Custom Truck at Oppenheimer Conference: Strategic Growth Insights

On Tuesday, 06 May 2025, Custom Truck One Source (NYSE:CTOS) participated in the Oppenheimer 20th Annual Industrial Growth Conference. The company highlighted its strategic initiatives, emphasizing both positive developments and challenges. Custom Truck’s unique one-stop-shop model, diversified end markets, and strategies for handling tariff impacts were discussed, alongside financial goals and operational updates.

Key Takeaways

• Custom Truck reported a 13% growth in its ERS segment in Q1 2024.
• The company aims for a net leverage ratio below 3x by the end of 2026.
• A $51 million increase in backlog was noted, particularly in specialty truck categories.
• Free cash flow target for 2024 is set at $50 million.
• Custom Truck plans to reduce whole goods inventory to a six-month supply by the end of 2025.

Financial Results

• Q1 2024 Performance: ERS segment grew by 13%, with rental fleet utilization improving by 440 basis points to 78%. Backlog increased by $51 million.
• Free Cash Flow: Target for 2024 is $50 million, with a focus on reducing net leverage below 3x by the end of 2026.
• Rental Fleet Investment: Planned investment between $375 million and $400 million in 2024, with proceeds from equipment sales expected to reach $200 million.
• Pricing Strategy: A 3% to 5% price increase was implemented at the start of the year.
• Inventory Management: The company aims to reduce whole goods inventory to a six-month supply by the end of 2025.

Operational Updates

• Rental Fleet: Comprising 10,000 vehicles, with 70% focused on the utility market. Average contract duration is just over one year, and the fleet’s average age is slightly over three years.
• End Markets: Utility sector accounts for 55% of revenue, infrastructure just under 30%, and rail and telecom each under 5%.
• Expansion Plans: Four new locations added last year, with a new greenfield site announced in Portland, Oregon. The company aims to add a couple of new locations annually.
• Tariff Strategy: Forward purchasing of chassis supply in the first two quarters to secure pricing.

Future Outlook

• Growth Drivers: Utility grid upgrades, electrification, manufacturing onshoring, and data center investments are key growth areas.
• Long-Term Growth: Custom Truck aims for high single-digit to low double-digit growth rates, supported by market trends.
• Capital Allocation: Focus on debt reduction while maintaining investment in the rental fleet.

Q&A Highlights

• Backlog Trends: A $51 million increase in backlog in Q1, with a focus on specialty truck categories. The backlog is in the optimal range of four to six months.
• Customer Segmentation: Larger customers are increasing backlog orders, while smaller customers are opting for more rentals.

For more detailed insights, please refer to the full transcript below.

Full transcript - Oppenheimer 20th Annual Industrial Growth Conference:

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Morning, everyone. Thanks for joining. I’m Scott Schneeberger, the senior business and industrial services analyst at Oppenheimer. It’s my pleasure to have from Custom Truck OneSource here today with us CEO, Ryan McGonagall CFO, Chris Eperjesy and vice president of investor relations, Brian Perman. Custom Truck OneSource, one of the largest providers of specialty equipment, such as bucket trucks, parts, tools, accessories, and services to the electric, utility transmission and distribution, communications, and rail markets in North America, the differentiated one stop shop business model.

Custom truck offers its specialized equipment to a diverse customer base for the maintenance, repair, and upgrade and installation of critical infrastructure assets, including electric lines, telecommunications networks, and rail systems. And the company’s coast to coast rental fleet of more than 10,000 units includes aerial devices, boom trucks, cranes, digger dairgs, pressure drills, stringing gear, high rail equipment, repair parts, tools, and accessories. We’ll be using a fireside chat format today. I’ll ask management some high level questions upfront and get us an overview of the business. Later in the session, I’ll pivot to questions asked by you from the audience.

So getting started, gentlemen, could you please provide an overview of your portfolio specialty rental fleet offerings and highlight their respective asset characteristics such as asset life, rental durations, and fleet age? Thanks.

Ryan McGonagall, CEO, Custom Truck OneSource: Absolutely. And, Scott, thank you for having us. So we certainly appreciate your invitation to participate. And and and thank you for listening. We love talking about custom truck.

