Custom Truck One Source, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Custom Truck OneSource's first quarter 2024 earnings conference call. Please note this conference call is being recorded. I'd like to hand the conference call over to your host for today, Brian Perman, Vice President of Investor Relations for Custom Truck OneSource. Please go ahead.

Thank you. Before we begin, we would like to remind you that management's commentary and responses to questions on today's call may include forward-looking statements which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of the company's filings with the SEC. Additionally, Please note that you can find reconciliations of the historical non-GAAP financial measures discussed during the call in the press release we issued today. That press release and our quarterly investor presentation are posted on the investor relations section of our website. We filed our first quarter 2024 10Q with the SEC this afternoon. Today's discussion of our results of operations for Custom Truck OneSource, Inc., or Custom Truck, is presented on a historical basis as of or for the three months ended March 31st, 2024 and prior periods. Joining me today are Ryan McMoneagle, CEO, and Chris Epperjesse, CFO. I will now turn the call over to Ryan.

Thanks, Brian, and welcome everyone to today's call. Custom Truck continues to see robust demand in our infrastructure, rail, and telecom end markets, which all contributed to strong performance in our TES segment in Q1 and helped the segment deliver double-digit revenue growth for the sixth consecutive quarter. As we discussed on last quarter's call, our core T&D markets continue to have favorable macro demand drivers, namely data center investment, electrification, and required grid upgrades. However, these markets have been meaningfully impacted in the short term and specifically in Q1, as supply chain issues, regulatory approval, and ownership and funding details contributed to project delays, resulting in lower rental revenue and rental asset sales in the quarter. Overall, we delivered revenue of $411 million in Q1. We continue to believe that the slowdown in the utility and market is temporary and anticipate a return to growth later this year and heading into 2025. Despite the current headwinds affecting transmission and distribution, our team continues to execute well and to demonstrate the value of our business model with our ability to pivot between product categories and between selling and renting equipment as the markets dictate. Our TES segment delivered 15% revenue growth in the quarter versus Q1 of last year, keeping us on track to meet our 2024 revenue guidance for the segment. We've seen growth across the board in the TES segment, which we have been able to meet as product availability has improved and certainly led by increased spend in our infrastructure, telecom, and rail end markets. Segment gross margin saw a 170 basis point improvement versus Q1 of 2023, which highlights the continued strong demand environment, as well as the progress the team has made in continuous improvement in our production capabilities. The entire TES team performed extremely well and continues to deliver production near record levels, something the entire organization is very proud of. As we've discussed previously, our significant inventory investment last year has positioned us to meet the continued resilient customer demand for new equipment sales, as well as allow us to quickly serve our customers' rental and rental asset sales needs when demand returns to our core utility and market. We are closely following the upcoming chassis emission regulations and are well positioned for the anticipated demand increase resulting from the change in emission standards that is coming between now and 2027. In our infrastructure in-market, we continue to experience high levels of demand for certain products, like our specialty dump trucks, roll-off trucks, hydro excavators, and water trucks, which supports our belief that demand is beginning to be positively impacted by the early stages of the deployment of Federal Infrastructure Investment and Jobs Act dollars for infrastructure projects. As we've discussed before, approximately 60% of our revenue comes from the utility in-market, which includes both distribution and transmission work. We continue to see favorable increases in electricity load growth driven by manufacturing onshoring, AI data center development, and the current electrification trends. The amount of incremental power and grid enhancements required to meet this forecasted load growth, as well as the deferred maintenance that is required on our aging grid, creates significant demand momentum in the sector. Transmission line development and regional interconnection continue to be the bottlenecks in meeting this future energy demand, and there is a significant backlog of transmission projects that are ready to go. As I said earlier, work on these projects is advancing slowly as supply chain, regulatory approval, and ownership and funding details get resolved, but provides strong tailwinds for future growth across the entire business. Chris will walk through the details of the performance of our ERS segment, which continued to see strong utilization rates, in the mid 70% to high 80% range for all end markets other than the transmission portion of utility. Our rental CapEx plan for the rest of the year reflects investment in our fleet to meet demand across our end markets with a focus on those sectors where we are seeing particular strength. We are confident that the tailwinds that support the ERS segment are robust and will continue to provide significant growth in the years ahead. The breadth of our vehicle product offering and our ability to meet customers' rental and sales needs uniquely positions Custom Truck to capitalize on the future tailwinds created by this sustained demand, particularly as these transmission projects advance. We continue to invest in geographic markets where Custom Truck is underrepresented and which we believe offer compelling long-term growth opportunities for our business. In addition to the new branch openings in Casa Grande, Arizona, Sacramento, California, and Salt Lake City, Utah that we discussed on last quarter's call, we subsequently announced two small acquisitions. First, we acquired SOS Fleet Services in Alexandria, Louisiana, which strengthens our presence in the Gulf Coast region. We also acquired the business of AMD Maintenance and Repair on Long Island, New York. which significantly expands our presence and service capacity in the greater New York City metro area. We'd like to welcome the employees of both businesses to the Custom Truck family. These recent branch openings and acquisitions brings our location count to 40, up from 35 at the end of Q3 last year. We expect all these locations to be fully operational later this year. With respect to our 2024 guidance, while we continue to have confidence in the long-term strength of our end markets and the continued execution by our teams to profitably grow our business, our updated outlook reflects the risks associated with the near-term challenges for our rental customers and the T&D sector, resulting primarily from the delay in transmission projects and lower rental use sales demand. which we now expect could persist through the balance of the fiscal year. As such, we are lowering our revenue guidance for ERS by $50 million to $680 to $710 million. Regarding TES, supply chain improvements, healthy inventory levels, and continued strong backlog levels continue to improve our ability to produce and deliver even more units in 2024. As a result, we are reaffirming our revenue guidance for TES of 1.115 to 1.255 billion dollars, which reflects another year of double-digit revenue growth, as well as our revenue guidance for APS of 155 to 165 million dollars. Consolidated revenue guidance is now $1.95 to $2.13 billion. Given these changes, we are also lowering our adjusted EBITDA guidance range to $400 to $440 million. While we are reducing our consolidated revenue and adjusted EBITDA guidance for the year, we continue to focus on generating meaningful free cash flow in 2024 and are reaffirming our target to generate more than $100 million of levered free cash flow. In closing, I continue to have the highest degree of confidence in the entire custom truck team in our ability to navigate the current softness in the utility end market and to deliver profitable growth and long-term value to our shareholders. With that, I'm going to turn it over to Chris to talk through the details of our first quarter results.