Ladies and gentlemen, thank you for standing by, and welcome to the Custom Truck One Source Second Quarter 2022 Earnings Conference Call. Please note, this conference call is being recorded. I would like to hand the conference call over to your host today, Brian Perman, Vice President of Investor Relations for Custom Truck. Please go ahead.

Thank you, and good afternoon. 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 a 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 issued today. The press release we issued this afternoon and the presentation for today's call are posted on the Investor Relations section of our website. We'll be filing our second quarter 2022 10-Q with the SEC this evening. Today's discussion of our results of operations for Custom Truck One Source Inc. or Custom Truck is presented on a historical basis as of or for the three months ended June 30, 2022 and prior periods. While our reported results can only include Custom Truck One Source LP for the period since the April 1, 2021 merger date, we have presented and will be discussing today pro forma combined results as if Nesco and Custom Truck had operated together for all periods. We believe such combined information is useful to compare how the combined company has performed over time. Joining me today are Fred Ross, CEO; Ryan McMonagle, President and COO; and Todd Barrett, Interim CFO. I will now turn the call over to Fred.

Thanks, Brian and welcome everyone to today's call. I'd like to begin by thanking all of our employees, customers, and suppliers who supported our business and helped us navigate the challenges our industry continues to face. The entire team has worked tirelessly to continue to optimize our operations so we can fulfill our goals of providing incomparable service to our customers, growing our market share, and delivering value creation to our shareholders. Compared to the prior year quarter, we continued to deliver strong gross profits and adjusted EBITDA gains in Q2, despite lower revenues, which reflects the strength of the business combinations. Q2 revenue was down $13 million versus Q2 of 2021, highlighting the impact of continuing supply chain issues, particularly on new equipment sales. But as we discussed last quarter, we expected new truck sales to grow sequentially in Q2 versus Q1, and they did. Additionally, we added $35 million more into our rental fleet in the second quarter than we did in the first quarter. Both of these developments demonstrated that our supply chain is continuing to improve. Our ERS business continues to perform very well with utilization increasing slightly for the quarter and 190 basis points higher than Q2 of 2021. Our TES business continues to see very strong demand with backlog growing to a record $664 million, almost three times what it was at the end of Q2 2021. Strong demand for both rental and new sales provides us the opportunity to focus on improving profitability and margin expansion. Finally, we're making good progress towards reducing our net leverage, which Todd will discuss later. Our second quarter results provided a very solid foundation for us to build on for the rest of the year. They reflected the utilization of benefits of our one-stop shop model and our focus on end markets that consistently exhibit strong underlying fundamentals and are less susceptible to cyclicality. While our forecast for the rest of this year is tempered by the continued impact of global supply chain issues and inflation, we are confident that we will continue to navigate these to the best extent possible. During the second half of the year, we expect to see continued strong revenues, adjusted EBITDA, and margin growth across all business segments. As an indicator of the confidence that the Board and the management team have in the company's business plan and growth opportunities, the Board recently approved a stock repurchasing program of up to $30 million to commence in the current quarter. We believe that the repurchase program is an appropriate tool to have during times of market volatility and can be an attractive use of our capital when deployed at suitable price. Based on the strength of our balance sheet, we see significant opportunity to continue to invest and to grow our business. With that, I will turn it over to Ryan.