And and to just jump right in, we’ll we’ll start with the rental fleet as Scott request. But just here we think about the rental fleet as follows. We think it’s it’s 10,000 vehicles today. And as Scott mentioned, it’s about 70% of the rental fleet is primarily focused on the utility end market. So that means bucket trucks that are used to go up in the air and work on power lines, digger dairies, which are used to to dig holes in the ground, and then some of the adjacent equipment, things like pulling stringing gear as well.

So about 70% of the fleet is used primarily for utility. About 10% of the fleet is focused on rail and telecom. And so that think about chassis driven trucks with rail gear on them to ride up and down the railroad that they can be used for maintenance of the way here or or to perform construction in and around rail track. And then the remainder of what we call our specialty vocational trucks. So that’s things like hydro excavators, things like some of our specialty dump trucks, some of our large water trucks, some of our service trucks as well.

So together, it’s about 10,000 units as as I mentioned. And as you think about some of the characteristics of the fleet, I’d highlight a few. One is one is the useful life of of the assets. So, typically, it depends on the type of between ten and twenty years of of useful life for each of the assets. So these are long wind assets, you know, that I think are really important.

It’s really important to understand. The duration of our rental contracts is generally about one year. It’s just over one year today. So the average piece of equipment stays out on rent for just over a year is where is where the fleet is sitting as of today. And one of the things that is really unique about our fleet is is that it’s a very young fleet.

So the age today is just over three years old. So so the fleet’s young when you think about a three year old fleet in relation to a ten or twenty year useful life. You know, that’s been intentional on our part to make sure we keep the age of the fleet young. We’ve been investing heavily in the fleet the last few years to to actually bring down that age a bit, and we think it’s a it’s a competitive advantage to have a that is is that young.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Thanks for that. Custom truck has a very unique one stop shop business model. Can you please discuss how you’re differentiated via your integrated production capabilities and broad offering of rental, sales, and aftermarket parts and services?

Ryan McGonagall, CEO, Custom Truck OneSource: Sure. So I think, and as Scott said, the what we call the one stop shop model really does start with the ability the integrated production capability that we have. And so what that means is that we are outsourcing directly the attachment from somebody like Terex or Versalift or Galbraith, some of our largest attachment providers, and then we’ll go source the chassis directly. We’ll source that directly with Peterbilt or Freightliner or Ram or Ford in the clay in the case of some of our smaller chassis. We’ll go source that directly.

We’ll obviously purchase that through the dealer network, and then we’ll go source bodies directly as well from from a variety of of providers. And in some cases, we’ll we’ll manufacture our own body or attachment, and that’s something that we’ve added recently with with the Load King brand and some of some of the product bringing to that market. So it starts with that integrated production capability. One of the things that is unique about us is that we put together the majority of trucks that we either put into our rental fleet or we ultimately end up selling. And, to me, we know we have some real economies of scale and a cost advantage because of the volume at which we put trucks together.

So it starts with integrated production, but then it’s taking care of the customer however they want to consume the equipment. And so Scott mentioned it. It’s it’s the rental part of the business, which which we spoke about. It’s the sales side of the business where we sell new and used vocational trucks, and then it’s offering aftermarket parts and service, you know, which is is we use our service locations first to take care of our rental fleet, but then we also will sell parts and sell service to the customers that we sell equipment to as well. And our view is that having the one stop shop model means we can take care of the customer however they want to consume equipment.

Majority of our customers both rent and purchase equipment from us depending on where they are on their CapEx planning process or where they are on the budgets or the or the time of the year or the time of project that they’re working on. And so we think having that integrated one stop shop model is is certainly a strategic advantage and has allowed us to grow at the pace that we’ve grown over the last ten or twenty years.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Thanks. Could you please share an overview of the end markets that you serve and the demand trends that you’re presently seeing?

Ryan McGonagall, CEO, Custom Truck OneSource: Sure. And I think this is one of the things that is really unique about custom truck. We talk about four primary end markets. Utility today or T and D transmission and distribution is the largest end market for us. So today, it’s about 55% of our revenue comes from the utility end market.

The second end market is infrastructure. Infrastructure broadly is is things like road and bridge work. Certainly, nonresidential construction falls in there. We put refuse in the in the infrastructure end market as well, and today, that accounts for just under 30% of our revenue. And then we talk about rail and telecom as well.

