Custom Truck One Source, Inc. (CTOS) is a leading provider of specialty equipment, parts, tools, accessories, and services to the electric utility transmission and distribution (T&D), telecommunications, rail, forestry, waste management, and other infrastructure-related industries in North America. The company's extensive product portfolio and nationwide footprint have positioned it as a trusted partner for customers seeking tailored solutions and reliable equipment support.

Business Overview and History

Custom Truck One Source was formed in 2021 through the acquisition of Custom Truck LP by Nesco Holdings, Inc. The combined entity brought together two industry leaders, leveraging their complementary strengths to create a comprehensive one-stop-shop solution for customers.

The company's core business revolves around its new equipment inventory and rental fleet of specialty equipment, which is utilized by service providers in infrastructure development and improvement work. Custom Truck offers specialized equipment, including bucket trucks, digger derricks, dump trucks, cranes, service trucks, and heavy-haul trailers, to a diverse customer base of utilities and contractors for the maintenance, repair, upgrade, and installation of critical infrastructure assets.

In the year of its formation, Custom Truck faced significant challenges related to the COVID-19 pandemic, which disrupted supply chains and customer demand. The company had to adapt quickly, focusing on cost savings measures and working closely with its suppliers to minimize the impact. Despite these headwinds, Custom Truck was able to maintain operations and continue serving its customers throughout the pandemic.

The following year, 2022, saw the company continuing to navigate a challenging macroeconomic environment, including supply chain constraints, inflationary pressures, and regulatory changes. Custom Truck leveraged its diversified end markets and expansive geographic footprint to mitigate these challenges, while also investing in its rental fleet and production capabilities to better serve its growing customer base. The company also made strategic acquisitions to further enhance its product and service offerings.

Over the years, Custom Truck has established itself as a leading provider of specialty equipment and related services in its core end markets. The company's differentiated one-stop-shop business model, integrated production capabilities, and strong customer relationships have been key to its success. Despite facing various operational and market-related hurdles, Custom Truck has demonstrated its resilience and ability to adapt, positioning the business for continued growth and success.

Today, Custom Truck One Source operates more than 40 locations across the United States and Canada, serving a diverse customer base that includes utilities, contractors, and other infrastructure service providers. The company's three reporting segments - Equipment Rental Solutions (ERS), Truck and Equipment Sales (TES), and Aftermarket Parts and Services (APS) - work in tandem to deliver a comprehensive range of solutions tailored to the unique needs of its end markets.

Financial Performance and Ratios

In the fiscal year 2024, Custom Truck One Source reported total revenue of $1.80 billion, a decrease of 3.4% compared to the previous year. Net income for the period was a loss of $28.7 million, compared to net income of $50.7 million in the prior year. The company's operating cash flow was $122.0 million, and free cash flow was a negative $276.3 million.

For the fourth quarter of 2024, the company reported revenue of $520.7 million, representing a 16.4% increase compared to the same quarter in 2023. Net income for the quarter was $27.6 million.

The company's financial ratios paint a mixed picture. The current ratio stood at 1.30, indicating a healthy short-term liquidity position, while the debt-to-equity ratio of 0.12 suggests a conservative capital structure. However, the company's return on assets and return on equity were negative 16.0% and -8.7%, respectively, reflecting the challenges faced in the previous year.

In terms of liquidity, Custom Truck One Source had $3.8 million in cash on hand as of December 31, 2024. The company had $364 million available under its ABL Facility, with an additional $158.3 million of suppressed availability. The quick ratio was 0.25, indicating potential short-term liquidity challenges.

Segmental Performance

The ERS segment, which accounts for a significant portion of Custom Truck One Source's revenue, reported $597.8 million in sales for 2024, a decrease of 17.7% year-over-year. The decline was primarily driven by a reduction in rental revenue and used equipment sales due to weaker demand from the utility end market. Adjusted gross profit for the segment was $178.3 million, with a margin of 29.8%.

As of December 31, 2024, the ERS rental fleet comprised more than 10,000 units, offering a broad range of new and used specialty equipment. The segment's strategy includes selling used equipment from its rental fleet to end-user customers and offering rental purchase options (RPOs) to provide flexibility to customers.

