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Custom Truck One Source, Inc. Reports Strong Quarterly Gross Profit Growth

KANSAS CITY, Mo.–(BUSINESS WIRE)–Custom Truck One Source, Inc. (“CTOS,” “we,” “us,” “our,” or the “Company”) (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 its third quarterly period ended September 30, 2022. 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.

CTOS Third Quarter Highlights

  • Total quarterly revenue of $357.8 million, with growth in rental revenue of 5.4% compared to third quarter 2021 from continued strong rental demand
  • Quarterly gross profit improvement of $22.9 million, or 35.1%, to $88.2 million compared to $65.3 million for third quarter 2021
  • Gross profit, excluding $42.6 million and $50.2 million of rental equipment depreciation in the third quarter of 2022 and 2021, respectively, increased 13.3% to $130.8 million compared to $115.4 million for third quarter 2021. (Gross profit excluding rental equipment depreciation is a non-GAAP measure)
  • Quarterly net loss of $2.4 million, driven by gross profit growth of $22.9 million, compared to a net loss of $20.5 million in third quarter 2021
  • Quarterly Adjusted EBITDA of $91.6 million compared to $84.4 million in the third quarter 2021

“Despite the ongoing challenges presented by supply chain constraints and inflationary pressures, our entire team delivered strong third quarter results. We continue to achieve vehicle production at near record levels, and we are on track to complete more vehicles in 2022 than in any other year in our history,” said Fred Ross, Chief Executive Officer of CTOS. “Demand remains very strong in all three of our business segments from customers across all our primary end-markets. While we remain disappointed by the limitations caused by certain supply chain constraints, our third quarter results and our sustained level of production position us well for the remainder of the year and next year. We remain focused on utilizing the competitive advantage that our significant scale and one-stop-shop business model provide for us to continue to deliver unparalleled service to our customers,” Ross added.

Summary Actual Financial Results

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Three Months
Ended
June 30, 2022
Actual

(in $000s)

2022

Actual

 

2021

Actual

 

2022

Actual

 

2021

Actual

 

Rental revenue

$

115,010

 

 

$

109,108

 

 

$

336,210

 

$

255,936

 

 

$

112,055

Equipment sales

 

210,903

 

 

 

217,163

 

 

 

656,595

 

 

482,825

 

 

 

218,506

Parts sales and services

 

31,867

 

 

 

31,034

 

 

 

93,557

 

 

71,954

 

 

 

31,545

Total revenue

 

357,780

 

 

 

357,305

 

 

 

1,086,362

 

 

810,715

 

 

 

362,106

Gross Profit

$

88,172

 

 

$

65,252

 

 

$

255,423

 

$

132,161

 

 

$

82,758

Net Income (Loss)

$

(2,382

)

 

$

(20,525

)

 

$

7,968

 

$

(177,788

)

 

$

13,623

Adjusted EBITDA1

$

91,634

 

 

$

84,423

 

 

$

268,494

 

$

182,195

 

 

$

85,383

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 in the U.S. (“GAAP”) is included at the end of this press release.

Summary Pro Forma Financial Results1

The summary combined financial data below for the nine months ended September 30, 2021 is presented on a pro forma basis to give effect to the following as if they occurred on January 1, 2020: (i) the acquisition of Custom Truck LP (the “Acquisition”) and related impacts of purchase accounting, (ii) borrowings under the new debt structure and (iii) repayment of previously existing debt of Nesco Holdings and Custom Truck LP.