Rail telecom are each just under 5% of of total revenue. And if you think about drivers in each of those end markets, utility is in a good spot where there’s obviously a lot of demand for work on the grid, both on the transmission side and the distribution side of things. You think about some of the drivers of just grid grid upgrades. You think about electrification as broad trend and, obviously, data centers as a broad trend that we we can spend some more time talking about, but we feel really good about the tailwinds of utility end market. Infrastructure continues to have good tailwinds as well, so there’s obviously a lot of we’re seeing a lot of demand for our equipment in some of the nonresidential construction areas that we’re seeing.

So plenty of road and bridge work. Certainly, as we think about the onshoring that that’s that is happening right now, that that is also good work for some of our infrastructure exposure. And then, of course, there’s some federal stimulus that still is being invested that we think is supporting both utility and the infrastructure end market. And then rail, I always describe as a kind of a steady plotter for us, so there continues to be investment that’s being made. Some of that is coming from the IIJA bill, and then it’s just coming from class one and short line and some of the regional networks who are continuing to invest in their rail network.

And then telecom as well. Telecom is probably the softest of the foreign markets for us right now. We still think there’s plenty of pent up demand there as as you think about some of the capital rollouts that need to happen and you think about things like b money that is expected to be to be released later this year or beginning of next year. But I would say that it’s the softest of the foreign markets. So but but very bullish on utility and infrastructure, and rails is is in a very good spot as well.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Thanks. Appreciate that. When you all reported, though, last week, the first quarter results, you’d highlighted secular tailwinds driven by data center investments, manufacturing, onshoring, electrification and utility grade upgrades. Moosely just touched on those. But if you could elaborate upon the opportunities in general as well as the potential magnitude and timing of financial benefit to custom truck.

Ryan McGonagall, CEO, Custom Truck OneSource: Sure. Yeah. And I think I would I’d probably highlight them in the reverse order of how you of how we mentioned them, but I think utility grid upgrade is certainly the biggest driver for us. So there’s a lot of pent up demand of new transmission lines that need to be built and just maintenance and expansion that has to happen on the distribution grid as well. We’re seeing those are two things we’re watching closely.

We’re watching transmission line miles both started and expected to complete, you know, as a good indicator for us on the amount of transmission work that’s coming. And then we’re watching closely some of the the rate case approvals that have happened or are expected to occur. So it seem to be good indicators of when there is additional demand for distribution equipment to be consumed. So we’re feeling very encouraged by the tailwinds that we’re seeing there. Electrification, obviously, the pace of electrification has slowed, but electrification electrification overall still seems to be happening.

And that is is is, again, just good support for our customers and for the types of projects that our equipment is used on. So I think we’re seeing we’re feeling good kind of about that dynamic. Manufacturer onshoring is is a is a good trend for two reasons. One, there’s obviously construction component of that that’s helpful for some of our more specialty vocational product. But then, obviously, those are large consumers power as well.

And so I think there’s a lot of work for our utility contractors in that case that that would end data centers too. So data centers, obviously, are a great underlying demand driver of the amount of power that’s needed from a generation and transmission and distribution standpoint. And so those are not projects that are it’s it’s not as though when we hear about a new data center project, there is immediate uplift for our equipment, but they’re but more broadly, they’re just very good, projects for our customers to work on, which which which means that they’re continuing equipment. So all four of those are positive. That’s some of what you’ve seen when we reported q one when we reported 13% growth in the ERS segment.

Those are those are those all, for the most part, skewed towards benefiting the rental fleet a little bit more. And we talked about our call in q one, some of the fundamentals of the rental fleet at 440 basis point improvement where utilization is now back up to 78, so up in the the mid to low seventies at this time last year. And and I think it’s why we communicated. We’re feeling very good, you know, about how how the quarter developed and and built during the first quarter and and why we’re feeling good about, April and and the beginnings of the second quarter as well as going.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Thanks. Let’s head over into the world of, tariffs. How do you view potential tariffs impacting custom trucks procurement costs? And how do you intend to manage supplier pricing and customer pricing, that element of, of that? And do you anticipate the potential for a significant impact on volume demand for your offerings?