Thanks, Fred, and good afternoon, everyone. First, I want to echo Fred's comments regarding the tremendous efforts of our employees who helped us deliver a solid quarter. Demand remains robust in each of our strategically selected four primary end markets: T&D, telecom, rail, and infrastructure. These markets offer long-term growth opportunities well in excess of GDP and should, for the foreseeable future. We see this reflected in the backlogs of the utility and telecom contractors, our largest customer base, which continued to grow last quarter and we believe that the infrastructure build bolsters and extends the demand cycle and further strengthens our overall business fundamentals. We see this in our TES backlog, which grew in Q2 by $77 million; backlog grew in June and continued to grow in July. Pricing across our end markets continues to trend positively, reflecting strong demand and the implementation of our tiered rental pricing strategy and driving margin expansion across our largest segments. On rent yield for the quarter increased slightly versus Q1 at more than 39% and up from 38% at the time of the merger. Continued industry supply chain issues remain the only significant limitation to our ability to meet customer demand. Over recent quarters, we have experienced intermittent issues receiving adequate supply of the major inputs for our trucks, namely chassis, bodies, and attachments. This continued to impact our ability to deliver product to our customers and grow the rental fleet at our desired pace during Q2. However, as we discussed on our last quarterly update, we expected production in the second quarter to ramp, and it did. The second quarter represented our highest quarterly production in the history of the company. Overall, our inventory increased by $72 million versus Q1, which we see as a positive indicator for the second half of the year. We expect production during the third quarter to equal or exceed the production levels we saw in Q2. Through the strong vendor management efforts of our team, we continue to experience an increase of inventory flows from our suppliers with deliveries up more than 30% during Q2, compared to Q2 last year. We anticipate our inventory inflows continue to increase for the remainder of 2022. We're optimistic that the supply chain challenges we've been discussing over the past several quarters will improve further in the second half of this year. Based on these trends, we anticipate adding more gross CapEx to the rental fleet in the second half than we did in the first half and we anticipate that TES will continue to experience quarter-over-quarter growth. Inflation continues to impact our industry. We are seeing wage inflation consistent with the rest of the market, as well as higher costs for some of our production inputs. We are passing through certain input cost increases to our customers and implementing reasonable price increases where possible. From a strategic perspective, we remain focused on optimizing our production and how we deliver service to our customers. Our goals of producing continued strong revenue, gross margin, and adjusted EBITDA growth and increasing shareholder value have become part of who we are and how we run our business. As we look ahead to the rest of the year, we believe that favorable end market tailwinds, robust customer demand, improving supply chain, and solid execution by our team all position us to achieve these goals. While supply chain challenges and inflation remain obstacles, we look to fully take advantage of the multiple growth opportunities emerging. We know our employees are the key to delivering financial results in unmatched customer service as demonstrated in the second quarter and I'd like to extend a sincere thank you to the team. As we announced last week, the Board recently appointed Chris Eperjesy formally at Clarios International as our new CFO effective August 15. We are looking forward to Chris joining our team. I would like to thank Todd Barrett for his efforts over the last three months as Interim CFO and look forward to his continued pivotal leadership in his role as our Chief Accounting Officer. I will now turn it over to Todd.

