Custom Truck One Source, Inc. (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 three and nine months ended September 30, 2023.
CTOS Third-Quarter Highlights
- Total revenue of $434.4 million, an increase of $76.6 million,
or 21.4%, compared to $357.8 million for the third quarter of 2022
as a result of continued strong demand across our end markets
- Gross profit of $107.2 million, an improvement of $19.0
million, or 21.5%, compared to $88.2 million for the third quarter
of 2022
- Adjusted Gross Profit of $149.6 million, an increase of $18.8
million, or 14.4%, compared to $130.8 million for the third quarter
of 2022
- Net income of $9.2 million, an increase of $11.6 million,
compared to net loss of $2.4 million, in the third quarter of
2022
- Adjusted EBITDA of $100.2 million, an increase of $8.6 million,
or 9.3% compared to $91.6 million in the third quarter of 2022
- Maintenance of Net Leverage Ratio of 3.3 at September 30, 2023
and June 30, 2023
- Increasing full year 2023 revenue guidance and affirming
Adjusted EBITDA guidance
“As we expected, demand remained strong across our primary end
markets, which allowed us to deliver another quarter of excellent
financial results and strong year-over-year growth in all three of
our business segments. Our TES segment realized 34% revenue growth
compared to the third quarter of last year. Our ERS segment
realized 12% revenue growth, and while we experienced some
short-term slowdown in the utility end market, our team effectively
managed through it. Our rental fleet ended the quarter with
utilization of approximately 80%,” said Ryan McMonagle, Chief
Executive Officer of CTOS. “A third consecutive quarter of record
setting vehicle production by our team allowed us to both add to
our fleet and post strong year-over-year growth in new vehicle
sales. This level of production, together with the demand
environment and continued improvement in the supply chain give us
the confidence to improve our revenue outlook for 2023. In
addition, our purchase of $15.8 million of our stock in the quarter
reflects our confidence in the improved outlook, as well as the
value that we feel we will create for shareholders from continuing
to execute on our growth strategy,” McMonagle added.
Summary Actual Financial Results
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended June 30,
2023
(in $000s)
2023
2022
2023
2022
Rental revenue
$
118,209
$
115,010
$
358,666
$
336,210
$
122,169
Equipment sales
283,079
210,903
886,486
656,595
302,117
Parts sales and services
33,065
31,867
98,194
93,557
32,544
Total revenue
434,353
357,780
1,343,346
1,086,362
456,830
Gross Profit
$
107,156
$
88,172
$
327,436
$
255,423
$
110,619
Adjusted Gross Profit1
$
149,625
$
130,784
$
453,851
$
386,323
$
154,235
Net Income (Loss)
$
9,180
$
(2,382
)
$
34,590
$
7,968
$
11,610
Adjusted EBITDA1
$
100,185
$
91,634
$
308,568
$
268,494
$
103,183
1
Each of Adjusted Gross Profit and 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”) are included at the end
of this press release.
Summary Actual Financial Results by Segment 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 used rental equipment to our customers. TES
encompasses our specialized truck and equipment production and new
equipment sales activities. APS encompasses sales and rentals of
parts, tools and other supplies to our customers, as well as our
aftermarket repair service operations. Segment performance is
presented below for the three and nine months ended September 30,
2023 and 2022 and three months ended June 30, 2023.
