Custom Truck OneSource at J.P. Morgan Conference: Strategic Outlook in Focus

On Tuesday, 11 March 2025, Custom Truck OneSource (NYSE: CTOS) participated in the J.P. Morgan Industrials Conference 2025. The company, represented by CEO Ryan McMonagle and CFO Chris Eppergesi, presented a cautiously optimistic outlook. Positive signs of demand recovery in the Transmission and Distribution sector were highlighted alongside potential risks from tariffs and regulatory changes. The firm emphasized its strategic advantages, including a large rental fleet and strong inventory management.

Key Takeaways

• Custom Truck OneSource expects rental utilization rates to return to the high 70s to low 80s, with a 3% to 5% increase in rental prices.
• The company is well-positioned to mitigate tariff impacts due to its extensive rental fleet and inventory.
• A balanced approach to capital expenditure is planned, with $300 million for maintenance and $400 million for growth.
• Regulatory changes, particularly NOx and ACT regulations, are being closely monitored for potential impacts.
• M&A is not a current focus, but strategic acquisitions remain a possibility.

Financial Results

• Custom Truck OneSource reported significant improvements in utilization metrics, with a 570 basis point increase in Q4.
• The firm has set a target to reduce leverage below four times this year and three times next year.
• Free cash flow is expected to benefit from a $50 million to $100 million working capital reduction.

Operational Updates

• The company is leveraging its rental fleet to hedge against inflation and is working with suppliers to explore U.S. production.
• Inventory levels are robust, with $1 billion representing nine months of supply.
• Supply chain normalization has resulted in shorter lead times for chassis.

Future Outlook

• Custom Truck OneSource plans to open one to two new Greenfield locations annually, with a focus on areas where rental equipment is already present.
• The company remains vigilant regarding regulatory changes, particularly potential tariffs and NOx regulations, which could affect truck prices by 5% to 15%.
• Infrastructure spending, particularly from the IIJA, aligns well with Custom Truck’s product offerings, presenting growth opportunities.

Q&A Highlights

• Utility financing is driving demand as rate case approvals enable contract deployments.
• The LA rebuild is in its early stages, focusing on dump truck work for cleanup.
• Data centers represent a secondary tailwind due to increased power demand.

In conclusion, Custom Truck OneSource conveyed a balanced strategy of growth and risk management at the conference. For more details, please refer to the full transcript below.

Full transcript - J.P. Morgan Industrials Conference 2025:

Tammy Zakaria, US machinery analyst, JPMorgan: Alright. Good afternoon. This is Tammy Zakaria, US machinery analyst here at JPMorgan. It is my pleasure to introduce Custom Truck OneSource CEO Ryan McMonagle and CFO Chris Eppergesi. Thank you for being here.

We will open up the floor for questions from the audience, toward the end of the presentation. But if anyone has any questions, just raise your hand and we’ll get the mic to you. So, Ryan and Chris, I wanted to start off with 2024 in hindsight. It was a relatively challenging year given the slowdown in demand and and utilization, But we heard you talk about some green shoots finally in the T and D end markets. Sitting here today, what’s your view on the key end markets?

How are you positioning for a recovery at some point later this year? Or is it going to be a steady recovery throughout the year? So how are you feeling about the end market demand?

Ryan McMonagle, CEO, Custom Truck OneSource: Yes, we’re feeling thank you for having us, most importantly, but we’re feeling really good about end market demand. So I think we said at the end of Q2 of last year was kind of our trough from a and I’m talking about T and D transmission and distribution specifically. But we’ve seen OEC on rent and our utilization metrics improve significantly since Q2 was up another five seventy basis points in the fourth quarter. And we’re seeing that trend hold here at the beginning of Q1. So we’re feeling good about demand.

Our conversations with our customers are robust. We’re seeing, plenty of transmission equipment going out, and we’re seeing distribution kind of return to what I’d call a normalized level when you think about the utilization levels on distribution, in particular. So feeling good about T and D, for sure.

Tammy Zakaria, US machinery analyst, JPMorgan: So I wanted to drill down on that comment. Can you sort of give us some examples, if anything you’re anything you’re hearing from utilities customers and large contractors? Is there sort of a wait and see mode currently given all the macro noise, or are they finally starting to spend?