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(in $000s)

2022

Actual

 

2021

Pro Forma (1)

 

2022

Actual

 

2021

Pro Forma (1)

Rental revenue

$

115,010

 

 

$

109,108

 

 

$

336,210

 

$

307,909

 

Equipment sales

 

210,903

 

 

 

217,163

 

 

 

656,595

 

 

728,780

 

Parts sales and services

 

31,867

 

 

 

31,034

 

 

 

93,557

 

 

90,497

 

Total revenue

 

357,780

 

 

 

357,305

 

 

 

1,086,362

 

 

1,127,186

 

Gross Profit

$

88,172

 

 

$

72,678

 

 

$

255,423

 

$

199,132

 

Net Income (Loss)

$

(2,382

)

 

$

(14,956

)

 

$

7,968

 

$

(87,884

)

Adjusted EBITDA2

$

91,634

 

 

$

84,423

 

 

$

268,494

 

$

227,529

 

1 – The above pro forma information is presented for the three and nine months ended September 30, 2021, in accordance with Article 11 of Regulation S-X. The information presented gives effect to the following as if they occurred on January 1, 2020: (i) the Acquisition, (ii) borrowings under the senior secured notes and the asset-based credit facility used to repay certain debt in connection with the Acquisition, (iii) extinguishment of Custom Truck LP’s prior credit facility and term loan borrowings assumed in the Acquisition and immediately repaid on April 1, 2021, and (iv) extinguishment of Nesco Holdings’ prior credit facility and its senior secured notes repaid in connection with the Acquisition. The pro forma information is not necessarily indicative of the Company’s results of operations had the Acquisition been completed on January 1, 2020, nor is it necessarily indicative of the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies, synergies, or revenue opportunities that could result from the Acquisition.

2 – 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 GAAP is included at the end of this press release.

Summary Actual Financial Results by Segment

Segment performance is presented below for the three months ended September 30, 2022 and 2021 and June 30, 2022, and for the nine months ended September 30, 2022 and 2021. Segment performance for the nine months ended September 30, 2021, includes Custom Truck LP from April 1, 2021 to September 30, 2021.

Equipment Rental Solutions

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Three Months
Ended
June 30, 2022

(in $000s)

2022

 

2021

 

2022

 

2021

 

Rental revenue

$

112,009

 

$

105,124

 

$

325,679

 

$

244,935

 

$

108,109

Equipment sales

 

37,121

 

 

27,101

 

 

133,674

 

 

70,141

 

 

37,200

Total revenue

 

149,130

 

 

132,225

 

 

459,353

 

 

315,076

 

 

145,309

Cost of rental revenue

 

27,221

 

 

24,622

 

 

79,863

 

 

67,683

 

 

27,851

Cost of equipment sales

 

27,015

 

 

19,546

 

 

100,663

 

 

60,815

 

 

30,418

Depreciation of rental equipment

 

41,776

 

 

49,125

 

 

128,126

 

 

108,202

 

 

42,384

Total cost of revenue

 

96,012

 

 

93,293

 

 

308,652

 

 

236,700

 

 

100,653

Gross profit

$

53,118

 

$

38,932

 

$

150,701

 

$

78,376

 

$

44,656

Truck and Equipment Sales

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Three Months
Ended
June 30, 2022

(in $000s)

2022

 

2021

 

2022

 

2021

 

Equipment sales

$

173,782

 

$

190,062

 

$

522,921

 

$

412,684

 

$

181,306

Cost of equipment sales

 

146,573

 

 

172,445

 

 

444,798

 

 

374,180

 

 

154,177

Gross profit

$

27,209

 

$

17,617

 

$

78,123

 

$

38,504

 

$

27,129

Aftermarket Parts and Services

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Three Months
Ended
June 30, 2022

(in $000s)

2022

 

2021

 

2022

 

2021

 

Rental revenue

$

3,001

 

$

3,984

 

$

10,531

 

$

11,001

 

$

3,946

Parts and services revenue

 

31,867

 

 

31,034

 

 

93,557

 

 

71,954

 

 

31,545

Total revenue

 

34,868

 

 

35,018

 

 

104,088

 

 

82,955

 

 

35,491

Cost of revenue

 

26,187

 

 

25,287

 

 

74,715

 

 

64,700

 

 

23,578

Depreciation of rental equipment

 

836

 

 

1,028

 

 

2,774

 

 

2,974

 

 

940

Total cost of revenue

 

27,023

 

 

26,315

 

 

77,489

 

 

67,674

 

 

24,518

Gross profit

$

7,845

 