Ryan McGonagall, CEO, Custom Truck OneSource: Sure. So, look, it’s it’s certainly the new topic that we’re spending a lot of time on. There’s a couple things I’d highlight. Right? First is that our business is very well positioned and somewhat insulated from it for for two reasons.

Like, the first is the rental fleet. So having, you know, 1 and a half billion dollars of assets that are young, right, is is certainly a a very good dynamic in an inflationary environment. And so we we think we’re we are really well positioned for that. And then the second is, Scott, we have just over a billion dollars of inventory on the ground too. So that’s all, you know, that’s all pre tariff if we’re gonna think about it from a cost standpoint.

And so in an inflationary environment, again, it’s good to have that that equipment on the ground to be able to sell or add to our rental fleet. And then, Scott, one of the things that we’ve been doing is we have great relationships with our attachment suppliers, our chassis suppliers. And so we have been and we mentioned it on the call, but we pulled forward some of our chassis supply into the first quarter. You’ll see more of it show up in the second quarter as well, and so we were quick to go ahead and order the majority of what we needed for the calendar year. There is some cost increase in there, but at least it’s quantified and known, and we felt like it was the right decision before we needed to go ahead and pull pull that equipment forward.

And so that’s that’s where we have the most exposure to tariffs when you think about Canada and Mexico. In particular, some of our chassis suppliers have have production in Canada. Some have it in Mexico. They also have it in The US, and so they’re going through their exercise and figuring out where they’re going to be building their trucks. But our decision was to go ahead and place orders and so that we can lock in pricing on those orders on chassis.

And then a similar story with our attachments, majority of that supply chain is domestic. So very little exposure to China, very little to Europe. There are some things that come from both, you know, but we’ve done as much as we could to go ahead and and preorder to minimize the impact of tariffs. Where there is some some price some cost pressure to us, you know, we anticipate that we will we will have to pass some of that through to our customers as well, you know, but we’ve done the best we could to minimize the cost impact from tariffs. And we feel like we really are in a good position and and certainly in a strong relative position to some of our competitors.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: So thanks. Also on the on the first quarter call, you’d indicated, strong rental demand across your primary end markets, alluded to hesitancy from smaller customers to purchase vehicles, when some cases are choosing to rent a vehicle instead. If you could address this dynamic, discuss how you allocate capital to rental versus sales and why.

Ryan McGonagall, CEO, Custom Truck OneSource: Sure. No. And it’s, it’s interesting to watch. And, look, we’re in a in a unique position because we can rent or sell equipment to customers. And what we’ve seen, what we’re working on quantifying is some of our smaller customers have said they’re gonna hold off on buying a new truck.

So it’s obviously a large capital expense for our customers. They’ve said they’re going to hold off. And in some cases, they’ve said, you know what? We’ll rent it from you for the time being. And so, you know, it’s we’re uniquely positioned to be able to do that, but we can quickly say, sure.

We’ll we’ll rent that truck to you, or we might use what we call a rental purchase option right on that truck where they have the right to buy it for a period of time in the future. And so, you know, to me, we’re uniquely positioned there. And I think that’s the dynamic of tariffs that we’re watching most closely is what does it do to to small customers and their willingness to buy or continue to invest, you know, which, again, we think we’re well positioned because we have the rental fleet, you know, but we’re watching closely to see how that develops over the next several several weeks and months.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: And the, just the the the profiles of rental versus sales, little bit of different, margin profile, but both are good business for for you from a return perspective. Could you just, kind of speak to to to the different profiles of the two?

Ryan McGonagall, CEO, Custom Truck OneSource: Yeah. So you’re right, Scott. So, clearly, the rental business is much more capital intensive. Right? We’re we’re using our own balance sheet in in in investing in the rental fleet.

And so it is lower revenue, higher gross margin percentage. And so we talk about kind of on rental revenue, it’s kind of that marginal gross margin about 75% in terms of in terms of gross margin on that side of the business. And then we talk about on rate yield. This kind of the revenue potential of an asset. We talk about a a 38 to 40% kind of of of the cost of the equipment as the revenue potential.

