Custom Truck One Source, Inc. Q1 FY2025 earnings call

• Strong financial performance carried over from end of last year, driven by robust demand in core T&D markets.
• ERS segment had average utilization just under 78% (up 440 basis points) and average OEC on rent over $1.2 billion (up 13% y-o-y).
• Monitored U.S. tariff policies, pulled forward inventory to mitigate impact, and have existing inventory to support production and sales goals.
• Customers can pivot to renting equipment as a hedge for equipment needs even if they delay purchases.

ERS Segment: Q1 revenue was $154 million, up over 13% from $136 million in Q1 2024. Rental revenue grew 9% and rental asset sales 26%. Adjusted gross profit was $93 million, up 13%, with adjusted gross margin 60% (flat vs last year). OEC on rent ended the quarter at $1.55 billion, the highest ever. TES Segment: Q1 sales were $232 million (slightly down y-o-y), but Feb and March had double-digit sequential growth, with March being the strongest ever. Gross margin was 15.1% (down from last year but in line with expected 15%-18% range). Backlog increased by $51 million (14%) to over $420 million, and net orders were $284 million, up over 220% vs Q1 2024. ATS Segment: Q1 revenue was $35 million (flat y-o-y), with adjusted gross profit margin 22% (down due to higher materials cost, product mix, and lower third-party service work).

• Reaffirmed fiscal 2025 guidance: total revenue range $1.97 billion to $2.06 billion, adjusted EBITDA range $370 million to $390 million, net rental CapEx just under $200 million.
• Target levered free cash flow of $50 million to $100 million in 2025. Aim to reduce net leverage, expecting meaningful movement from current levels.

• U.S. tariff policies introduce economic uncertainty and may deter customers from capital investment in vehicle purchases.
• TES segment gross margin under pressure from mix and industry inventory levels.

Q: What gives conviction in the acceleration in revenue growth embedded throughout the rest of the year?

A: In ERS, strong rental demand and asset sales; in TES, sequential growth in Feb and March with backlog growth.

Q: Impact of Trump admin IJ pause on vocational vehicle demand?

A: Not seeing delays in projects; customers can pivot to renting.

Q: Tariff impact and inventory bump?

A: Inventory bump due to pulling forward chassis inventory to mitigate tariff impact; working with vendors on pricing and sourcing.

Q: How quickly do TES orders convert to sales revenue?

A: Varies by product category, average 3-4 months.

Q: Year-end leverage target?

A: Aim for meaningful movement from current levels, getting close to or below 4x leverage.