Custom Truck One Source Inc

Previous wording

Total Revenue - The decrease in total revenue for the three and six months ended June 30, 2024, compared to the same periods in 2023 was due to a decrease in rental revenue due to lower utilization and a decline in average OEC on rent, as well as a decrease in equipment sales due to lower rental asset sales of used equipment. The Company continues to be impacted by end-market supply chain constraints, environmental, regulatory and customer financing factors affecting the timing of transmission job starts. These delays contributed to both lower rental revenue and rental asset sales during this quarter.

Current wording

The decrease in total revenue for the nine months ended September 30, 2024, compared to the same period in 2023 was the result of lower rental revenue as described above, as well as lower volume of used equipment sales. The Company continues to be impacted by factors affecting its customers, including their supply chain constraints, environmental, regulatory and customer financing factors that have impacted the timing of transmission job starts. These delays contributed to both lower rental revenue and rental asset sales during the year.

Previous wording

Cost of Revenue, Excluding Rental Equipment Depreciation - The decrease in cost of revenue, excluding rental equipment depreciation for the three and six months ended June 30, 2024, compared to the same periods in 2023, was driven primarily by the decrease in equipment sales volume.

Current wording

Cost of Revenue, Excluding Rental Equipment Depreciation - The increase in cost of revenue, excluding rental equipment depreciation for the three months ended September 30, 2024, compared to the same period in 2023, was driven primarily by the increase in equipment sales volume during the quarter.

Previous wording

Depreciation of Rental Equipment - Depreciation of our rental equipment increased in the three and six months ended June 30, 2024, compared to the same periods in 2023, as a result of higher rental equipment levels.

Current wording

Depreciation of Rental Equipment - Depreciation of our rental equipment increased in the three and nine months ended September 30, 2024, compared to the same periods in 2023, as a result of higher rental equipment levels.

Previous wording

Operating Expenses - Operating expenses increased in the three and six months ended June 30, 2024, compared to the same periods in 2023, primarily as a result of an increase in general and administrative expenses due to increased headcount and wages, increased insurance due to higher inventory levels and rental assets, and additional expense associated with various information technology projects.

Current wording

Operating Expenses - Operating expenses remained flat for the three months ended September 30, 2024, compared to the same period in 2023. Operating expenses increased in the nine months ended September 30, 2024, compared to the same period in 2023, primarily as a result of an increase in general and administrative expenses due to increased headcount and wages, increased insurance due to higher inventory levels and rental assets, and additional expense associated with various information technology projects.

Previous wording

Total Other Expense - Other expense increased for the three and six months ended June 30, 2024, compared to the same periods in 2023, primarily due to the increase in interest expense from variable rate debt and floor plan financing liabilities.

Current wording

Total Other Expense - Other expense increased for the three and nine months ended September 30, 2024, compared to the same periods in 2023, primarily due to the increase in interest expense from variable rate debt and floor plan financing liabilities.

Previous wording

Income Tax Expense (Benefit) - Income tax expense for the three and six months ended June 30, 2024 was $3.1 million and $1.1 million, respectively, resulting in an effective tax rate of (14.3)% and (3.0)%. Income tax expense for the three and six months ended June 30, 2023 was $1.4 million and $2.3 million, respectively, at an effective tax rate of 10.7% and 8.0%. The changes in the effective tax rates were primarily due to state and local income tax updates enacted during the current periods.

Current wording

Income Tax Expense (Benefit) - Income tax expense (benefit) for the three and nine months ended September 30, 2024 was $(0.6) million and $0.5 million, respectively, resulting in an effective tax rate of 3.4% and (0.9)%. Income tax expense for the three and nine months ended September 30, 2023 was $0.4 million and $2.7 million, respectively, at an effective tax rate of 4.5% and 7.2%. The changes in the effective tax rates were primarily due to state and local income tax updates enacted during the current periods.

