Hello, everyone, and welcome to Custom Truck One Source, Inc. Third Quarter 2024 Earnings Conference Call. Please note, this conference call is being recorded. I will now turn the call over to Brian Perman, Vice President of Investor Relations.

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 factor 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 in our quarterly investor presentation are posted on the Investor Relations section of our website. We filed our second quarter 2024 10-Q with the SEC this afternoon. Today's discussion of our results of operations, Custom Truck One Source Inc. or Custom Truck, is presented on a historical basis as of or before the three months ended June 30th, 2024, and prior periods. Joining me today are Ryan McMonagle, CEO; and Christopher Eperjesy, CFO. I will now turn the call over to Ryan.

Thanks, Brian, and welcome everyone to today's call. Before we dive into our Q3 earnings, I want to acknowledge the recent storms and their impact on the people and communities in Florida, Georgia, and North Carolina. Our thoughts are with everyone affected, and we are committed to ensuring our equipment is available to support recovery and restoration efforts in these regions. In our Q2 earnings report in August, we noted early signs of improvement in our rental KPIs. While we were cautiously optimistic about overcoming some challenges in the transmission and distribution end markets, we weren't ready to declare a turnaround. Today, I'm pleased to share that we saw continued improvement throughout Q3, in line with our expectations. We ended the quarter with OEC on rents over $145 million higher and utilization more than 800 basis points above where we exited Q2. So far through Q4, these positive trends persist with OEC on rent and utilization currently over $1.2 billion and over 79%, respectively. These trends align with our utility and telecom contractor customers' expectations of increased activity in the second half of the year and into 2025. Additionally, storm restoration work has contributed to this demand, which we'll discuss further later. With the utility end market improving, we now see robust demand across all four of our end markets: utility, infrastructure, rail, and telecom, positioning us well for a strong Q4 and a promising start to next year. As we've discussed previously, about 60% of our revenue comes from the utility end market, which includes both transmission and distribution work. We are witnessing significant growth in electricity demand driven by AI-driven data center development, manufacturing onshoring, and electrification trends. Recent industry reports project a 24% to 29% increase in U.S. electricity demand by 2035, nearly double last year's forecast. These trends provide strong tailwinds for our future growth. We view transmission line mile completions and IOU rate case approvals as key indicators of utility end market demand. As supply chain issues resolve, interest rates moderate, and regulatory delays subside, we expect to see further improvements. Our recent trends and customer interactions confirm that conditions are normalizing, and we anticipate continued improvement through the rest of the year and into 2025. Chris will detail our ERS segment's performance, but I'd like to highlight some key trends. For the first time since Q4 last year, we saw sequential growth in rental revenue in Q3, up 5% from Q2. We ended Q2 with OEC on rent just over $1 billion, which improved to $1.17 billion by the end of Q3, and it now stands over $1.2 billion, the highest in over a year. With the recovery in our transmission equipment utilization, we're seeing mid-70% to low 80% utilization rates across most of our fleet and end markets, demonstrating the long-term resilience of our markets. We estimate that 20% to 30% of the OEC on rents improvement since Q2 is due to storm-related work from Hurricanes Helene and Milton. Given the extent of the damage, we expect much of this equipment to remain on rent for several months. I am incredibly proud of how our entire rental team worked hard to make sure our equipment was ready for the crews heading to help with restoration work for the damage caused by the hurricanes. Additionally, our PTA team worked tirelessly to make sure we can not only provide rental equipment, but we also tool up and deliver hundreds of tool kits to our customers. We have seen some rate pressure that has impacted our on-rent yield. This was driven by both the mix of the equipment we put on rent and the market environment more broadly. The uptick in rental activity and customer optimism also boosted rental asset sales, marking the second consecutive quarter of sequential improvement with Q3 up 21% from Q2. We've leveraged the recent strength in ERS to selectively invest in our rental fleet. At the end of Q3, our total OEC was just under $1.5 billion, our highest quarter-end level, up nearly $36 million in the quarter. We've continued to invest during Q4 to ensure we have adequate equipment to meet current and projected rental demand. It is also worth noting that today, our rental fleet is larger than it was when CTOS and Nesco merged in April of 2021. In addition, the rental fleet is younger today, OEC on rent is higher, and our on-rent yield is stronger. We are well positioned to capitalize on the growth ahead. Our TES segment saw 13% revenue growth compared to Q3 last year. Year-to-date, revenue is up 8%, following over 30% year-over-year growth in the first nine months of last year. We continue to see strong demand in our infrastructure, rail, telecom, and utility end markets, all contributing to robust performance in TES. The early stages of federal infrastructure investment and JOBS Act funding for infrastructure projects continue to positively impact TES demand. These trends combine to result in a 21% increase in net orders compared to Q3 last year. Segment gross margin was down sequentially and year-over-year, impacted by mix and improved inventory levels across the broader industry. We anticipate this will begin to normalize later in 2025. Our inventory investment last year has positioned us to meet strong customer demand for new equipment sales and allowed us to grow our fleet to quickly meet our customers' demand in our core utility end market. We are confident that our inventory levels will begin to decline in Q4 and return to a more normalized level. We are closely monitoring upcoming chassis emission regulations from CARB and the EPA. We are well prepared for the anticipated demand increase from the new standards between now and 2027. The entire TES team continues to perform exceptionally well, and we are proud of the business we have built. Regarding our 2024 guidance, based on current trends across our business segments, we still anticipate delivering results within the ranges we previously provided, but we are adjusting the top end of our ERS and TES revenue and consolidated adjusted EBITDA guidance ranges. Chris will provide more details, but for 2024, we now expect total revenue between $1.8 billion and $1.89 billion and project adjusted EBITDA between $340 million and $350 million. In closing, I have the utmost confidence in the Custom Truck team. Their hard work and dedication have helped us navigate recent challenges in the utility end market. As we end the year on a stronger footing, we are confident that our current activity levels, combined with strong market tailwinds will drive double-digit adjusted EBITDA growth across our consolidated business next year. We look forward to updating you on our progress on next quarter's call. With that, I'll turn it over to Chris to discuss our third quarter results in detail.