Thanks, Ryan. As Fred and Ryan have indicated, Q2 was another strong quarter, despite the ongoing supply chain issues we're facing. Total revenue of $362 million was down approximately 3% compared to Q2 2021, primarily as a result of a decrease in new equipment sales. Total revenue in Q2 decreased by 1% sequentially compared to Q1. Adjusted EBITDA was $85 million, a 9% improvement compared to Q2 2021 pro forma. Net income for the quarter was $13.6 million, our first quarter of positive net income since the merger. This quarter's net income includes $13.1 million of other income from mark to market adjustments on our warrants. Excluding the effect of this adjustment, net income for the quarter is slightly above breakeven. Gross profit, excluding rental depreciation was $126 million, representing an adjusted gross profit margin for the quarter of 34.8%, up from 28.7% for Q2 2021 and down marginally from Q1. The gross margin improvement from last year continues to be driven by our strategic focus on pricing across all our revenue segments. SG&A was $49 million for Q2, or 13.5% of revenues, an improvement versus Q1 and in line with the expectations we set forth on our last earnings call. Turning to our segment results, Fred referenced our continued strong utilization within our ERS segment for the quarter, which was 83%, up from 81% for Q2 2021, and up slightly compared to last quarter. Despite supply chain challenges, average OEC on rent increased by more than $31 million compared to the previous quarter. On rent yield was over 39% for the quarter, which was slightly higher than Q1 and up from 38% for Q2 2021. Our OEC ended Q2 at $1.4 billion, up by almost $35 million in the quarter. Assuming that we see the supply chain improvements that we expect in the second half of the year, we expect OEC to continue to increase for the balance of 2022. For Q2, ERS rental revenue was $108 million, a 2.4% increase versus Q1. ERS equipment sales for the quarter were $37 million, a decrease from the seasonally high level in Q1. ERS gross profit, excluding rental depreciation was $87 million for Q2, down from Q1 as a result of lower ERS equipment sales, but overall adjusted gross margin improved to 59.9% as a result of revenue mix. As expected, TES revenues of $181 million were up 8% sequentially from $168 million in Q1, but TES continues to take the brunt of the impact from supply chain issues. Gross profit increased 14% to $27 million in Q2, resulting in a gross margin of 15%, up from 14.2% in Q1. Our sales activity continues to be extremely strong with backlog growing by 13% sequentially from Q1 to $664 million and this strength was very broad based across our product portfolio. While supply chain issues are resulting in an impediment to our being able to fully take advantage of the strong demand, we believe the continued growth in the TES backlog reflects growing demand for equipment indicative of our strong market share gains and our pricing discipline. We have been successful in countering inflationary pressures through the implementation of production efficiency initiatives put in place during 2021, in addition to gaining favorable price increases with our customers. As this quarter's TES result shows, we are confident we will be able to hold or improve margins over the coming quarters even with elevated levels of inflation. Our APS segment posted revenue of $35 million, a 5% increase compared to Q1. Parts and services revenue and rental revenue both grew nicely compared to Q1. Strong pricing discipline and a return to more normalized levels of fulfillment and distribution costs resulted in a 36% increase in APS segment adjusted gross profit in Q2 to $12 million with adjusted gross margin coming in at a healthy 34%. APS service revenue continues to be challenged by our strategic decision to allocate our APS service technicians to rental fleet service to sustain our strong levels of core rental fleet utilization. However, we continue to make headway in hiring new technicians, which will benefit both ERS and APS. Maintaining a strong liquidity position and improving leverage remain priorities for us, as do investing in the rental fleet and pursuing selective strategic growth through M&A. During the quarter, we increased the borrowings under our ABL by $25 million with the outstanding balance ending at $435 million, mainly to fund a portion of our working capital investments. At June 30, we had $310 million available and $70 million of suppressed availability under the ABL with the ability to upsize the facility. With LTM adjusted EBITDA of $357 million, we finished Q2 with a net leverage of 3.8x, which is an improvement of almost a turn since the close of the transaction. Approximately 3x leverage remains an achievable goal for us to attain by early 2023. However, we will continue to seek to make incremental investments and prudent acquisitions when we believe they create long-term shareholder value. With respect to our outlook for 2022, based on year-to-date performance, continued market strength, our current sales order backlog, and the ongoing supply chain environment, we are updating our full-year revenue and adjusted EBITDA guidance. As supply chain constraints remain the primary impediment to our ability to deliver new vehicles to TES customers, we are reducing our full-year TES revenue outlook to $800 million to $850 million and our total revenue outlook to $1.54 billion to $1.65 billion. We are reaffirming revenue guidance for the ERS and APS segments. We are also reducing our adjusted EBITDA outlook to $385 million to $400 million. In closing, I want to echo Fred's and Ryan's comments regarding our strong performance. We are now more than a year out from our combination with Nesco and are well down the path of executing a transformational integration, delivering double-digit EBITDA growth, expanding margins in an inflationary environment, and continuing to deliver the highest level of customer service. With that, I will turn it over to the operator to open the line for questions.

Thank you. Our first question comes from Scott Schneeberger of Oppenheimer. Please go ahead.

Thank you. Good afternoon, everyone. I just like to start out, kind of an overview heading into the back half here. As you mentioned, sequentially first quarter, better to second quarter, demand sounds excellent. Just any anecdotes you can provide on demand? It’s obviously frustrating the supply chain constraints. Is there a potential for losing business? The backlog seems very large, or is that ultimately going to come at some time because others may have the same problems you have? So, if you can just differentiate yourself competitively, I guess, would be question number two. And then lastly, in this long run of questions, cadence of demand and fulfillment in the back half, third quarter, and fourth quarter will it be building or will third quarter be particularly strong because you think you're going to get some more supply? Just color on that. Thanks, all.

Hey, thanks for the question. This is Fred Ross. I feel really good that we're not going to lose any of the business. The backlog continues to grow. We haven't had anybody back out of any business, and we believe we're in a better position than our competition to get the product and get it built in and out before they would. So, I don't believe that we're going to lose any business in the backlog, and I believe the backlog is just going to continue to grow, and feel really great on where we are. Again, as the supply chain gets better, it will obviously increase our output.

And then Scott, this is Ryan, and I'll take your latter question around cadence. So, we think it will build into Q3 and into Q4. A couple of data points I'd point you to: we mentioned that inventory was up just over $70 million, Q2 on Q1. So, we think that's a good setup for our ability to produce in Q3. And then we also mentioned that production was up Q2 on Q1. Production actually was peak. We hit peak production for us in Q2, which is a great achievement given the supply chain constraint. So, we think it will continue to build. And when we look at on order and we look at expected delivery dates, we see it building. So, we see Q4 to be stronger than Q3, which we think means a good back half of the year. And then we actually think it's going to set up for 2023 as well as we start to look a little further forward.