$

8,703

 

$

26,599

 

$

15,281

 

$

10,973

Summary Combined Operating Metrics

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Three Months
Ended
June 30, 2022

(in $000s)

2022

 

2021

 

2022

 

2021

 

Ending OEC(a) (as of period end)

$

1,428,800

 

 

$

1,371,746

 

 

$

1,428,800

 

 

$

1,371,746

 

 

$

1,399,500

 

Average OEC on rent(b)

$

1,182,500

 

 

$

1,103,562

 

 

$

1,161,400

 

 

$

1,078,947

 

 

$

1,150,400

 

Fleet utilization(c)

 

83.8

%

 

 

81.4

%

 

 

83.0

%

 

 

80.4

%

 

 

82.8

%

OEC on rent yield(d)

 

38.5

%

 

 

38.0

%

 

 

38.9

%

 

 

37.5

%

 

 

39.2

%

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

$

709,180

 

 

$

338,457

 

 

$

709,180

 

 

$

338,457

 

 

$

663,619

 

(a)

Ending OEC — original equipment cost (“OEC”) is the original equipment cost of units at a given point in time. 

(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 12-month 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, the ORY is adjusted to an annualized basis.

(e)

Sales order backlog — purchase orders received for products expected to be shipped within the next 12 months, although shipment dates are subject to change due to design modifications or changes in other customer requirements. Sales order backlog should not be considered an accurate measure of future net sales.

Management Commentary

Total revenue in the third quarter of 2022 was characterized by strong customer demand for rental equipment and for parts sales and service. Third quarter 2022 rental revenue increased 5.4% to $115.0 million, compared to $109.1 million in the third quarter of 2021, reflecting our continued expansion of our rental fleet, higher utilization and pricing gains. Parts sales and service revenue increased 2.7% to $31.9 million, compared to $31.0 million in the third quarter of 2021. Equipment sales decreased 2.9% in the third quarter of 2022 to $210.9 million, compared to $217.2 million in the third quarter of 2021 impacted by continued supply chain challenges.

In our ERS segment, rental revenue in the third quarter of 2022 was $112.0 million compared to $105.1 million in the third quarter of 2021, a 6.5% increase. Fleet utilization continued to increase, coming in at 84% compared to 81% in the third quarter of 2021. Gross profit in the segment, excluding $41.8 million and $49.1 million of equipment depreciation in the third quarter of 2022 and 2021, respectively, was $94.9 million in the third quarter of 2022, compared to $88.1 million in the third quarter of 2021, representing strong growth over the prior year period. Gross profit from rentals (excluding depreciation) improved to $84.8 million in the third quarter of 2022 compared to $80.5 million in the third quarter of 2021. (Gross profit excluding rental equipment depreciation is a non-GAAP measure.)

Revenue in our TES segment declined 8.6%, to $173.8 million in the third quarter of 2022, from $190.1 million in the third quarter of 2021, as a result of supply chain challenges. Gross profit improved by 54.4% to $27.2 million in the third quarter of 2022 compared to $17.6 million in the third quarter of 2021. Despite the impact on third quarter sales volume, TES continued to see strength in product demand as sales order backlog grew by 6.9% to $709.2 million compared to the end of the second quarter of 2022, and is up over 100% from the third quarter of 2021. On a sequential quarter basis, supply chain headwinds continued to impact order completion and fulfillment, with new equipment sales revenue declining $7.5 million in the third quarter of 2022 compared to the second quarter of 2022.

APS segment revenue experienced a decrease of $0.2 million, or 0.4%, in the third quarter of 2022, to $34.9 million, as compared to $35.0 million in the third quarter of 2021. Growth in demand for parts, tools and accessories sales was offset by reduced tools and accessories rentals in the PTA division. Gross profit margin in the segment was negatively impacted by higher labor and facilities costs as well as shifts in product mix.

Net loss was $2.4 million in the third quarter of 2022 compared to a net loss of $20.5 million for the third quarter of 2021. The improvement in net income (loss) is the result of gross profit expansion, offset by higher interest expense on variable-rate debt and variable-rate floorplan liabilities.