Previous wording

Net Income (loss) - The change in net income to a net loss for the three and six months ended June 30, 2024, compared to the same periods in 2023, was primarily the result of lower revenues leading to decreased gross profit and higher interest expense on variable-rate debt and variable-rate floor plan liabilities.

Current wording

Net Income (loss) - The change in net income to a net loss for the three and nine months ended September 30, 2024, compared to the same periods in 2023, was primarily the result of decreased gross profit and higher interest expense on variable-rate debt and variable-rate floor plan liabilities.

Previous wording

Total Revenue - The decrease in total revenue for the ERS segment for the three and six months ended June 30, 2024, compared to the same periods in 2023, was driven by a decrease in equipment sales due to fewer rental asset sales of used equipment, as well as a decrease in rental revenue as a result of a reduction in fleet utilization of 10.0% for both the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023. Fleet utilization decreased due to a decline in demand in the utility market as a result of supply chain constraints, environmental, regulatory, and customer financing factors affecting the timing of transmission job starts. For the three and six months ended June 30, 2024, average OEC on rent decreased 13.2% and 12.7%, respectively, compared to the same periods in 2023, primarily as a result of the lower utilization in the quarter.

Current wording

Total Revenue - The decrease in total revenue for the ERS segment for the three and nine months ended September 30, 2024, compared to the same periods in 2023, was driven by a decrease in equipment sales due to fewer rental asset sales of used equipment, as well as a decrease in rental revenue as a result of a reduction in fleet utilization of 5.7% and 8.6% for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. Fleet utilization decreased due to a decline in demand in the utility market as a result of supply chain constraints, environmental, regulatory, and customer financing factors affecting the timing of transmission and distribution job starts. For the three and nine months ended September 30, 2024, average OEC on rent decreased 6.3% and 10.7%, respectively, compared to the same periods in 2023, primarily as a result of the lower utilization in the quarter.

Previous wording

Cost of Revenue - The decrease in total cost of revenue for the three and six months ended June 30, 2024, compared to the same periods in 2023, was largely due to the decrease in rental equipment sales volume.

Current wording

Cost of Revenue - The decrease in total cost of revenue for the three and nine months ended September 30, 2024, compared to the same periods in 2023, was largely due to the decrease in rental equipment sales volume.

Previous wording

Depreciation - Depreciation of our rental equipment increased for the three and six months ended June 30, 2024, compared to the same periods in 2023, as a result of higher rental equipment levels.

Current wording

Depreciation - Depreciation of our rental equipment increased for the three and nine months ended September 30, 2024, compared to the same periods in 2023, as a result of higher rental equipment levels.

Previous wording

Gross Profit - The decrease in gross profit for the three and six months ended June 30, 2024, compared to the same periods in 2023, was due to the decrease in rental revenues and equipment sales for the period.

Current wording

Gross Profit - The decrease in gross profit for the three and nine months ended September 30, 2024, compared to the same periods in 2023, was due to the decrease in rental revenues and equipment sales for the period.

Previous wording

Equipment sales increased for the six months ended June 30, 2024, compared to the same period in 2023, primarily as a result of exiting 2023 with healthy inventory levels due to the supply chain improvements experienced in 2023 and historically high backlog levels that improved our ability to produce and deliver more units during the first quarter of 2024.

Current wording

Equipment Sales - Equipment sales increased for the three and nine months ended September 30, 2024, compared to the same periods in 2023. The growth in sales was primarily a result of exiting 2023 with healthy inventory levels (due to the improved supply chain), as well as continued robust demand for our products in the forestry and utility end-markets.

Previous wording

Cost of equipment sales increased for the six months ended June 30, 2024, compared to the same period in 2023, due to the increase in equipment sales volume.

Current wording

Cost of Equipment Sales - Cost of equipment sales increased for the three and nine months ended September 30, 2024, compared to the same periods in 2023, due to the increase in equipment sales volume.

Previous wording

Total Revenue - Total revenue decreased for the three and six months ended June 30, 2024, compared to the same periods in 2023, due to the decrease in rentals of tools and accessories affected by the utility end-market softness.