The TES segment, which focuses on the production and sale of new and used specialty equipment and vocational trucks, posted record annual revenue of $1.06 billion in 2024, an increase of 6.9% compared to the prior year. This marked the first time the segment exceeded $1 billion in annual sales. Gross profit for the segment was $178.4 million, with a margin of 16.6%. The segment saw strong demand from forestry and vegetation management customers in Q4 2024, helping drive a record quarterly revenue of over $300 million.

The APS segment, which provides aftermarket parts, tools, and equipment maintenance and repair services, generated revenue of $149.1 million in 2024, up 0.4% year-over-year. Adjusted gross profit for the segment was $33.6 million, with a margin of 22.5%. The segment offers specialized aftermarket parts, including captive parts related to the company's Load King™ brand, as well as maintenance and repair services through its nationwide branch network and fleet of mobile technicians.

Geographic Performance

In 2024, Custom Truck One Source generated $47.1 million of revenue in Canada, with the remaining $1.76 billion coming from the United States, highlighting the company's strong presence in the North American market.

Guidance and Outlook

For the fiscal year 2025, Custom Truck One Source has provided the following guidance:

• Total revenue is expected to be in the range of $1.97 billion to $2.06 billion, representing a year-over-year increase of 9.2% at the midpoint.

• Adjusted EBITDA is projected to be between $370 million and $390 million, reflecting a potential increase of 8.9% at the midpoint.
• Net rental capital expenditures are anticipated to be just under $200 million, as the company continues to invest in its rental fleet to meet growing customer demand.
• The company is targeting $50 million to $100 million in levered free cash flow generation.
• Custom Truck One Source aims to achieve a net leverage ratio below 4 times by the end of 2025 and below 3 times sometime in fiscal 2026.

For individual segments in 2025, the company expects:

• ERS revenue between $666 million and $690 million
• TES revenue between $1.16 billion and $1.21 billion
• APS revenue between $150 million and $160 million

The company's guidance reflects its confidence in the long-term growth prospects of its end markets, particularly in the electric utility T&D and telecommunications sectors, which are benefiting from increased investment in grid modernization, renewable energy integration, and 5G network deployment.

Industry Trends

Custom Truck One Source is well-positioned to capitalize on several positive industry trends:

• In the electric utility transmission and distribution (T&D) end-market, capital expenditures are forecasted to grow at a CAGR of approximately 9% from 2023 through 2028.

• In the telecom end-market, data traffic is expected to grow at a CAGR of 16% from 2024 to 2030, driving demand for infrastructure upgrades and expansion.
• In the rail end-market, the five largest public railroads operating in North America spend more than $13 billion annually in capital expenditures, providing ongoing opportunities for equipment and services.

Risks and Challenges

While Custom Truck One Source's diversified business model and specialized product offerings have been key strengths, the company faces several risks and challenges that investors should consider.

The company's performance is closely tied to the capital expenditure and maintenance budgets of its utility, telecom, and infrastructure customers. Adverse changes in these end markets, such as delays in project timelines or reductions in spending, could significantly impact the company's financial results.

Additionally, Custom Truck One Source operates in a highly competitive industry, with both national and regional players vying for market share. The company's ability to maintain its competitive edge and continue to meet the evolving needs of its customers will be crucial to its long-term success.

Supply chain disruptions, labor shortages, and inflationary pressures have also emerged as significant challenges for the company, potentially affecting its ability to source components, manage costs, and deliver equipment to customers in a timely manner.

Conclusion

Custom Truck One Source's position as a leading provider of specialty equipment and services to the infrastructure-related industries positions the company well to capitalize on the long-term growth trends in its end markets. The company's diversified product portfolio, nationwide footprint, and strong customer relationships have been key drivers of its success. While near-term headwinds and macroeconomic uncertainties pose challenges, Custom Truck One Source's guidance and strategic initiatives suggest a path towards renewed growth and profitability. The company's focus on expanding its rental fleet, leveraging its integrated production capabilities, and maintaining a strong presence across its end markets should support its efforts to achieve its financial targets and improve its leverage position. Investors should closely monitor the company's ability to navigate these obstacles and leverage its competitive advantages to deliver sustained value in the coming years.