Thanks, Ryan. For the third quarter, we generated $447 million of revenue, $138 million of adjusted gross profit, and $80 million of adjusted EBITDA. While our rental segment KPIs improved in the quarter relative to last year, our third quarter results were significantly impacted by the year-over-year decline in average utilization of the rental fleet to just over 73% from almost 79%. This decrease drove a year-over-year decline in average OEC on rent in the quarter from just over $1.16 billion in Q3 of 2023 to $1.08 billion this past quarter. However, average OEC on rent in Q3 was up sequentially from $1.04 billion in Q2 of this year, reflecting the improved trends we experienced in Q3. The ERS segment had $150 million of revenue in Q3, down from $167 million in Q3 of last year. However, given the improvements in utilization and average OEC on rent in the quarter, rental revenue was up 5% sequentially. In addition, increased overall demand for equipment helped drive a 21% sequential improvement in rental asset sales as well. Both trends resulted in overall revenue growth for the ERS segment, increasing for the second straight quarter. Adjusted gross profit for ERS was $88 million for Q3, down from $100 million in Q3 of 2023, but up 5% sequentially. Adjusted gross margin for ERS was 58% in the quarter, down from just under 60% in the same period last year. We maintained rental margins in the expected range for Q3 of the low to mid-70% range and the mid-to-high 20% range for rental asset sales. On-rent yield was over 38% for the quarter, down from almost 41% in Q3 of 2023, impacted by both the mix of equipment we put on rent and the market environment more broadly. As Ryan mentioned, we continued to invest strategically in and sell certain aged assets from our rental fleet in the quarter. We added equipment and product lines in end markets where we are seeing sustained levels of demand from our customers. Net rental CapEx in Q3 was $57 million and our fleet age improved slightly to 3.3 years. Our OEC in the rental fleet ended the quarter at $1.49 billion, up $28 million versus the end of Q3 of last year and up sequentially versus the end of Q2 as well. A month into Q4, our OEC currently stands at over $1.5 billion with total utilization at over 79%. We expect to continue to invest in the fleet for the remainder of 2024, but as we discussed last quarter, we have scaled back our expected growth CapEx given the trends we experienced over recent quarters in the utility end market. However, we have the inventory to pivot and grow the fleet beyond current expectations to the extent such investment is supported by our customers' demand. In the TES segment, we sold $260 million of equipment in the quarter, up 13% compared to Q3 of last year and up more than 5% sequentially from last quarter. Q3 represented our second highest level of TES sales in our history. Gross margin in the segment was slightly over 16% for the quarter, down from Q3 2023, but in line with our expected margin range for the segment. TES gross margin in the quarter was impacted by mix and improved inventory levels across the broader industry. TES backlog continued to moderate, ending the quarter at just under $400 million. Strong levels of production and new equipment sales in the quarter allowed us to make headway towards reducing our backlog to a more normalized level, which currently stands at more than 4.5 months of LTM TES sales. This is down from a peak of more than 12 months in early 2023 and consistent with our targeted historical average of four to six months. Net orders improved versus Q3 of last year to just over $177 million, which is down marginally on a sequential basis. Despite the reduction in our backlog, ongoing feedback from our customers regarding their equipment needs for the remainder of