Equipment Rental Solutions
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended June 30,
2023
(in $000s)
2023
2022
2023
2022
Rental revenue
$
114,929
$
112,009
$
346,545
$
325,679
$
117,832
Equipment sales
52,175
37,121
195,005
133,674
50,694
Total revenue
167,104
149,130
541,550
459,353
168,526
Cost of rental revenue
29,613
27,221
90,014
79,863
31,341
Cost of equipment sales
37,828
27,015
148,711
100,663
39,802
Depreciation of rental equipment
41,652
41,776
123,969
128,126
42,805
Total cost of revenue
109,093
96,012
362,694
308,652
113,948
Gross profit
$
58,011
$
53,118
$
178,856
$
150,701
$
54,578
Truck and Equipment Sales
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
June 30, 2023
(in $000s)
2023
2022
2023
2022
Equipment sales
$
230,904
$
173,782
$
691,481
$
522,921
$
251,423
Cost of equipment sales
191,084
146,573
571,592
444,798
205,464
Gross profit
$
39,820
$
27,209
$
119,889
$
78,123
$
45,959
Aftermarket Parts and Services
Three Months Ended September
30,
Nine Months Ended September
30,
Three Months Ended June 30,
2023
(in $000s)
2023
2022
2023
2022
Rental revenue
$
3,280
$
3,001
$
12,121
$
10,531
$
4,337
Parts and services revenue
33,065
31,867
98,194
93,557
32,544
Total revenue
36,345
34,868
110,315
104,088
36,881
Cost of revenue
26,203
26,187
79,178
74,715
25,988
Depreciation of rental equipment
817
836
2,446
2,774
811
Total cost of revenue
27,020
27,023
81,624
77,489
26,799
Gross profit
$
9,325
$
7,845
$
28,691
$
26,599
$
10,082
Summary Combined Operating Metrics
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended June 30,
2023
(in $000s)
2023
2022
2023
2022
Ending OEC(a) (as of period end)
$
1,466,000
$
1,428,800
$
1,466,000
$
1,428,800
$
1,467,779
Average OEC on rent(b)
$
1,155,600
$
1,182,500
$
1,191,300
$
1,161,400
$
1,203,855
Fleet utilization(c)
78.9
%
83.8
%
81.3
%
83.0
%
81.7
%
OEC on rent yield(d)
40.8
%
38.5
%
39.8
%
38.9
%
40.1
%
Sales order backlog(e) (as of period
end)
$
779,295
$
709,180
$
779,295
$
709,180
$
863,757
(a)
Ending OEC — original equipment cost
(“OEC”) is the original equipment cost of units at the end of the
measurement period.
(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 periods of less than 12 months,
the ORY is adjusted to an annualized basis.
(e)
Sales order backlog — purchase orders
received for customized and stock equipment. Sales order backlog
should not be considered an accurate measure of future net
sales.
Management Commentary Total revenue in the third quarter
of 2023 was characterized by continued strong customer demand for
both rental and new equipment across our end markets. Third quarter
2023 rental revenue increased 2.8% to $118.2 million, compared to
$115.0 million in the third quarter of 2022, reflecting the
continued expansion of our rental fleet, stable utilization, and
pricing gains. Equipment sales increased 34.2% in the third quarter
of 2023 to $283.1 million, compared to $210.9 million in the third
quarter of 2022, reflecting record levels of production, continuing
improvements in the supply chain, and our ability to replenish
inventory. Parts sales and service revenue increased 3.8% to $33.1
million, compared to $31.9 million in the third quarter of 2022. On
a sequential quarter basis, total third quarter revenue for 2023
decreased $22.5 million, or 4.9%, primarily due to the timing of
new sales and a decline in average OEC on rent.
In our ERS segment, rental revenue in the third quarter of 2023
was $114.9 million compared to $112.0 million in the third quarter
of 2022, a 2.6% increase. Fleet utilization continued to be strong
at 78.9% compared to 83.8% in the third quarter of 2022, and we
ended the quarter at 80.5%. Average OEC on rent decreased 2.3%
year-over-year, primarily as a result of the lower utilization in
the quarter. Total segment gross profit in the third quarter of
2023 was $58.0 million, an increase of 9.2% compared to $53.1
million in the third quarter of 2022. Adjusted Gross Profit in the
segment was $99.7 million in the third quarter of 2023, compared to
$94.9 million in the third quarter of 2022, representing 5.0%
year-over-year growth. Rental Gross Profit improved to $85.3
million in the third quarter of 2023 compared to $84.8 million in
the third quarter of 2022, a 0.6% increase. On a sequential quarter
basis, total segment third quarter of 2023 revenue decreased $1.4
million, or 0.8%, driven by a 2.5% decrease in rental equipment
sales compared to the second quarter. Despite the decline, we
experienced favorable pricing, with OEC on rent yield increasing to
a record 40.8% in the third quarter of 2023, up from 40.1% in the
second quarter of 2023.