And then, Scott, as you know, we talk about unlevered returns on capital in the high teens to low twenties. So as you think about that, we love deploying our balance sheet to deliver kind of that incremental high teens to low twenties for unlevered ROIC. We think it’s a great use of capital, and so we’ll continue to do that. And then on the sales side of the business, you’re talking about less capital intensity. You know, as as Chris has highlighted, we we we can foreplan the majority, the far majority of the cost of the equipment, and then we will sell and generate kind of a mid teens gross margin on that side of the business.

So less capital intensity, lower gross margin percentage, but, again, we’re very comfortable with with the return on capital that applies on on that side of the business. Thanks.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: I wanna move over to pricing. Could you talk about, the pricing environment across your your primary asset classes, as well as your broader picture of pricing strategy, but just kind of the here and now and, and then looking looking out forward of what you plan to achieve.

Chris Eperjesy, CFO, Custom Truck OneSource: Yeah. I’ll take that one, Scott. So maybe just to start kind of an overall pricing strategy comment. You know, first and foremost, you know, as you’d expect, general, you know, macro market dynamics, including demand, product availability, as well as end market specific factors, you know, definitely impact our overall pricing strategy. You know, having said that, we believe we have a unique competitive ability to offer quality products with exceptional customer service and greater, product availability at scale, which definitely allows us to price accordingly.

If you look from a high level, our targeted adjusted gross profit margins by segment are for our rental business low to mid-seventy percent, our rental asset sales mid-twenty percent and then for TES, our new sales, we’ve set a target of 15% to 18%. So if you look at ERS, we previously discussed that in 2023, I think we took two price increases, roughly 10%. Last year, we didn’t take any meaningful price increases just given the overall environment, in particular, some of the challenges that we experienced in our T and D end markets that we’ve discussed previously. And then for this year, we discussed that we’ve taken a 3% to 5% increase at the start of the year. On the TES side, if you look historically, we’re definitely not known as the cheapest option available.

But customers we feel really are paying for the quality, the service and the availability that we have. That said, we definitely have to remain competitive in the market. And so pricing always has to be relative to what we’re seeing in the market with an eye to maintaining the margins in that desired range that I gave of 15% to 18%. We’ve also discussed historically our ability to pass through and to adjust contracted price based on vendor surcharges for higher input costs like steel imported parts, and as Ryan just talked about on the tariff side. So that, you know, that’s kind of our overall strategy and what we’ve done over the last couple of

Ryan McGonagall, CEO, Custom Truck OneSource: years. Thanks.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Let’s talk now about, you have a national footprint, 40 locations across US, Canada, I believe, including a new location in Portland, Oregon. I think that’s opening in a couple months. You said you’re targeting several additional sites over the next few years. Can you speak to your your greenfield strategy and and just the benefits of the broad footprint?

Ryan McGonagall, CEO, Custom Truck OneSource: Yeah. Absolutely. And it’s you know, if you look at last year, we added four locations. We acquired two of those locations. We acquired a business in in Louisiana.

We acquired a business on Long Island in New York, and then we opened two greenfield locations. We opened Salt Lake City, and we opened in Sacramento, California. This year, so far, we just announced the one greenfield location in Portland, and I think that’s been our approach. When you look at our dots on a map, you know, there’s a clear lack of presence in the Pacific Northwest, in the in the Carolinas. I think you see that there’s a, you know, a lack of dots in in in that in that market more broadly.

And I think our approach has been, let’s look for acquisitions, and let’s also be very open to greenfield. And and whichever whichever of those options makes the most sense is what we’ll forward with. It makes the most sense means the right location at the right rate if we’re greenfielding into it and or the right acquisition to acquire the right multiple if we’re acquiring it. And, Scott, we’ve gotten really comfortable with both our accretive. When we bought businesses, it’s been, you know, at a at a at a at a a set of multiple that’s obviously less than where we trade today.

And when we’re stepping into a new greenfield site, you know, we are generally leasing the building. You know, it’s less than a million dollars of CapEx to really get to get a facility up and running, and it’s contributing positive gross profit, you know, certainly within the in in the within the first few months. And so our approach on those, Scott, has been generally follow where our customers are. So, generally, that means we’re following where a rental customer is is operating or has been operating for a period of time. And as we build critical mass in that market, we open a location to be able to service that market.