the year and into 2025 provides us with confidence that we will continue to see revenue growth in TES. Our strong and long-standing relationships with our chassis, body, and attachment vendors continue to be an important driver of our record TES production. Our intentional inventory build throughout 2023 and into 2024 positions us well to meet our production, fleet growth, and sales goals for the coming quarters. Our APS business posted revenue of $36 million in the quarter, up marginally from Q3 of last year. Adjusted gross profit margin in the segment was 23% for Q3. Overall, in Q3, the APS business was impacted by a decrease in rentals of tools and accessories, which were affected by the previously discussed utility end market softness as well as higher material costs. Borrowings under our ABL at the end of Q3 were $628 million, an increase of $41 million versus the end of last quarter, primarily as a result of the increase in inventory and the lower-than-anticipated adjusted EBITDA performance in the quarter. We expect to begin to see a meaningful reduction in inventory levels in Q4 and into next year, which should contribute to reducing the borrowings on the ABL and result in lower balances on our floor plan lines. During Q3, we upsized the size of our ABL facility by $200 million to $950 million and extended the maturity to August 2029. As of September 30, we had approximately $320 million available and over $190 million of suppressed availability under the ABL. With LTM adjusted EBITDA of $356 million, we finished Q3 with net leverage of 4.4x. As we complete Q4 and head into next year, we expect that reduced inventory levels and floor plan balances as well as our returning to growth and the trend towards lower interest rates will all contribute to increased levered free cash flow generation in the coming quarters, which we intend to use to reduce our net leverage. Achieving net leverage below 3 times remains a primary and important goal for us. With respect to our guidance, despite improvements in our ERS segment KPIs since the end of Q2, we expect to experience the continued year-over-year softness in used equipment sales that we have experienced year-to-date. As such, we are reducing the top end of our ERS revenue guidance by $25 million. For TES, while increased production has allowed us to continue to deliver more vehicles and grow revenue in 2024 compared to 2023, some of our customers are choosing to delay certain purchase decisions influenced by both their expectation of lower interest rates and the uncertainty surrounding the upcoming election. As a result, we are lowering the top end of our revenue outlook by $75 million. For APS, we are affirming the existing revenue guidance range. Reflecting those changes, our updated guidance for our segments is as follows: we expect ERS revenue of between $610 million and $625 million, TES revenue in the range of $1.05 billion to $1.115 billion, and APS revenue of between $140 million and $150 million. This results in total revenue in the range of $1.8 billion to $1.89 billion. We are projecting adjusted EBITDA in the range of $340 million to $350 million. Also, we now expect to deliver a net leverage ratio that will be flat to a modest decrease from current levels by the end of the fiscal year, but expect further progress in fiscal 2025 with our stated goal to achieve a net leverage ratio below 3 times as we see the benefits of recent working capital management initiatives take hold. In closing, I want to echo Ryan's comments regarding our continued strong business outlook. Despite the demand weakness we experienced over recent quarters in certain utility markets, we continue to be optimistic about the long-term demand drivers in our industry and our ability to return to double-digit adjusted EBITDA growth next year.