Revenue in our TES segment increased 32.9% to $230.9 million in
the third quarter of 2023, from $173.8 million in the third quarter
of 2022, primarily as a result of continued supply chain
improvements, which allowed us to acquire more inventory, record
production levels that led to greater order fulfillments and
sustained strong customer demand. Gross profit improved by 46.3% to
$39.8 million in the third quarter of 2023 compared to $27.2
million in the third quarter of 2022. Gross profit margin for the
quarter was 17.2%, up from 15.7% in the third quarter of 2022. On a
sequential quarter basis, total revenue in the third quarter of
2023 decreased $20.5 million, or 8.2%.
APS segment revenue increased 4.2% in the third quarter of 2023
to $36.3 million, compared to $34.9 million in the third quarter of
2022. Growth in demand for parts, tools and accessories sales was
augmented by increased tools and accessories rentals in the Parts,
Tools and Accessories (“PTA”) division. Gross profit margin
increased to 25.7% in the third quarter of 2023 from 22.5% in the
third quarter of 2022. On a sequential quarter basis, total segment
gross profit margin in the third quarter of 2023 decreased 160 bps
from 27.3%.
Net income was $9.2 million in the third quarter of 2023,
compared to net loss of $2.4 million for the third quarter of 2022.
The $11.6 million increase in net income is primarily the result of
gross profit expansion, partially offset by higher interest costs.
On a sequential quarter basis, total third quarter of 2023 net
income declined $2.4 million primarily due to lower gross profit
and higher interest expense.
Adjusted EBITDA for the third quarter of 2023 was $100.2
million, an increase of 9.3%, compared to $91.6 million for the
third quarter of 2022. The increase in Adjusted EBITDA was largely
driven by growth in rental revenue and new and used equipment
sales, all of which contributed to margin expansion. On a
sequential quarter basis, Adjusted EBITDA declined by $3.0
million.
As of September 30, 2023, cash and cash equivalents was $8.8
million, Total Debt outstanding was $1,451.2 million, Net Debt was
$1,442.4 million and Net Leverage Ratio was 3.3x. Availability
under the senior secured credit facility was $254.5 million as of
September 30, 2023, and based on our borrowing base calculation, we
have an additional $287.4 million of availability that we can
potentially utilize by upsizing our existing facility. For the
three months ended September 30, 2023, Ending OEC increased by
$37.2 million as our fleet additions were only partially offset by
our continued focus on selling older equipment from our rental
fleet at current advantageous residual values. During the three
months ended September 30, 2023, CTOS purchased $15.8 million of
its common stock.
OUTLOOK We are updating our full-year revenue guidance
for 2023 at this time, as well as affirming our full-year 2023
EBITDA guidance. We believe our ERS segment will continue to
benefit from strong demand from our rental customers, sustained
levels of average OEC on rent and for resilient demand for
purchases of rental fleet units, particularly older equipment for
the remainder of the year. While we continue to expect to make
gross investments in our rental fleet of more than $400 million
this year, higher-than-anticipated levels of rental asset sales
year-to-date likely will result in the net growth in our rental
fleet (based on Ending OEC) being more modest than expected earlier
this year. Regarding our TES segment, supply chain improvements,
improved inventory levels, record production and strong backlog
levels continue to enhance our ability to produce and deliver an
even greater number of units in 2023 than we did previously.
Commenting on the improvement outlook, McMonagle added, “Overall,
we expect a seasonally strong fourth quarter and hope that the
performance will exceed that of the fourth quarter of 2022, which
benefited from the highest level of utilization in the Company’s
history, as well as noted supply chain improvements, which allowed
for record levels of new equipment sales. Despite the confidence
implied by our improved outlook, given the level of share
repurchase activity this year, as well as the continued investment
in working capital to meet expected revenue growth, our ability to
achieve our 3.0x leverage target by year end will be delayed until
later in 2024.”