And then, obviously, as we open a location, we then are able to identify and begin to service additional customers in that region. And so it’s proven to be a it’s proven to be a good model. I think the pace of a couple locations a year feels about right. And for us, it’s really just identifying where there’s still where there are clear pockets and and then being open to either acquiring or opening on a basis.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Thanks. Just a couple more prepared questions from me, and then we can open it up. So just a reminder on the lines, please feel free to send through any questions. For my next one, probably, Chris, for you, what’s what’s your free cash flow outlook for this year? What are the drivers?

And if you could speak to free cash flow, kinda longer term on on what you look to achieve. Thanks.

Chris Eperjesy, CFO, Custom Truck OneSource: Yeah. So, you know, we’ve guided that our, our target for this year for levered free cash flow is 50. And on the most recent earnings call, we also indicated that the tariff environment, you know, we’ve made the decision to tactically pull forward some of our chassis receipts. And while that’s not necessarily going to increase total receipts for the year, it certainly is going to have an impact on the timing of our inventory reduction efforts, you know, with those reductions likely coming in the second half of the year. We’ve also previously indicated that we finished 2024 with about nine months or just under nine months of whole goods inventory on hand and that our target is six months on hand, by the end as we move through this year and into next year.

And so the primary drivers of that levered free cash flow are obviously going to be the EBITDA growth, but also the net working capital improvement that we think we’re going to get in the second half of this year. When you think about cash flow, the biggest lever, obviously, is the investment we do in the rental fleet. This year we’ve said between $375,000,000 and $400,000,000 of gross investment in the rental fleet. Typically, we’re going to have proceeds on the sale of equipment coming out of roughly $200,000,000 or just under right around $200,000,000 So net investment in the fleet of $200,000,000 but we can flex that depending how the year goes. And so we’ll use any levered free cash flow that we have to pay down debt.

And as we’ve indicated, our goal is to get as close to four times by the end of this year and then by the end of twenty twenty six to get down closer to three times or below three times by the end of twenty twenty six. We expect we can continue to have meaningful levered free cash flow as we go forward.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Thanks. And just a use of cash. Obviously, debt reduction is a priority. But how would you guy how do you guys just think about capital application? Ryan, you were speaking earlier about m and a.

Just how how do you think about the prioritization, obviously, with debt reduction seeming to be the priority right now?

Chris Eperjesy, CFO, Custom Truck OneSource: Yeah. You know, as I just mentioned, you know, investing in the rental fleet, obviously, given the long term demand across pretty much all of our end markets continues to be, you know, a priority for us. But, however, you know, we’re gonna continue to balance that with our stated target of getting our net leverage below three times by the end of next year. As I said, we tend to use we’re intending to use our levered free cash flow this year to reduce our net leverage. We also over the past few years, I think we’ve purchased 22,000,000 shares roughly of our stock, 110,000,000 at an average price of about $5 We have largely exhausted those approvals from the board.

Certainly, we believe this demonstrated our commitment to shareholder value, we felt it was a good use in optimizing our use of capital. As we look forward, deleveraging remains a primary, an important goal for us. On the M and A front, and I’ll let Ryan chime in here. We’ve done a couple of small tuck in kind of acquisitions. I think one was right around $4,000,000 and one, I think, was just under 2.

You know? And so while there’s lots of opportunities out there, you know, there’s nothing in the pipeline right now, and and deleveraging continues to be a priority for us. Ryan, anything you’d add on the m and a front?

Ryan McGonagall, CEO, Custom Truck OneSource: No. I think you hit it you hit it well, and I I agree with how you prioritize.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Thanks, guys. I appreciate that. Thanks for, tackling all those questions. I’m gonna go to the the audience list now. First one’s on backlog, and I I’m gonna I’m gonna add on top of it.

The question is is how is your demand? How is how is backlog? And if you guys could maybe just kinda talk about that with some segmentation, that would be appreciated. Thanks.

Ryan McGonagall, CEO, Custom Truck OneSource: Sure. Yeah. I’ll start, and, certainly, Chris can chime in. But backlog’s in a good spot would be the answer. In the in the first quarter, we actually saw backlog grow by over $50,000,000.

