), rail, telecommunications, and infrastructure end-markets through our ERS segment.
• As of December 31, 2024, our fleet is comprised of more than 10,000 units with an average unit age of approximately 3.2 years, which we believe is young by rental fleet standards and compares favorably to the long useful life of the equipment.

Related Party Transactions

• The company rents and sells equipment and provides services to R&M Equipment Rental, a business partially owned by members of the company's management.
• The company has leased certain facilities, as well as purchased products and aircraft charter services, from entities owned by members of the company's management and their immediate families.
• The company entered into the Corporate Advisory Services Agreement with Platinum effective as of the Closing Date, under which management fees are payable to Platinum quarterly.
• On January 30, 2025, the company purchased 8,143,635 shares of the company's common stock from affiliates of ECP.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and net loss.
• Employees may be affected by potential changes in operations and strategic initiatives.
• Customers may experience changes in product offerings and service availability.
• Suppliers may be impacted by changes in purchasing patterns and supply chain management.
• Creditors may be affected by the company's ability to service its debt.

Next Steps

• The company intends to maintain its leading position and expand its market share by capitalizing on favorable trends across a large addressable market.
• The company will invest in its rental fleet to meet growing demand.
• The company will grow equipment sales across both current and new customers, end-markets, and product offerings.
• The company will increase penetration of aftermarket parts and service.
• The company will continue to pursue domestic geographic expansion.

Key Dates

Keywords

Equipment Rental, Equipment Sales, Aftermarket Parts, Services, Specialty Equipment, Trucks, Financial Results, Rental Fleet, Revenue, Debt