2023 Consolidated Outlook
Revenue
$1,765 million
—
$1,870 million
Adjusted EBITDA1
$425 million
—
$445 million
2023 Revenue Outlook by Segment
ERS
$710 million
—
$745 million
TES
$910 million
—
$970 million
APS
$145 million
—
$155 million
1
CTOS is not able to present a quantitative
reconciliation of its forward-looking Adjusted EBITDA for the year
ending December 31, 2023 to its most directly comparable GAAP
financial measure, net income, because management cannot reliably
present a quantitative reconciliation of its forward-looking
Adjusted EBITDA for the year ending December 31, 2023 to its most
directly comparable GAAP financial measure, net income, because
management cannot reliably 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 7, 2023, to
discuss its third quarter 2023 financial results. A webcast and a
presentation of financial information will be publicly available
at: investors.customtruck.com. To listen by phone, please dial
1-855-327-6837 or 1-631-891-4304. A replay of the call will be
available until midnight ET, Tuesday, November 14, 2023, by dialing
1-844-512-2921 or 1-412-317-6671 and entering passcode
10022473.
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, with a differentiated
“one-stop-shop” business model. 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
10,200 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 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: increases in labor costs, 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; our sales order
backlog may not be indicative of the level of our future revenues;
increases in unionization rate in our workforce; our inability to
recruit and retain the experienced personnel, including skilled
technicians, we need to compete in our industries; our inability to
attract and retain highly skilled personnel and our inability to
retain our senior management; material disruptions to our operation
and manufacturing locations as a result of public health concerns,
equipment failures, natural disasters, work stoppages, power
outages or other reasons; potential impairment charges; any further
increase in the cost of new equipment that we purchase for use in
our rental fleet or for sale as inventory; aging or obsolescence of
our existing equipment, and the fluctuations of market value
thereof; disruptions in our supply chain; our business may be
impacted by government spending; we may experience losses in excess
of our recorded reserves for receivables; unfavorable conditions in
the capital and credit markets and our inability to obtain
additional capital as required; increases in price of fuel or
freight; regulatory technological advancement, or other changes in
our core end-markets may affect our customers’ spending; difficulty
in integrating acquired businesses and fully realizing the
anticipated benefits and cost savings of the acquired businesses,
as well as additional transaction and transition costs that we will
continue to incur following acquisitions; material weakness in our
internal control over financial reporting which, if not remediated,
could result in material misstatements in our financial statements;
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 generate cash, which could lead to a
default; significant operating and financial restrictions imposed
by our debt agreements; changes in interest rates, which could
increase our debt service obligations on the variable rate
indebtedness and decrease our net income and cash flows;
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; we are subject to complex laws
and regulations, including environmental and safety regulations
that can adversely affect cost, manner or feasibility of doing
business; we are subject to a series of risks related to climate
change; and increased attention to, and evolving expectations for,
sustainability and environmental, social and governance
initiatives. 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, 2022,
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)
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended June 30,
2023
(in $000s except per share data)
2023
2022
2023
2022
Revenue
Rental revenue
$
118,209
$
115,010
$
358,666
$
336,210
$
122,169
Equipment sales
283,079
210,903
886,486
656,595
302,117
Parts sales and services
33,065
31,867
98,194
93,557
32,544
Total revenue
434,353
357,780
1,343,346
1,086,362
456,830
Cost of Revenue
Cost of rental revenue
29,874
28,207
91,754
82,791
31,981
Depreciation of rental equipment
42,469
42,612
126,415
130,900
43,616
Cost of equipment sales
228,912
173,588
720,303
545,461
245,266
Cost of parts sales and services
25,942
25,201
77,438
71,787
25,348
Total cost of revenue
327,197
269,608
1,015,910
830,939
346,211
Gross Profit
107,156
88,172
327,436
255,423
110,619
Operating Expenses
Selling, general and administrative
expenses
56,955
49,835
171,974
152,269
58,028
Amortization
6,698
6,794
19,976
27,000