Excellent, thanks. And then I'm just going to take that last part, Ryan, please, if I could. And I know it's early, I know you don't want to provide formal 2023 guidance, but from the visibility you have now, supply chains sound like they're getting better, your ability to procure sounds like it's getting better and produce with the inventory built. So, how should we think about 2023 just initial thoughts off of this guidance for the second half? Thanks.

Yes. We think it will be, we think 2023 will grow on 202. We're obviously working through our internal forecast now, but we see it growing. And if you look at quarter-on-quarter trends, Scott, Q2 of 2021 is when I think we were highest from a new sales standpoint. It declined in Q3 and Q4 and then it's in into Q1 and then it's rebounded in Q2, and then we see it growing in Q3 and we see it growing from there into Q4. So, it will be a good growth year. We'll obviously provide formal guidance here in the coming quarters, but we think it's a growth year in the way we see it setting up from a supply chain and from an availability of equipment standpoint.

Thanks. And if I could ask a follow-up to that, how are you all strategically approaching feeding ERS versus TES with product? It's obviously a strategic decision and favorably, you've been providing the ERS, but just curious how you're continuing to play that in this environment and might it change if supply chain issues alleviate? Thanks.

We see really strong demand on both sides. So, there's – the gross CapEx we put into the rental fleet in Q2 was up $35 million on what we were able to put into the rental fleet in Q1 from an organic standpoint. So, you can see that commitment to growing the rental fleet. And as we said in our comments, we see gross CapEx increasing in Q3 and Q4 as well. So, we're going to continue to feed the rental fleet. Obviously, that is a priority, but again, as we've talked about in the past, at the end of the day, it's the customer will dictate how they want to consume equipment. So, right now, we're seeing really strong demand on ERS and we're seeing the backlog continue to build on the TES segment. So, we'll be strategic in how we do that, but we see good growth on both sides of those businesses.

Thanks. I'm going to sneak one more in. You said in wage inflation, just curious how you're managing that and offsetting it with rate increases, particularly in this constrained environment. Just commentary on those conversations with customers? Thank you.

Look, those are always tough conversations to have. I think they understand. We've said that we'll be fair and reasonable in how we approach those conversations with customers. And you can see in our reported gross margin that we've been able to hold or increase gross margin where the market obviously allows, but we've always said, we'll be fair and reasonable with our customers and that's been the approach both on the rental side when we have to go back and talk to customers about rate increases and also on the sales side when we're receiving surcharges and have to go back to our customers to talk about the surcharges that we've received.

Great. Thanks, gentlemen. I'll turn it over.

Our next question comes from Nicole DeBlase of Deutsche Bank. Please go ahead.

Yes, thanks. Good afternoon, guys.

Hi, Nicole.

Hello.

Maybe just starting with, kind of a high level question. You guys are embedding a pretty big sequential step up from one-half to two-half in just total adjusted EBITDA dollars. Can we just talk about the confidence level in that and maybe two or three of the biggest drivers of sequential improvements?

Yes, it’s Ryan. I'll start and happy to have Fred and Todd chime in, but I think we have good confidence in the back half of the year because of our visibility in the supply chain. And so, I think when we saw inventory build in Q2 and it's that $70 million number we talked about, we start to feel confident in our ability to put more gross CapEx into the rental fleet and to also see an increase in sales, which you can see from the segment reporting that we've provided. So, I think we're feeling good about that, working closely with our production team and then obviously with our supply chain team to have visibility there. Look, it is – we did bring down our TES guidance because at the beginning of the year, we had expected that the supply chain would improve even more quickly, but we're working closely to make sure we understand that side of the business. And then we expect rental will pick up like it normally does in the third quarter on the transmission side of the rental business just as the heat starts to break and more transmission work is done. And then, as we normally see, we expect that the fourth quarter will be the strongest from both selling new equipment and then also from some of the rental asset purchases that typically happen at the end of the year. So, we're planning on both of those things happening in the fourth quarter.

Our customer base just continues to see their backlog grow and so their demand stays high. Our demand is just falling. We've had two years of really supply chain issues. It's going to take a while for that to catch up. So, I believe that it's really across all business segments. We've got a lot of growth ahead of us on both the sales and rental. I feel really good about it based upon conversations with the customers and what their backlogs are looking like.

Got it. Thanks. That's really helpful. And then maybe just on the outlook for rental utilization for the rest of the year. It seems like we think it's at its hottest point and then it seems to step up again quarter-on-quarter. So, are you guys kind of expecting utilization to remain at these levels in the second half or do you see potential for utilization to continue to step up versus Q2 levels?