I think it was $51,000,000 with backlog increase. So I think it’s just under five months on hand. We’ve given that range of we like backlog to be in that four to six months on hand. A range that seems to be a healthy spot for where the business has been when you look at it, you know, all the way back to 2021 and even before then. Obviously, it peaked at, you know, over twelve months, twenty twenty three and the beginning of early twenty twenty four.

But that four to six months really is the sweet spot from where we have some visibility to what we’re building. We still can react quickly and sell equipment to our customers. And so I think we feel like we’re in a good spot. We’d like to the groom in q one. And the interesting thing in q one is that we actually saw backlog increase most, especially our specialty truck categories.

And so we saw a big pickup in in vacuum and dump trucks, in particular, in in the quarter, which which we thought was encouraging. We’ve seen great demand on utility and forestry as well, but we saw a significant uptick in the quarter. The majority of that 51,000,000 was in our specialty truck category.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Appreciate it. Next one, just a very high level general question. How do you think about long term growth? What’s your expected long term growth rate and your margin profile? And that’s it.

Thanks.

Ryan McGonagall, CEO, Custom Truck OneSource: Yeah. I’ll I’ll talk growth, and Chris Chris can talk margin maybe. But, look, we we think there are good secular tailwinds in our end markets. I think a lot of the macro forecast would put, you know, kind of mid single digit growth rates on the majority of our end markets. Certainly, when we think about certainly, we think about utility.

We’ve given that guide in terms of how we can grow the fleet, kind of in that mid to upper ranges range from from mobility for that fleet. And then I think if you look at our TES segment, you know, we’ve grown faster than that. And so I think we’re comfortable historically, and I think we’re comfortable with continued market share growth story on that side of the business. So I think you end up with high single digit, low double digit type growth rate that feels achievable when we think about the end markets and and our strategy. And then I’ll let Chris maybe comment on on the margin profile.

Chris Eperjesy, CFO, Custom Truck OneSource: Yeah. As I as I mentioned in response to one of your earlier questions, Scott, the way we look at it, so rental, you know, we set kind of a target of low to mid 70%, adjusted gross profit margins, you know, kind of over the long term, on rental asset sales in the mid 20%, in the high end, maybe the high 20% range. And then on TES, 15% to 18%. And so as we think about it, that’s kind of our long term targets for each of those segments. Obviously, there’s going to be a mix impact.

So if you’re looking at adjusted gross profit margin on a consolidated basis or EBITDA margin, there could be some movement there that is really just based on the mix between the three businesses.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Thanks. And, there’s only one more left in queue. We have three minutes. This is probably the last one, guys, unless anything else sneaks in. But you can, can you differentiate what you are seeing right now between larger and smaller customers and why?

Ryan McGonagall, CEO, Custom Truck OneSource: That’s a good question. We are seeing good demand from both. I will say that we are seeing our larger customers put a little bit more equipment in backlog. Right? So we’re seeing some uptick in backlog from some of our larger customers.

We’re seeing obviously, though, our large customers, the large utility contractors are doing, I’ll say, a majority of the transmission work. So I think, you know, we’re seeing certainly favorable tailwinds from those. But we are seeing good demand from our small customers, and we are seeing growth. The the comment that I’ll I’ll highlight to you that we are seeing our small customers maybe be a little more patient or taking a little bit more of a wait and see approach on on on purchases. And so, you know, we’ve observed that.

We’re we’re watching that closely. But what they are doing is they’re pivoting over to renting. You know? And so, ultimately, that’s good for custom trucks. You know, obviously, it has been anything, like, the TES versus ERS segment, but, ultimately, good for custom truck.

And I would say, overall, it certainly feels like it’s a it’s a good demand environment for our customers.

Scott Schneeberger, Senior Business and Industrial Services Analyst, Oppenheimer: Great. Thanks. Guys, we’re gonna wrap it there. We’re on time, and, that’s everything I have in the pipeline. So thanks.

It’s a great overview. Really appreciate it. Thanks, audience, for listening in the questions. And, gentlemen, again, appreciate it very much.

Ryan McGonagall, CEO, Custom Truck OneSource: Thank you, Scott. We appreciate it. Have have a great day.

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