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 first quarter ended March 31, 2023.

CTOS First-Quarter Highlights

• Total revenue of $452.2 million, with growth in rental revenue and equipment sales of 8.4% and 32.6%, respectively, compared to the first quarter of 2022 as a result of continued strong demand across our end markets
• Gross profit of $109.7 million, an improvement of $25.2 million, or 29.8%, compared to $84.5 million for the first quarter of 2022
• Adjusted Gross Profit of $150.0 million, an increase of $20.5 million, or 15.9%, compared to $129.5 million for the first quarter of 2022
• Net income of $13.8 million, driven primarily by gross profit growth of $25.2 million, compared to a net loss of $3.3 million in the first quarter of 2022
• Adjusted EBITDA of $105.2 million, an increase of $13.7 million, or 15.0% compared to $91.5 million in the first quarter of 2022
• Further reduction in Net Leverage Ratio from 3.5 at the end of the last quarter to 3.4 as of March 31, 2023
• Increasing Full Year 2023 Revenue and Adjusted EBITDA Guidance

“Our first quarter results represent a great start to the year and reflect continued strong demand across our primary end markets. Achieving these results requires an enormous team effort to deliver the record levels of vehicle production necessary to both add to our fleet and meet the demand for new vehicle sales,” said Ryan McMonagle, Chief Executive Officer of CTOS. “All three of our business segments continued to experience strong year-over-year growth. The demand environment, combined with our expectations of continued improvement in the supply chain and a sustained level of vehicle production, gives us the confidence to improve our outlook for 2023. We continue to believe that our one-stop-shop business model and significant scale provide us with a competitive advantage that allows us to deliver unequaled service to our customers,” McMonagle added.

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 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. Segment performance is presented below for the three months ended March 31, 2023 and 2022 and December 31, 2022.

Management Commentary

Total revenue in the first quarter of 2023 was characterized by continued strong customer demand for both rental and new equipment across our end markets. First quarter 2023 rental revenue increased 8.4% to $118.3 million, compared to $109.1 million in the first quarter of 2022, reflecting the continued expansion of our rental fleet, higher utilization and sustained pricing gains. Equipment sales increased 32.6% in the first quarter of 2023 to $301.3 million, compared to $227.2 million in the first quarter of 2022, reflecting continuing improvements in the supply chain and our ability to replenish inventory. Parts sales and service revenue increased 8.1% to $32.6 million, compared to $30.1 million in the first quarter of 2022. On a sequential quarter basis, total first quarter 2023 revenue declined $34.6 million, or 7.1%, primarily due to the lower level of equipment sales. Historically, the fourth fiscal quarter is our seasonally strongest quarter.

In our ERS segment, rental revenue in the first quarter of 2023 was $113.8 million compared to $105.6 million in the first quarter of 2022, a 7.8% increase. Fleet utilization continued to be strong at 83.6% compared to 82.5% in the first quarter of 2022. Total segment gross profit in the first quarter of 2023 was $66.3 million, an increase of 25.2% compared to $52.9 million in the first quarter of 2022. Adjusted Gross Profit in the segment, was $105.8 million in the first quarter of 2023, compared to $96.9 million in the first quarter of 2022, representing 9.2% year-over-year growth. Rental Gross Profit improved to $84.7 million in the first quarter of 2023 compared to $80.8 million in the first quarter of 2022, a 4.9% increase. On a sequential quarter basis, total segment first quarter 2023 revenue increased a modest $4.0 million, or 2.0%, driven by a 17.4% increase in rental equipment sales and offset by the typical seasonal decline in rental demand related to our utility end-markets. Despite the decline, we experienced favorable pricing, with OEC on-rent yield increasing to 39.6% in the first quarter of 2023, up slightly from 39.5% in the fourth quarter of 2022.

Revenue in our TES segment increased 24.6% to $209.2 million in the first quarter of 2023, from $167.8 million in the first quarter of 2022, primarily as a result of continued supply chain improvements and sustained strong customer demand. Gross profit improved by 43.4% to $34.1 million in the first quarter of 2023 compared to $23.8 million in the first quarter of 2022. Gross profit margin for the quarter was 16.3%, up significantly from 14.2% in the first quarter of 2022 and flat to the last quarter. On a sequential quarter basis, total first quarter 2023 revenue declined $38.1 million, or 15.4%, primarily as a result of higher level of product deliveries to customers that occurred at the end of 2022 from the late-year improvements in supply chain bottlenecking as well as the fact that the fourth quarter is seasonally our strongest fiscal quarter. TES continued to see strength in demand as sales order backlog grew to $855.0 million, a 13.4% increase compared to the end of 2022.