Hey Nicole, this is Todd. Yes, we expect to be in the low 80s ticking up from Q3 to Q4. So, we're forecasting in the 83 range. So, really consistent with where we've been, reflective of some pretty solid demand and some mix shift that Ryan talked about from distribution to transmission.

Okay. Got it. And then if I could just squeeze one more in. Any signs of infrastructure dollars starting to flow or is not more of a 2023 help at this point?

So far right now, it's really not a factor. We believe that that will come into play, which is another reason why we believe we've got a long runway. The jobs take a certain amount of time to permit and get going and so we haven't really seen it, which is why again we're very bullish for continued growth as those dollars do flow into real projects.

Thank you. I'll pass it on.

Our next question comes from an unidentified analyst of Citigroup. Please go ahead.

Thanks. Good afternoon. Just following up on ERS, you just outlined your expectations from a time perspective, how are you thinking in terms of from an on rent yield perspective? You've seen this kind of gradual improvement. I know in recent quarters you'd mentioned that some of the benefits from the tiered pricing strategy had been delayed a bit just given folks deciding to keep fleet on rent for longer. So, maybe just – I'm imagining you don't want to give point estimates, but how should we think about the opportunity in the back half of the year from a yield perspective?

Sure. Hey, Tim, this is Todd. So, we believe we've been through the majority of our fleet in terms of getting our pricing set the way we wanted to. We do have more to go. We do see that our on rate yield is going to be in the 39 range all the way through the balance of the year. So, we're pretty comfortable with that. And again, it's the strong demand. Even though we have seen some customers hold on to equipment versus returning it because of availability or lack thereof. That's continued to benefit us because we have a continued stream of rental revenue coming in. We do selectively engage in conversations with customers about changing the prices, very thoughtful about that as well, but we feel pretty happy with where things have been and the trends we see.

Okay. And then on the – you had mentioned earlier on the – within TES that your ability to hold or improve margins there. With the backlog stretching out as far as it is, what can you or have you been able to do to protect the margins in the backlog, just obviously a lot of volatility from a cost perspective as to what you're paying for equipment? How are you able to, kind of safeguard that or protect that margins in the backlog?

Yes. We're simply having the conversation with the customers that the target is moving and that's how our contracts are written. So, if we're taking increases, we're going to pass them on. And our customer base knows and understands that and we really haven't had a problem. I mean, they're watching the same shows that we're watching and where everything's going. And it really hasn't been an issue of getting the price increases.

Okay. Last one from me. Just on the expectation to be free cash flow positive for the year, it implies some step up here in the back half. Obviously, EBITDA dollars are going up. Should we anticipate or what are the key points? And I would imagine working capital maybe becomes more of a tailwind just given that the inventory growth that you've seen in the first half of the year, just any help you can give there as to getting to that positive for the full year? How we get there?

Yes. I mean, this is Todd. The growth in EBITDA is going to create some good cash flows for us. We have been investing in working capital as we've seen the inventory grow, and we feel good about that. So, that's going to be part of it. We're forecasting net CapEx to be in the 10% of what we see type range as we go through the year, and we've got some nominal CapEx. So, we do expect we will be free cash flow positive and of course, that excludes any acquisition activity.

Okay, understood. Thank you.

Our next question comes from Stefanos Crist of CJS Securities. Please go ahead.

Hey, good afternoon and thanks for taking my questions. Can you discuss the APS segment, it performed well, just how that's going, integration with Nesco and I guess cross-selling opportunities?

Yes. I think it's going well. We talked a little bit on Q1 call that we're starting to see some signs of it performing well. And I think you start to see that. As we've talked about, there's really two different businesses in there. There's the PPA business, which when we just look at growth on the PPA business, it was up 20%. And so, I think we saw good growth there. We're seeing good growth on the front counterpart side of things to that. Business was actually up about 25% in the quarter. And then as Todd mentioned in his remarks, where the service side of that business was down a little bit in the quarter, but that's because we're using the technicians to keep the rental fleet running. So, similar story there. So, I think we're feeling good about the growth and year-to-date gross profit in that segment is up 20% through June as well. So, feeling good about growth. We're seeing better integration with the ERS segment in particular where we're starting to see some good traction with some of our customers on what we've called kits. So, all of the tools and accessories that go with the truck, whether they're buying the truck or renting a truck. So, we're starting to see some good traction there and so feel good about the execution of the plan that we've been talking about now for a couple of quarters.

