Custom Truck One Source: A Tale of Recovery and Resilience

As we delve into the fourth quarter and full-year 2024 results of Custom Truck One Source (CTOS), we find a story of recovery and resilience, with the company demonstrating significant sequential improvement in revenue and profitability. However, it's essential to consider the broader context and the challenges CTOS has faced in recent years.



In Q4 2024, CTOS reported a 16.4% quarter-over-quarter increase in revenue, reaching $520.7 million, and returned to profitability with net income of $27.6 million. The company's Equipment Rental Solutions (ERS) segment saw improved performance with 78.9% fleet utilization, while the Truck and Equipment Sales (TES) segment achieved record revenue exceeding $300 million quarterly and $1 billion annually. These figures indicate a strong recovery in the fourth quarter, driven by continued strong fundamentals across the company's primary end markets: utility, infrastructure, rail, and telecom.



However, it's crucial to examine the full-year performance to gain a comprehensive understanding of CTOS's financial health. In 2024, the company experienced a 3.4% decline in revenue to $1.8 billion and a net loss of $28.7 million compared to 2023's net income of $50.7 million. Additionally, annual Adjusted EBITDA declined by 20.4%. These metrics highlight the challenges CTOS has faced in recent years and the need for continued improvement.

One factor contributing to CTOS's Q4 2024 performance was a one-time gain of $23.5 million from a sale-leaseback transaction. While this gain significantly enhanced the company's Q4 profit, it's essential to consider the underlying operational results without this financial engineering. CTOS's debt position remains concerning, with $1.54 billion in net debt and a 4.5x leverage ratio. Management has targeted reducing this below 4x by year-end 2025, which will be crucial for the company's long-term success.



Despite these challenges, CTOS has demonstrated operational improvements in Q4 2024, including a reduction in inventory of over $150 million and a record OEC (Original Equipment Cost) fleet size of $1.52 billion. These factors position the company for potential rental growth if demand continues strengthening. Moreover, CTOS's strategic positioning across utility, telecom, rail, and infrastructure markets aligns with major capital deployment trends, highlighting its growth potential in the coming years.

As we look ahead, CTOS's ability to achieve its targeted free cash flow and leverage ratio reductions will be crucial for the company's financial health and stock performance. By improving operational efficiency, optimizing its capital structure, growing revenue and earnings, and monitoring debt levels, CTOS can enhance investor confidence and secure a more prosperous future.

In conclusion, CTOS's Q4 2024 results showcase a tale of recovery and resilience, with the company demonstrating significant sequential improvement in revenue and profitability. However, the full-year performance highlights the challenges CTOS has faced in recent years, and the company must continue to address these concerns to ensure long-term success. By focusing on operational improvements, strategic positioning, and responsible financial management, CTOS can capitalize on its growth potential and secure a brighter future for its stakeholders.