APS segment revenue increased 10.0% in the first quarter of 2023 to $37.1 million, compared to $33.7 million in the first 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 in the segment improved to 25.0% in the first quarter of 2023 from 23.1% in the first quarter of 2022. On a sequential quarter basis, total segment first quarter 2023 revenue decreased a modest 1.2%, with a decline in parts and services revenue offset by an increase in tools and accessories rental revenue of 2.4%.

Net income was $13.8 million in the first quarter of 2023 compared to a net loss of $3.3 million for the first quarter of 2022. The improvement in net income (loss) is primarily as a result of the improvement in gross profit detailed above, partially offset by higher interest expense on variable-rate debt and variable-rate floorplan liabilities. On a sequential quarter basis, total first quarter 2023 net income declined $17.1 million for the reasons mentioned above.

Adjusted EBITDA for the first quarter of 2023 was $105.2 million, an increase of 15.0%, compared to $91.5 million for the first quarter of 2022. The increase in Adjusted EBITDA was largely driven by growth in rental revenue and new equipment sales, both of which contributed to margin expansion. The seasonal factors mentioned above contributed to the decline in Adjusted EBITDA by $19.3 million on a sequential quarter basis.

As of March 31, 2023, CTOS had cash and cash equivalents of $32.2 million, current and long-term debt of $1,399.3 million (net of deferred financing fees of $26.6 million), and current and long-term finance lease obligations of $4.0 million. Our Net Debt was $1,397.6 million as of March 31, 2023. Our Net Leverage Ratio, which is net debt divided by Adjusted EBITDA, was 3.4x as of March 31, 2023. Availability under the senior secured credit facility was $284.5 million as of March 31, 2023. For the three months ended March 31, 2023, net OEC increased modestly as our fleet additions were offset by our focus on selling older equipment from our rental fleet at current advantageous residual values. During the three months ended March 31, 2023, CTOS purchased $1.1 million of its common stock under the previously announced stock repurchase program.

2023 Outlook

We are updating our full-year revenue and Adjusted EBITDA guidance for 2023 at this time. We believe ERS will continue to benefit from strong demand from our rental customers as well as for purchases of rental fleet units, particularly older equipment, in 2023. We also expect to further grow our rental fleet (based on net OEC) by mid- to high-single digits. Regarding TES, supply chain improvements, improved inventory levels, and record backlog levels should improve our ability to produce and deliver an even greater number of units in 2023.

CONFERENCE CALL INFORMATION

The Company has scheduled a conference call at 5:00 P.M. Eastern Time on May 9, 2023, to discuss its first quarter 2023 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, May 16, 2023, by dialing 1-844-512-2921 or 1-412-317-6671 and entering passcode 13737702.

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 10,000 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: 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 customer’s 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; the phase-out of the London Interbank Offered Rate (“LIBOR”) and uncertainty as to its replacement; 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.

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 equipment sold. When inventory or 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. Additionally, the pricing of rental contracts and equipment sales prices for equipment is based on OEC, and we measure a rate of return from rentals and sales using OEC. We also include an adjustment to remove the impact of accounting for certain of our rental contracts with customers containing a rental purchase option that are accounted for under GAAP as a sales-type lease. We include this adjustment because we believe continuing to reflect the transactions as an operating lease 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 are specified by our senior secured credit agreements.

Adjusted Gross Profit and Rental Gross Profit. We present total gross profit excluding rental equipment depreciation (“Adjusted Gross Profit”) as a non-GAAP financial performance measure. We also present Rental Gross Profit that excludes rental equipment depreciation as a non-GAAP financial measure. These measures differ 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 liquidity measure that reflects our ability to service debt. We define net leverage ratio as net debt divided by Adjusted EBITDA.

Adjusted EBITDA is defined as net income (loss) 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.

The following table presents the reconciliation of ERS Rental Gross Profit:

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