6,606
Non-rental depreciation
2,602
1,938
7,973
7,302
2,721
Transaction expenses and other
2,890
6,498
10,039
17,192
3,689
Total operating expenses
69,145
65,065
209,962
203,763
71,044
Operating Income
38,011
23,107
117,474
51,660
39,575
Other Expense
Interest expense, net
34,144
22,887
94,945
62,324
31,625
Financing and other income
(5,745
)
(1,747
)
(14,744
)
(25,905
)
(5,048
)
Total other expense
28,399
21,140
80,201
36,419
26,577
Income Before Income Taxes
9,612
1,967
37,273
15,241
12,998
Income Tax Expense
432
4,349
2,683
7,273
1,388
Net Income (Loss)
$
9,180
$
(2,382
)
$
34,590
$
7,968
$
11,610
Net Income Per Share
Basic
$
0.04
$
(0.01
)
$
0.14
$
0.03
$
0.05
Diluted
$
0.04
$
(0.01
)
$
0.14
$
0.03
$
0.05
CUSTOM TRUCK ONE SOURCE, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited)
(in $000s)
September 30, 2023
December 31, 2022
Assets
Current Assets
Cash and cash equivalents
$
8,793
$
14,360
Accounts receivable, net
156,305
193,106
Financing receivables, net
41,914
38,271
Inventory
888,755
596,724
Prepaid expenses and other
21,036
25,784
Total current assets
1,116,803
868,245
Property and equipment, net
136,567
121,956
Rental equipment, net
924,315
883,674
Goodwill
703,812
703,827
Intangible assets, net
284,146
304,132
Operating lease assets
36,920
29,434
Other assets
25,107
26,944
Total Assets
$
3,227,670
$
2,938,212
Liabilities and Stockholders'
Equity
Current Liabilities
Accounts payable
$
130,466
$
87,255
Accrued expenses
72,550
68,784
Deferred revenue and customer deposits
22,641
34,671
Floor plan payables - trade
194,929
136,634
Floor plan payables - non-trade
396,891
293,536
Operating lease liabilities - current
6,198
5,262
Current maturities of long-term debt
1,286
6,940
Current portion of finance lease
obligations
—
1,796
Total current liabilities
824,961
634,878
Long-term debt, net
1,426,062
1,354,766
Finance leases
—
3,206
Operating lease liabilities -
noncurrent
31,559
24,818
Deferred income taxes
31,091
29,086
Derivative, warrants and other
liabilities
606
3,015
Total long-term liabilities
1,489,318
1,414,891
Stockholders' Equity
Common stock
25
25
Treasury stock, at cost
(37,256
)
(15,537
)
Additional paid-in capital
1,533,823
1,521,487
Accumulated other comprehensive loss
(9,206
)
(8,947
)
Accumulated deficit
(573,995
)
(608,585
)
Total stockholders' equity
913,391
888,443
Total Liabilities and Stockholders'
Equity
$
3,227,670
$
2,938,212
CUSTOM TRUCK ONE SOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited)
Nine Months Ended September
30,
(in $000s)
2023
2022
Operating Activities
Net income
$
34,590
$
7,968
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation and amortization
162,084
171,121
Amortization of debt issuance costs
4,221
3,485
Provision for losses on accounts
receivable
4,522
5,905
Share-based compensation
10,312
9,526
Gain on sales and disposals of rental
equipment
(48,392
)
(35,064
)
Change in fair value of derivative and
warrants
(2,409
)
(18,013
)
Deferred tax expense
1,959
6,792
Changes in assets and liabilities:
Accounts and financing receivables
21,978
(17,637
)
Inventories
(290,302
)
(155,111
)
Prepaids, operating leases and other
6,143
2,475
Accounts payable
42,707
9,900
Accrued expenses and other liabilities
3,620
9,397
Floor plan payables - trade, net
58,295
8,726
Customer deposits and deferred revenue
(12,034
)
(5,126
)
Net cash flow from operating
activities
(2,706
)
4,344
Investing Activities
Acquisition of business, net of cash
acquired
—
(49,832
)
Purchases of rental equipment
(289,984
)
(224,002
)
Proceeds from sales and disposals of
rental equipment
177,623
135,436
Purchase of non-rental property and cloud
computing arrangements
(33,251
)
(15,529
)
Net cash flow from investing
activities
(145,612
)
(153,927
)
Financing Activities
Proceeds from debt
13,537
—
Share-based payments
387
(1,250
)
Borrowings under revolving credit
facilities
111,057
87,000
Repayments under revolving credit
facilities
(56,377
)
(34,945
)
Repayments of notes payable
(6,674
)
(6,126
)
Finance lease payments
(2,682
)
(3,308
)
Repurchase of common stock
(19,936
)
(1,752
)
Acquisition of inventory through floor
plan payables - non-trade
571,062
451,202
Repayment of floor plan payables -
non-trade
(467,707
)
(348,961
)
Payment of debt issuance costs
(110
)
—
Net cash flow from financing
activities
142,557
141,860
Effect of exchange rate changes on cash
and cash equivalents
194
(2,005
)
Net Change in Cash and Cash
Equivalents
(5,567
)
(9,728
)
Cash and Cash Equivalents at Beginning
of Period
14,360
35,902
Cash and Cash Equivalents at End of
Period
$
8,793
$
26,174
Nine Months Ended September
30,
(in $000s)
2023
2022
Supplemental Cash Flow
Information
Interest paid
$
51,142
$
44,414
Income taxes paid
1,897
—
Non-Cash Investing and Financing
Activities
Rental equipment and property and
equipment purchases in accounts payable
596
—
Rental equipment sales in accounts
receivable
1,573
747
CUSTOM TRUCK ONE SOURCE, INC.