Thank you. Your first question comes from Michael Shlisky from D.A. Davidson. Your line is open.

Can you hear me okay? Can you maybe provide first some comments on what you mentioned on the used market? Is it pricing or volumes that's affecting that business? Or perhaps there's just not the right assets for sale that people are looking to buy right now? Just some more comments as to what's been holding that back? And do you think that the issues will be kind of done with by the end of the fourth quarter?

Yes, I think we're noting some demand in the used market, and we're seeing good sequential growth there, which is a positive development. However, there is some pricing pressure that we are managing. Typically, the fourth quarter is the largest period for purchasing, so we expect it to continue improving during that time. Additionally, the used market shows a notable sensitivity to interest rates, and as rates decrease, it's likely to have a beneficial impact.

Got it. And then touching on fleet utilization, certainly, it seems like things have been trending in the right direction for quite some time now, a month or two at least. I think you said, both of you guys in your comments, each of you said that you're currently seeing 79% or even a little bit higher than that. Do you think 79% or 80% is kind of where you want to be at this point? I'm a little bit worried of another 85%, 86% quarter coming up and the challenges that that brings and the expectations that that brings from the market. Just can you kind of tell us a little bit about how high do you want it to go, and kind of what can you do to keep things in a more reasonable range versus last time around?

Yes, it's a great question, Mike. The most important point is that we're seeing utilization return as we expected, especially later in the third quarter, and this trend is continuing into October. I agree that maintaining a high 70s percentage is a solid target for us, which aligns with our current position. I believe that keeping it in the high 70s to low 80s range feels appropriate and appears to reflect market conditions. We can manage fleet size and pricing to help maintain utilization at that level. The key takeaway is that the underlying business and demand have rebounded as we anticipated for the end of this year, and we're starting to feel optimistic about the implications for 2025 as well.

Great. I also wanted to touch on the Class 8 vocational truck demand patterns that we're seeing out there. I mean, from an industry perspective, I think orders are at an all-time high. We're seeing some of the best demand we've ever seen in that business on an industry-wide basis. I'm curious if Custom Truck is also making pretty big orders here for next year. As you guys know, you're among the biggest if not the biggest Class 8 truck buyer out there. I guess I'm curious, either one, is there any kind of emissions pre buy already starting? Are the orders already starting to come in now? Are folks out there just seeing a really strong year in '25 and just want to buy more? Or is perhaps even Custom Truck isn't even a part of this and you've got a more normalized order pattern. So just anything you can kind of tell us about chassis supply orders for '25 for the chassis would be appreciated.

Yes, that's a great question. We maintain close relationships with all of our OEMs regarding our orders, particularly for Class 8 chassis. Currently, there seems to be good availability as we approach the beginning of 2025. However, later in 2025, we may see some pre-buy activity. Our strong relationships with our OEMs will be beneficial in this regard. At present, it appears that availability is solid, and we are closely monitoring when the pre-buy will start and how the mix between vocational trucks and freight trucks will affect us later this year and into 2025.

To clarify the current situation, the strong orders for Class 8 vocational trucks are not necessarily due to a pre-buy occurring already. There may be some customers concerned about their capacity for regular business growth. I want to ensure that there isn’t a large order from Custom Truck that would require us to allocate working capital in early 2025, and that Custom Truck is not the sole reason for the strong industry-wide orders. Is this the case, or is it someone else?

Yes. No, we are not planning on a significant pre-buy at the beginning of 2025. We're still seeing good availability with our partners there and so, as we said, we're actually seeing inventory come down through Q4 and think that trend will continue and normalize right in the beginning of 2025 as well.

Outstanding. I will pass it along. Thanks so much.

Your next question comes from Justin Hauke from Baird. Your line is now open.

I have a two-part question that I believe are interconnected. It's great to see an increase in rental demand, which is evident from your comments on results and utilization. When discussing the double-digit adjusted EBITDA growth anticipated for 2025, I would like to gain a better understanding of how that will be achieved. The reason I ask is due to the pressure on sales that you're indicating for the fourth quarter, along with the fact that backlog is $300 million lower than it was at the end of 2023 as we move into 2024. I'm trying to grasp the revenue expectations for the TES segment. If revenue is expected to decline, what factors will contribute to the double-digit adjusted EBITDA growth for 2025?

Yes, that's a great question, and thank you. We are still seeing growth on the TES side of the business. We will provide formal guidance when we report Q4 in March, broken down by segment. Demand on the TES side remains strong, and while our backlog has normalized, it's actually returning to the typical levels we've seen historically, which is a four-to-six-month range. We believe Q4 will be a growth quarter for the TES segment, and we expect 2025 to also show growth in this area. Additionally, some of the inquiries about pre-buy activities will be worthwhile to explore further, and we will have better data in a few months. It's important to note that while our backlog has decreased, it is essentially reverting to what we consider normal. We have observed some pressure on pricing, particularly in the rental business, and our ORY is slightly down as well, alongside a small decrease in gross margin for the TES business. We're identifying these trends in both segments due to a change in sales mix and overall market conditions, with pricing pressures arising as inventory levels have continued to increase into the fourth quarter. Does that clarify things for you?

Yes. I mean, I guess if I can summarize, and obviously, you're not giving '25 guidance, but all else equal, as you stand right here, you would assume that you will grow off of these levels in the TES segment in 2025 with the backlog you have right now?

Yes.