Adjusted EBITDA for the third quarter of 2022 was $91.6 million, compared to $84.4 million for the third quarter of 2021. The increase in Adjusted EBITDA was largely driven by growth in rental demand and pricing gains in new equipment sales, both of which contributed to margin expansion.

CTOS had cash and cash equivalents of $26.2 million as of September 30, 2022, and debt outstanding net of cash and cash equivalents (“net debt”), including finance leases, was $1,373.1 million as of September 30, 2022. Our net leverage ratio, which is net debt divided by Adjusted EBITDA, was 3.8 as of September 30, 2022. Availability under the senior secured credit facility was $300.1 million as of September 30, 2022. For the nine months ended September 30, 2022, we added $224.0 million to our rental fleet. During the three months ended September 30, 2022, CTOS purchased $2.4 million of its common stock under the previously announced stock repurchase program.

2022 Outlook Update

We are updating our full-year revenue and Adjusted EBITDA guidance at this time. We believe ERS will benefit from strong demand from our rental customers for purchases of rental fleet units, particularly older equipment, in the fourth quarter of 2022. Regarding TES, supply chain challenges are primarily impacting our ability to deliver new vehicles to its customers. Our updated Adjusted EBITDA guidance remains within the previously provided guidance.

2022 Consolidated Outlook

 

 

 

Revenue

$1,505 million

$1,585 million

Adjusted EBITDA1

$385 million

$395 million

 

 

 

 

2022 Revenue Outlook by Segment

 

 

 

ERS

$650 million

$690 million

TES

$720 million

$750 million

APS

$135 million

$145 million

1 – CTOS is not able to 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 November 8, 2022, to discuss its third quarter 2022 financial results. A webcast will be publicly available at: investors.customtruck.com. To listen by phone, please dial 1-877-425-9470 or 1-201-389-0878. A replay of the call will be available until midnight, Tuesday, November 15, 2022, by dialing 1-844-512-2921 or 1-412-317-6671 and entering passcode 13733083.

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. 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 9,600 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 investors.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: difficulty in integrating the Nesco Holdings and Custom Truck LP businesses and fully realizing the anticipated benefits of the Acquisition; as well as significant transaction and transition costs that we will continue to incur following the Acquisition; material disruptions to our operation and manufacturing locations as a result of public health concerns, including the COVID-19 pandemic, equipment failures, natural disasters, work stoppages, power outages or other reasons; the cyclical nature of demand for our products and services and our vulnerability to industry, regional and national downturns, which impact, among others, our ability to manage our rental equipment; 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; any further increase in the cost of new equipment that we purchase for use in our rental fleet or for our sales inventory; disruptions in our supply chain as a result of the ongoing COVID-19 pandemic; aging or obsolescence of our existing equipment, and the fluctuations of market value thereof; our inability to recruit and retain the experienced personnel, including skilled technicians, we need to compete in our industries; e; disruptions in our information technology systems or a compromise of our system security, limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, and implement strategic initiatives; unfavorable conditions in the capital and credit markets and our inability to obtain additional capital as required; our dependence on a limited number of manufacturers and suppliers and on third-party contractors to provide us with various services to assist us with conducting our business; potential impairment charges; our exposure to various risks related to legal proceedings or claims, and our failure to comply with relevant laws and regulations, including those related to occupational health and safety, the environment, government contracts, and data privacy and data security; 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 attract and retain highly skilled personnel and our inability to retain our senior management; our inability to generate cash, which could lead to a default; significant operating and financial restrictions imposed by the Indenture and the ABL Credit Agreement; increases in unionization rate in our workforce; changes in interest rates, which could increase our debt service obligations on the variable rate indebtedness and decrease our net income and cash flows; and the phase-out of LIBOR and uncertainty as to its replacement. 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, 2021, 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.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

The condensed consolidated statements of operations for the three and nine months ended September 30, 2021 includes the results of Custom Truck LP from April 1, 2021 to September 30, 2021.