NON-GAAP FINANCIAL AND PERFORMANCE MEASURES In our
press release and schedules, and on the related conference call, we
report certain financial measures that are not required by, or
presented in accordance with, United States generally accepted
accounting principles (“GAAP”). We utilize these financial measures
to manage our business on a day-to-day basis and some of these
measures are commonly used in our industry to evaluate performance.
We believe these non-GAAP measures provide investors expanded
insight to assess performance, in addition to the standard
GAAP-based financial measures. The press release schedules
reconcile the most directly comparable GAAP measure to each
non-GAAP measure that we refer to. Although management evaluates
and presents these non-GAAP measures for the reasons described
herein, please be aware that these non-GAAP measures have
limitations and should not be considered in isolation or as a
substitute for revenue, operating income/loss, net income/loss,
earnings/loss per share or any other comparable operating measure
prescribed by GAAP. In addition, we may calculate and/or present
these non-GAAP financial measures differently than measures with
the same or similar names that other companies report, and as a
result, the non-GAAP measures we report may not be comparable to
those reported by others.
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial
performance measure that we use to monitor our results of
operations, to measure performance against debt covenants and
performance relative to competitors. We believe Adjusted EBITDA is
a useful performance measure because it allows for an effective
evaluation of operating performance, without regard to financing
methods or capital structures. We exclude the items identified in
the reconciliations of net income (loss) to Adjusted EBITDA because
these amounts are either non-recurring or can vary substantially
within the industry depending upon accounting methods and book
values of assets, including the method by which the assets were
acquired, and capital structures. Adjusted EBITDA should not be
considered as an alternative to, or more meaningful than, net
income (loss) determined in accordance with GAAP. Certain items
excluded from Adjusted EBITDA are significant components in
understanding and assessing a company’s financial performance, such
as a company’s cost of capital and tax structure, as well as the
historical costs of depreciable assets, none of which are reflected
in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not
be construed as an indication that results will be unaffected by
the items excluded from Adjusted EBITDA. Our computation of
Adjusted EBITDA may not be identical to other similarly titled
measures of other companies.
We define Adjusted EBITDA as net income or loss before interest
expense, income taxes, depreciation and amortization, share-based
compensation, and other items that we do not view as indicative of
ongoing performance. Our Adjusted EBITDA includes an adjustment to
exclude the effects of purchase accounting adjustments when
calculating the cost of inventory and used rental equipment sold.
When inventory or rental equipment is purchased in connection with
a business combination, the assets are revalued to their current
fair values for accounting purposes. The consideration transferred
(i.e., the purchase price) in a business combination is allocated
to the fair values of the assets as of the acquisition date, with
amortization or depreciation recorded thereafter following
applicable accounting policies; however, this may not be indicative
of the actual cost to acquire inventory or new equipment that is
added to product inventory or the rental fleets apart from a
business acquisition. We also includes an adjustment to remove the
impact of accounting for certain of our rental contracts that are
accounted for under GAAP as a sales-type lease, however, in
actuality, the rental contract remains in place and we continue to
invoice the rentals to the customers. Sales-type lease accounting
results in an accelerated revenue recognition profile compared to
the period of service (that is, time of use by the rental customer)
that is provided evenly over the duration of our time-based rental
contracts, and compared to the cash payment profile, which is
typically received evenly over the duration of our rental
contracts. We include this adjustment because we believe continuing
to reflect the transactions as an operating lease more closely
measures the period of service provided and rental payments
received better reflects the economics of the transactions given
our large portfolio of rental contracts. These, and other,
adjustments to GAAP net income or loss that are applied to derive
Adjusted EBITDA conform to the definitions in our senior secured
credit agreements.