Current wording

Total Revenue - Total revenue remained flat for the three months ended September 30, 2024, compared to the same period in 2023. Total revenue decreased for the nine months ended September 30, 2024, compared to the same period in 2023, due to the decrease in rentals of tools and accessories tied to the decline in rental revenue in the ERS segment.

Previous wording

Cost of Revenue - Cost of revenue increased for the three and six months ended June 30, 2024, compared to the same periods in 2023, as a result of higher costs of materials.

Current wording

Cost of Revenue - Cost of revenue increased for the three and nine months ended September 30, 2024, compared to the same periods in 2023, as a result of higher costs of materials.

Previous wording

Gross Profit - The decrease in gross profit for the three and six months ended June 30, 2024, compared to the same periods in 2023, was primarily driven by the decrease in tools and accessories rentals with an increase in maintenance expense driving gross profit down.

Current wording

Gross Profit - The decrease in gross profit for the three and nine months ended September 30, 2024, compared to the same periods in 2023, was primarily driven by the decrease in tools and accessories rentals with an increase in costs of materials driving gross profit down.

Previous wording

Our principal sources of liquidity include cash generated by operating activities and borrowings under revolving credit facilities as described below. We believe that our liquidity sources and operating cash flows are sufficient to address our operating, debt service and capital requirements, including investments in our rental fleet, over the next 12 months. As of June 30, 2024, we had $8.1 million in cash and cash equivalents compared to $10.3 million as of December 31, 2023. As of June 30, 2024 and December 31, 2023, we had $587.4 million and $552.4 million of outstanding borrowings under our ABL Facility, respectively. Availability under the senior secured credit facility was $159.5 million as of June 30, 2024, and based on our borrowing base, we have an additional $328.3 million of suppressed availability that we can potentially utilize by upsizing our existing facility.

Current wording

Our principal sources of liquidity include cash generated by operating activities and borrowings under revolving credit facilities as described below. We believe that our liquidity sources and operating cash flows are sufficient to address our operating, debt service and capital requirements, including investments in our rental fleet, over the next 12 months. As of September 30, 2024, we had $8.4 million in cash and cash equivalents compared to $10.3 million as of December 31, 2023. As of September 30, 2024 and December 31, 2023, we had $627.9 million and $552.4 million of outstanding borrowings under our ABL Facility, respectively. During August 2024, the ABL Facility was amended to, among other things, provide an additional $200.0 million of borrowing capacity and extend the maturity date to August 9, 2029. Availability under the senior secured credit facility was $319.0 million as of September 30, 2024, and based on our borrowing base, we have an additional $190.9 million of suppressed availability that we can potentially utilize by upsizing our existing facility. For further information on the ABL Facility amendment, see Note 8: Long-Term Debt in the Notes to the Unaudited Condensed Consolidated Financial Statements.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of $8.1 million, a decrease of $2.3 million from December 31, 2023. Generally, we manage our cash flow by using any excess cash, after considering our working capital and capital expenditure needs, including paying down the outstanding balance under our ABL Facility, and availability under our credit facilities.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $8.4 million, a decrease of $1.9 million from December 31, 2023. Generally, we manage our cash flow by using any excess cash, after considering our working capital and capital expenditure needs, including paying down the outstanding balance under our ABL Facility, and availability under our credit facilities.

Previous wording

Net cash from operating activities was $23.4 million for the six months ended June 30, 2024, as compared to net cash used in operating activities of $1.1 million in the same period of 2023. The cash provided by operating activities in the current period is the result of the increase in floorplan trade financing for inventory purchases.

Current wording

Net cash from operating activities was $39.9 million for the nine months ended September 30, 2024, as compared to net cash used in operating activities of $2.7 million in the same period of 2023. The cash provided by operating activities in the current period is the result of the increase in floorplan trade financing for inventory purchases.