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Three Months

Ended

June 30, 2022

(in $000s except per share data)

2022

 

2021

 

2022

 

2021

 

Revenue

 

 

 

 

 

 

 

 

 

Rental revenue

$

115,010

 

 

$

109,108

 

 

$

336,210

 

 

$

255,936

 

 

$

112,055

 

Equipment sales

 

210,903

 

 

 

217,163

 

 

 

656,595

 

 

 

482,825

 

 

 

218,506

 

Parts sales and services

 

31,867

 

 

 

31,034

 

 

 

93,557

 

 

 

71,954

 

 

 

31,545

 

Total revenue

 

357,780

 

 

 

357,305

 

 

 

1,086,362

 

 

 

810,715

 

 

 

362,106

 

Cost of Revenue

 

 

 

 

 

 

 

 

 

Cost of rental revenue

 

28,207

 

 

 

25,932

 

 

 

82,791

 

 

 

71,873

 

 

 

28,791

 

Depreciation of rental equipment

 

42,612

 

 

 

50,153

 

 

 

130,900

 

 

 

111,176

 

 

 

43,324

 

Cost of equipment sales

 

173,588

 

 

 

191,991

 

 

 

545,461

 

 

 

434,995

 

 

 

184,595

 

Cost of parts sales and services

 

25,201

 

 

 

23,977

 

 

 

71,787

 

 

 

60,510

 

 

 

22,638

 

Total cost of revenue

 

269,608

 

 

 

292,053

 

 

 

830,939

 

 

 

678,554

 

 

 

279,348

 

Gross Profit

 

88,172

 

 

 

65,252

 

 

 

255,423

 

 

 

132,161

 

 

 

82,758

 

Operating Expenses

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

49,835

 

 

 

48,625

 

 

 

152,269

 

 

 

111,939

 

 

 

48,779

 

Amortization

 

6,794

 

 

 

13,334

 

 

 

27,000

 

 

 

27,420

 

 

 

6,871

 

Non-rental depreciation

 

1,938

 

 

 

873

 

 

 

7,302

 

 

 

1,845

 

 

 

2,317

 

Transaction expenses and other

 

6,498

 

 

 

7,742

 

 

 

17,192

 

 

 

42,765

 

 

 

6,046

 

Total operating expenses

 

65,065

 

 

 

70,574

 

 

 

203,763

 

 

 

183,969

 

 

 

64,013

 

Operating Income (Loss)

 

23,107

 

 

 

(5,322

)

 

 

51,660

 

 

 

(51,808

)

 

 

18,745

 

Other Expense

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

61,695

 

 

 

 

Interest expense, net

 

22,887

 

 

 

19,045

 

 

 

62,324

 

 

 

53,674

 

 

 

20,281

 

Financing and other expense (income)

 

(1,747

)

 

 

(3,656

)

 

 

(25,905

)

 

 

143

 

 

 

(15,078

)

Total other expense

 

21,140

 

 

 

15,389

 

 

 

36,419

 

 

 

115,512

 

 

 

5,203

 

Income (Loss) Before Income Taxes

 

1,967

 

 

 

(20,711

)

 

 

15,241

 

 

 

(167,320

)

 

 

13,542

 

Income Tax Expense (Benefit)

 

4,349

 

 

 

(186

)

 

 

7,273

 

 

 

10,468

 

 

 

(81

)

Net Income (Loss)

$

(2,382

)

 

$

(20,525

)

 

$

7,968

 

 

$

(177,788

)

 

$

13,623

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Per Share

 

 

 

 

 

 

 

 

 

Basic

$

(0.01

)

 

$

(0.08

)

 

$

0.03

 

 

$

(0.99

)

 

$

0.05

 

Diluted

$

(0.01

)

 

$

(0.08

)

 

$

0.03

 

 

$

(0.99

)

 

$

0.05

 

Contacts

INVESTOR CONTACT
Brian Perman, Vice President, Investor Relations

(844) 403-6138

investors@customtruck.com

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