Adjusted Gross Profit. We present total gross profit
excluding rental equipment depreciation (“Adjusted Gross Profit”)
as a non-GAAP financial performance measure. This measure differs
from the GAAP definition of gross profit, as we do not include the
impact of depreciation expense, which represents non-cash expense.
We use these measures to evaluate operating margins and the
effectiveness of the cost of our rental fleet.
Net Debt. We present the non-GAAP financial measure “Net
Debt,” which is total debt (the most comparable GAAP measure,
calculated as current and long-term debt, excluding deferred
financing fees, plus current and long-term finance lease
obligations) minus cash and cash equivalents. We believe this
non-GAAP measure is useful to investors to evaluate our financial
position.
Net Leverage Ratio. Net Leverage Ratio is a non-GAAP
financial performance measure used by management and we believe it
provides useful information to investors because it is an important
measure that reflects our ability to service debt. We define net
leverage ratio as net debt divided by Adjusted EBITDA.
CUSTOM TRUCK ONE SOURCE, INC.
ADJUSTED EBITDA RECONCILIATION
(unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
Three Months Ended June 30,
2023
(in $000s)
2023
2022
2023
2022
Net income (loss)
$
9,180
$
(2,382
)
$
34,590
$
7,968
$
11,610
Interest expense
24,044
19,338
69,982
54,833
23,575
Income tax expense
432
4,349
2,683
7,273
1,388
Depreciation and amortization
54,552
54,001
162,083
171,121
55,441
EBITDA
88,208
75,306
269,338
241,195
92,014
Adjustments:
Non-cash purchase accounting impact
(1)
5,884
3,408
13,552
14,801
469
Transaction and integration costs (2)
2,890
6,501
10,039
17,192
3,689
Sales-type lease adjustment (3)
1,640
1,232
7,736
3,793
3,293
Share-based payments (4)
2,843
4,378
10,312
9,526
4,322
Change in fair value of derivative and
warrants (5)
(1,280
)
809
(2,409
)
(18,013
)
(604
)
Adjusted EBITDA
$
100,185
$
91,634
$
308,568
$
268,494
$
103,183
Adjusted EBITDA is defined as net income plus interest
expense, provision for income taxes, depreciation and amortization,
and further adjusted for non-cash purchase accounting impact,
transaction and process improvement costs, including business
integration expenses, share-based payments, the change in fair
value of derivative instruments, sales-type lease adjustment, and
other special charges that are not expected to recur. This non-GAAP
measure is subject to certain limitations.
(1)
Represents the non-cash impact of purchase
accounting, net of accumulated depreciation, on the cost of
equipment and inventory sold. The equipment and inventory acquired
received a purchase accounting step-up in basis, which is a
non-cash adjustment to the equipment cost pursuant to our credit
agreement.
(2)
Represents transaction and process
improvement costs related to acquisitions of businesses, including
post-acquisition integration costs, which are recognized within
operating expenses in our Condensed Consolidated Statements of
Income and Comprehensive Income. These expenses are comprised of
professional consultancy, legal, tax and accounting fees. Also
included are expenses associated with the integration of acquired
businesses. These expenses are presented as adjustments to net
income pursuant to our ABL Credit Agreement.
(3)
Represents the adjustment for the impact
of sales-type lease accounting for certain leases containing rental
purchase options (or “RPOs”), as the application of sales-type
lease accounting is not deemed to be representative of the ongoing
cash flows of the underlying rental contracts. This adjustment is
made pursuant to our credit agreement.
Three Months Ended September
30,
Nine Months Ended September
30,
Three Months Ended June 30,
2023
(in $000s)
2023
2022
2023
2022
Equipment sales
(12,760
)
$
(7,099
)
$
(56,535
)
$
(27,007
)
$
(19,603
)
Cost of equipment sales
11,714
5,938
54,354
23,073
19,415
Gross profit
(1,046
)
(1,161
)
(2,181
)
(3,934
)
(188
)
Interest income
(4,461
)
(2,719
)
(12,295
)
(7,827
)
(4,406
)
Rentals invoiced
7,147
5,112
22,212
15,554
7,887
Sales-type lease adjustment
1,640
$
1,232
$
7,736
$
3,793
$
3,293
(4)
Represents non-cash share-based
compensation expense associated with the issuance of stock options
and restricted stock units.