Great, thanks. And then since the last call, your expectations on the supply chain have changed. Can you just talk a little more specifically of what's changed there?

Yes, I think, look, we're still seeing growth quarter-on-quarter and we still think the second half will be stronger than the first half in a pretty significant way. It's just taking more time for it to develop, and so I think that's probably been the biggest change. It's not a lack of demand. It's not a lack of us getting the equipment; it's just when it's going to arrive, which has been the toughest thing for us to forecast. But we're already seeing that Q3 is off to a good start. As we talked about the inventory buildup, we think that will translate into more production, which translates into more sales and more rental additions in Q3. So, we think those – the leading indicators for us are all pointing positive. And then we anticipate that that will carry over into Q4 as well.

All right. Thanks for taking my questions.

No problem. Good to talk to you.

Our next question comes from Noelle Dilts of Stifel. Please go ahead.

Hi, thanks. So, this question is very closely related to the last question, but I guess asking it a slightly different way. At the time of your first quarter call, you talked about inventory deliveries being up more than 20%, did those – did that trend kind of slow down or did things just get pushed out in terms of when they were coming in? I'm just trying to get a sense of what shifted in terms of the visibility and, like, kind of how that trended through over the past few months?

Yes, good question. So yes, it was up 20% in Q1. We said it was up more than 30% in Q2, Q2 on Q2. So, we're actually seeing it build. It's just building a little bit slower than we had anticipated a quarter ago, but we anticipate that it will build quarter-on-quarter into Q3 and into Q4 as well. So, we are seeing growth. We're seeing good growth. It's just coming a little bit slower than we had anticipated, which is why we lowered the TES segment guidance by $100 million.

Okay. And then any notable trends or acceleration that you're seeing in the telecom market?

I'd say nothing noticeable. We're seeing some good growth there, but it's not – nothing that's changed dramatically in the last quarter.

Okay, great. Thank you.

Thanks.

Our next question comes from Justin Hauke of Robert W. Baird. Please go ahead.

Hi, good evening. So, most of my questions have been answered here because obviously we've talked a lot about the supply chain. I guess on the pricing dynamic, I mean, obviously, we can see that the average lease yield is up, but I guess I was just curious, you've talked a little bit about this, but on the new equipment that's going out, it sounds like most of your fleet has now been touched, so stuff is rolled over the new contracts. But last quarter, I think you were saying that new equipment rent was up 10%, I'm just curious, is that still trending up and how much opportunity is there on that side to continue to push it?

That pricing trend is holding. So, new equipment is still going out at those higher rates, and where it makes sense, we've taken rates up even higher where we can. And then as Todd mentioned, we've gone back to a few customers to talk about rates for the equipment that is on rent currently. So, we're seeing that trend hold. The pace of churn has slowed. As Todd mentioned, the majority of the fleet has turned. At this point, there's still some that hasn't turned, but the majority of the fleet has turned. And so we think that, as Todd said, we'll continue to hold – we anticipate continuing to hold in that 39% range, you know and there could be a little bit of upward opportunity. Some of that is a function of mix too and that's something we anticipate we’ll see later in Q3 as more transmission equipment goes out, which is typically at a higher rate or at a higher on rate yield. And so, we should see some benefit from mix as the on rent pieces of equipment change a bit in the third and into the fourth quarter.

Okay. And I guess my last question or follow-up here is just on the buyback announcement, and your comments to still get to leverage around 3x by year-end or early next year. I'm just curious, I mean, how much is your buyback conditional on, kind of how EBITDA flows through here in the back half of the year and just your priorities of debt repayment versus the buyback?

Yes, it's a good question. And I think, look, we did not have a buyback program in place before. So, we wanted to make sure that we had that tool in place. So, we've gone ahead and put it in place. I think we're comfortable buying back shares certainly where the stock has been trading over the last several months. When you think about the pace of growth and the EBITDA growth that we've seen since the deal was announced just over a year ago. So, I think we're comfortable buying at that – buying at those levels. And as you said, our discussions with the Board are about managing leverage managing the buyback program and thinking about accretive M&A as well. So, we think there's still a path to get to about 3x in early 2023. And that's still what we're marching towards, but just being prudent with capital allocation as well.

Great. Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Fred Ross for any closing remarks.

Thanks everyone for your time today and your interest in Custom Truck. We look forward to speaking with you on our next quarterly earnings call. In the meantime, please don't hesitate to reach out with any questions. Thank you again.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.