Custom Truck One Source Reports Strong Earnings Call

Custom Truck One Source, Inc. ((CTOS)) has held its Q4 earnings call. Read on for the main highlights of the call.

The recent earnings call for Custom Truck One Source, Inc. painted a picture of robust performance across key segments, with record revenues and effective inventory management. Despite facing challenges like a decline in ERS revenue and margin pressures in the TES segment, the company’s outlook for 2025 remains optimistic, with expectations of growth and enhanced financial performance.

Record Year for GES Segment

The GES segment had a standout performance, achieving a record quarter in Q4 and surpassing a billion dollars in annual sales for the first time. This milestone underscores the segment’s strong market position and operational efficiency.

Strong Performance in ERS Segment

The ERS segment demonstrated resilience with a 12% sequential quarterly increase in average OEC on rent and a 570 basis points improvement in average utilization. Rental revenue rose by 15% compared to Q3, highlighting the segment’s solid demand and effective asset management.

TES Revenue Growth

The TES segment also reported impressive results, with a record quarterly revenue exceeding $300 million, marking an 18% sequential increase and a 3% rise compared to Q4 2023. For the full year, TES revenue surpassed $1 billion for the first time, reflecting strong market demand and strategic execution.

Improved Inventory Management

Custom Truck One Source, Inc. achieved a significant reduction in inventory, cutting more than $150 million compared to the end of Q3 and over $170 million from peak levels at the end of August. This improvement in inventory management is expected to positively impact the company’s cash flow and operational efficiency.

Positive Order Trends

The company reported a 35% increase in net orders compared to Q4 of the previous year, with the current backlog standing at $445 million, up more than 20% since year-end. This trend indicates strong future demand and a healthy pipeline of business.

Revenue and EBITDA Guidance

Looking ahead to 2025, Custom Truck One Source, Inc. provided optimistic guidance, forecasting total revenue between $1.97 billion and $2.06 billion, with adjusted EBITDA projected between $370 million and $390 million. The ERS segment is expected to generate $666 million to $690 million in revenue, while TES revenue is anticipated to range from $1.16 billion to $1.21 billion. The company also plans to invest in fleet expansion and aims to reduce net leverage by fiscal 2026.

Decline in ERS Revenue

Despite the overall strong performance, the ERS segment saw a decline in revenue, reporting $172 million in Q4, down from $185 million in Q4 2023. This decrease highlights some of the challenges faced in this segment.

TES Segment Margin Pressure

The TES segment experienced margin pressure, with a gross margin of 16.6% for the quarter, down from Q4 2023. This was attributed to mix changes and improved inventory levels across the industry, impacting profitability.

Sale-Leaseback Transaction Impact

The company completed a sale-leaseback transaction, generating net proceeds of over $52 million. However, this resulted in an incremental lease expense of approximately $4.5 to $5 million annually, impacting the company’s cost structure.

Forward-Looking Guidance

Custom Truck One Source, Inc. provided a positive outlook for 2025, with expectations of continued growth across all business segments. The company anticipates total revenue between $1.97 billion and $2.06 billion, with adjusted EBITDA ranging from $370 million to $390 million. The company plans to invest in fleet expansion and aims to reduce net leverage by fiscal 2026, supported by expected levered free cash flow of $50 to $100 million in 2025.

In conclusion, Custom Truck One Source, Inc.’s earnings call reflected a strong performance with record revenues in key segments and effective inventory management. While challenges like ERS revenue decline and TES margin pressures were noted, the company’s forward-looking guidance remains optimistic, with expectations of growth and improved financial performance in 2025.