Okay. My second question is about the lower rates in the ORY. When you mention the mix, I'm not sure what you mean by that. Is it related to some of the one-time storm work that has a lower margin compared to your equipment, or what exactly does that refer to?

Yes, that's a good question. I think when we refer to mix, we mean the variety of equipment that is going out on rent. We've mentioned before that some of our distribution equipment has a lower ORY compared to our vocational equipment. There is an inherent difference in mix between distribution and transmission, with transmission generally having a slightly higher ORY. Some of this variation comes from the customers we're renting to as well. So, when we discuss mix, we are considering both factors, and it can also change throughout the year.

Okay. That’s all I got for right now. Thank you.

This is Naim Kaplan on for Nicole. So the ERS segment has been affected by the inherent mix between distribution and transmission, with transmission showing a slightly higher operational yield. Some of this issue is also related to the customers we are renting to. When we discuss the mix, we are referring to both of these factors, which can fluctuate throughout the year.

Yes.

Okay. Great. Yes, so the ERS segment has been challenged this year and your midpoint revenue guidance implies 27% quarter-over-quarter growth in the fourth quarter. So, wondering how much of this is underwritten by the growth in OEC on rent that you've already seen? We're just trying to understand the outlook here.

I want to make sure I understand your numbers. You're discussing the ERS segment because I think the low end of our guidance would effectively be flat year-over-year and the high end would be up a couple of percentage points. So I'm not sure where the 27% is coming from unless you mean sequential.

Sorry, quarter-over-quarter. Yes, yes, quarter-over-quarter.

Yes. And so, as we talked about, we did see a pretty decent rise in OEC on rent through Q3, but certainly, at the end of Q3, it accelerated, and that's continued into October. So the answer is yes. I mean, it's going to be what we've seen over the past 8 weeks on OEC on rent.

And then, the other thing I'd add to is rental sales. Q4 is typically a strong quarter from a rental sales perspective. And so, we're anticipating that that will be up as well, sequentially.

Okay, got it. And could you comment on what you're seeing in telecom within TES? Our understanding is that the investment there is pretty weak. But you mentioned continued strength in the press release.

Yes, it's a good question. Look, that's a small segment for us, but we are starting to see a lot more activity in telecom. We are seeing some larger orders, both on the rental side for additional telecom equipment to be rented, and we are seeing more sales activity. But again, for us, that's a very small segment. It's less than 5% of our revenue. And so some of that will just be growth from a market share perspective as well.

Okay. Thanks. I appreciate. I will pass it on.

Your next question comes from Tami Zakaria from J.P. Morgan. Your line is open.

Hi. Good morning. Thank you so much. So, my first question is a little forward-looking. How are you thinking about growth CapEx and OEC growth as you look out to next year? Because it seems like T&D end market conditions are finally looking up. So, any thoughts you can share how you're thinking about it for next year or maybe next couple of years? There's a lot of talk around power generation, power demand growth. So, any color from your side?

It's a great question, and it is encouraging to see how the T&D market is coming back, Tami. So I think we're working through kind of our formal guidance, obviously, for next year now, but I think numbers that are somewhat consistent with what we've talked about in the past, kind of that mid-ish single-digits from an overall fleet growth perspective feels reasonable as we're beginning to do our planning for 2025, and we're watching kind of how demand on T&D is coming back. But we'll have formal guidance, I think, in March when we announce formal guidance. But it does feel good, and I think the underlying demand drivers there, Tami, are certainly encouraging as we think about T&D demand heading into 2025.

Got it. That's helpful. And my second question is on parts. Gross margin came in a little lighter than what we were thinking. Anything to call out there and how to think about gross margin for APS as we look through the next few quarters?

Yes. Tami, it's Chris. I think we said in our formal comments, we have seen some of the same impact we've seen on rental within APS in terms of our rentals there, which tend to have higher margins. So part of it is mix, but we have also seen some increase in our overall costs there. I think continuing to model in that mid-20% to high 20% is kind of the best way to look at it. We continue to prioritize, as we've talked about in the past, our service network really to keep the fleet going as opposed to third-party service. I think you can continue to expect a lot of that in '25 as well. So while we're expecting growth, I think that mid-20s continues to be kind of the number I would model.

Understood. Thank you.

We don't have any pending questions as of the moment. I'd now like to hand back over to the management for final remarks.

Great. 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 and in the meantime, please don't hesitate to reach out with any questions. Thank you, again, and have a great day.

This concludes today's call.