(5)
Represents the credit to earnings for the
change in fair value of the liability for private warrants.
Reconciliation of Adjusted Gross
Profit
(unaudited)
The following table presents the
reconciliation of Adjusted Gross Profit:
Three Months Ended September
30,
Nine Months Ended September
30,
Three Months Ended June 30,
2023
(in $000s)
2023
2022
2023
2022
Revenue
Rental revenue
$
118,209
$
115,010
$
358,666
$
336,210
$
122,169
Equipment sales
283,079
210,903
886,486
656,595
302,117
Parts sales and services
33,065
31,867
98,194
93,557
32,544
Total revenue
434,353
357,780
1,343,346
1,086,362
456,830
Cost of Revenue
Cost of rental revenue
29,874
28,207
91,754
82,791
31,981
Depreciation of rental equipment
42,469
42,612
126,415
130,900
43,616
Cost of equipment sales
228,912
173,588
720,303
545,461
245,266
Cost of parts sales and services
25,942
25,201
77,438
71,787
25,348
Total cost of revenue
327,197
269,608
1,015,910
830,939
346,211
Gross Profit
107,156
88,172
327,436
255,423
110,619
Add: depreciation of rental equipment
42,469
42,612
126,415
130,900
43,616
Adjusted Gross Profit
$
149,625
$
130,784
$
453,851
$
386,323
$
154,235
Reconciliation of ERS Segment Adjusted
Gross Profit and Rental Gross Profit
(unaudited)
The following table presents the
reconciliation of ERS segment Adjusted Gross Profit:
Three Months Ended September
30,
Nine Months Ended September
30,
Three Months Ended June 30,
2023
(in $000s)
2023
2022
2023
2022
Revenue
Rental revenue
$
114,929
$
112,009
$
346,545
$
325,679
$
117,832
Equipment sales
52,175
37,121
195,005
133,674
50,694
Total revenue
167,104
149,130
541,550
459,353
168,526
Cost of Revenue
Cost of rental revenue
29,613
27,221
90,014
79,863
31,341
Cost of equipment sales
37,828
27,015
148,711
100,663
39,802
Depreciation of rental equipment
41,652
41,776
123,969
128,126
42,805
Total cost of revenue
109,093
96,012
362,694
308,652
113,948
Gross profit
58,011
53,118
178,856
150,701
54,578
Add: depreciation of rental equipment
41,652
41,776
123,969
128,126
42,805
Adjusted Gross Profit
$
99,663
$
94,894
$
302,825
$
278,827
$
97,383
The following table presents the
reconciliation of ERS Rental Gross Profit:
Three Months Ended September
30,
Nine Months Ended September
30,
Three Months Ended June 30,
2023
(in $000s)
2023
2022
2023
2022
Rental revenue
$
114,929
$
112,009
$
346,545
$
325,679
$
117,832
Cost of rental revenue
29,613
27,221
90,014
79,863
31,341
Rental Gross Profit
$
85,316
$
84,788
$
256,531
$
245,816
$
86,491
Reconciliation of Net Debt
(unaudited)
The following table presents the
reconciliation of Net Debt:
(in $000s)
September 30, 2023
Current maturities of long-term debt
$
1,286
Long-term debt, net
1,426,062
Deferred financing fees
23,838
Less: cash and cash equivalents
(8,793
)
Net Debt
$
1,442,393
Reconciliation of Net Leverage
Ratio
(unaudited)
The following table presents the
reconciliation of the Net Leverage Ratio:
Twelve Months Ended
(in $000s)
September 30, 2023
June 30, 2023
Net Debt (as of period end)
$
1,442,393
$
1,414,906
Divided by: Adjusted EBITDA
$
433,052
$
424,501
Net Leverage Ratio
3.33
3.33
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231107531834/en/
INVESTOR CONTACT Brian Perman, Vice President, Investor
Relations (844) 403-6138 investors@customtruck.com
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