Previous wording

Net cash used in investing activities was $98.7 million for the six months ended June 30, 2024, as compared to $102.9 million in the same period of 2023. The decrease in cash used in investing activities was primarily due to a decrease in purchases of rental equipment of $45.1 million, partially offset by lower proceeds from sales and disposals of rental equipment of $30.7 million and an increase in purchases for non-rental equipment and cloud computing arrangements of $4.3 million.

Current wording

Net cash used in investing activities was $164.9 million for the nine months ended September 30, 2024, as compared to $145.6 million in the same period of 2023. The increase in cash used in investing activities was primarily due to lower proceeds from sales and disposals of rental equipment of $21.8 million.

Previous wording

Net cash provided by financing activities was $73.0 million for the six months ended June 30, 2024, as compared to $131.6 million in the same period of 2023. The decrease in cash provided by financing activities was primarily due to an increase in repurchases of common stock of $18.5 million and a decrease in proceeds, net of repayments, from floor plan financing and long-term debt arrangements of $38.8 million.

Current wording

Net cash provided by financing activities was $122.8 million for the nine months ended September 30, 2024, as compared to $142.6 million in the same period of 2023. The decrease in cash provided by financing activities was primarily due to an increase in repurchases of common stock of $9.0 million and a decrease in proceeds, net of repayments, from floor plan financing and long-term debt arrangements of $5.8 million.

Previous wording

Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires that we make estimates and judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosure of contingent assets and liabilities. We base these estimates on historical experience and on various other assumptions that we consider reasonable under the circumstances and reevaluate our estimates and judgments as appropriate. The actual results experienced by us may differ materially and adversely from our estimates. For a complete discussion of our significant critical accounting estimates, see the “Critical Accounting Estimates” section in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Except as discussed below, there were no significant changes to our critical accounting estimates during the three months ended June 30, 2024.

Current wording

Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires that we make estimates and judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosure of contingent assets and liabilities. We base these estimates on historical experience and on various other assumptions that we consider reasonable under the circumstances and reevaluate our estimates and judgments as appropriate. The actual results experienced by us may differ materially and adversely from our estimates. For a complete discussion of our significant critical accounting estimates, see the “Critical Accounting Estimates” section in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Except as discussed below, there were no significant changes to our critical accounting estimates during the nine months ended September 30, 2024.

Previous wording

In performing our interim impairment test for the ERS and APS reporting unit, we utilized the following estimates and assumptions:

Current wording

During the quarterly period ended June 30, 2024, we identified factors indicating goodwill may be impaired related to two of our reporting units, ERS and APS. The following is a discussion of the estimates and assumptions from our June 30, 2024 interim impairment test for the ERS and APS reporting units:

Previous wording

As a result of completing our interim quantitative impairment test, we determined that the fair value of the ERS and APS reporting units exceeded their carrying values by 23% and 17%, respectively. While there is no “bright line” to determine whether or not a reporting unit’s fair value is substantially in excess of its carrying amount (“cushion”), significant adverse changes in business climate, weakness in an industry in which our reporting units operate (for example, electric utility T&D, telecom, rail and general infrastructure) or significant cash or operating losses and changes in expectations of profitability could reduce the amounts of cushion applicable to our reporting units and result in impairment of one or more of our reporting units’ goodwill.

Current wording

As a result of completing our June 30, 2024, interim quantitative impairment test, we determined that the fair value of the ERS and APS reporting units exceeded their carrying values by 23% and 17%, respectively. While there is no “bright line” to determine whether or not a reporting unit’s fair value is substantially in excess of its carrying amount (“cushion”), significant adverse changes in business climate, weakness in an industry in which our reporting units operate (for example, electric utility T&D, telecom, rail and general infrastructure) or significant cash or operating losses and changes in expectations of profitability could reduce the amounts of cushion applicable to our reporting units and result in impairment of one or more of our reporting units’ goodwill. During the quarter ended September 30, 2024, we continued to evaluate whether factors indicate goodwill of any of our reporting units may be impaired and we did not identify any triggering factors that could indicate goodwill impairment. As a result, we concluded another interim test was not necessary.