Ryan McMonagle, CEO, Custom Truck OneSource: It feels like it feels like they’re starting to spend, is the answer. And I think we see that especially around transmission and some of the larger projects that are getting underway. MasTec has talked a lot about the Greenlink project out west. We’re seeing we’re shipping plenty of product out there for them. So I think that’s a very specific example.

But the same is true for Quanta and for MYR as well. So we’re seeing real demand happen in the transmission space. And then we’ve seen distribution utilization return from kind of a trough level, which for distribution is in the high 70s, low 80s back up into the mid 80s, as well. So we’re seeing that pick up right now also.

Tammy Zakaria, US machinery analyst, JPMorgan: Fantastic. So are these projects, some of these projects, are they long term, multiyear or more six months, three months? Or how should we think about the duration of these projects and the consequent demand?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. It’s of course a mix is the answer, but transmission, generally speaking, are multiyear projects. And so it’s one of the things we love is kind of that transmission cycle gets going. It generally has several years of demand tied to it.

Tammy Zakaria, US machinery analyst, JPMorgan: And remind us, is which of the two is bigger for you, transmission or distribution?

Ryan McMonagle, CEO, Custom Truck OneSource: In our rental fleet, transmission is a little bit larger than distribution. As a business, between what we sell and what we rent, distribution is larger than transmission. But for rental specifically, we have a little bit more distribution equipment in the rental fleet today than we do distribution equipment.

Tammy Zakaria, US machinery analyst, JPMorgan: Got it. So let’s talk about tariffs. In your most recent call, you mentioned, I think, 30% of your purchases come from the countries that that will see tariffs or is currently seeing tariffs. And so can you tell us what your plan is to mitigate some of the risk? And then two part question.

And and the other side is, how are some of your competitors positioned, as it relates to exposure to those countries?

Ryan McMonagle, CEO, Custom Truck OneSource: Sure. Yeah. No. You’re right. 30% of our of what we purchased last year came from Canada and Mexico.

So that’s primarily we have a little bit that comes from China, but it’s a very little it’s a de minimis amount. But from Canada and Mexico in particular, it’s around some of our key chassis vendors and a few key attachment vendors as well. And so we’re working through it in real time, right, is the answer. I think Custom Truck is uniquely positioned to mitigate tariffs though for with really two things. The first is the rental fleet.

The rental fleet is to me is a great mitigant to an inflationary environment or to what tariffs could create. Having $1,500,000,000 of capital that’s young kind of already in the fleet and able to earn, all of a sudden that would have a much higher replacement cost if tariffs were to stay long term. And then the other portion of that would be our inventory level. We’ve talked about the strategic investment in inventory. Chris made some comments last week about how we’re seeing inventory come down, but we’re still sitting here with $1,000,000,000 of new inventory.

So to me, that’s another great mitigant, right? As you think about the fact that to replace that, if it all were to be kind of subject to tariff, there would be several $100,000,000 of incremental costs associated with that. And so I think those are the biggest two mitigants. What we’re doing to mitigate it is working with all of our suppliers. So in some cases, we’ve already made commitments on volume for the balance of the year and in exchange have been able to ensure that we won’t see any price increase from tariffs.

So we’re working that way with each of our suppliers and each supplier is different. Some have production locate facilities in The U. S. And in Mexico or The U. S.

And in Canada. And so they are talking through how much production can they bring into The U. S. As well. So we’re working through it with each supplier individually, and we think we have a good plan in place.

And we don’t think because we carry about the $1,000,000,000 is about nine months of inventory. We think we have plenty of runway to continue to work through it. So I think the second part of your question, Tammy, because we’re willing to carry inventory and because we’ve taken this approach of being vertically integrated with the rental fleet, I think we are better positioned than our competitors, who would be waiting on a customer to deliver a chassis for them to go do the upfit. And so I think we’re in a better position because of that because of our strategy of carrying inventory and having the rental fleet as well.

Tammy Zakaria, US machinery analyst, JPMorgan: Understood. And along the same lines, how’s the supply chain environment today? I know the truck industry went through some supply chain issues for the better part of 2022 and also 2023. How is it now?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. I’d say it’s largely returned to normal. And I think there’s really a two way two two portions to think about. The first is the chassis side. I would say with where the freight market is right now, where it’s depressed, I think that there’s plenty of availability for us to order chassis and to get chassis and with very short with shorter lead times than historically has been the case.

And then I’d say on the attachment side, we’re working closely with our suppliers to make sure visibility has improved. But I’d say that both of those supply chains have largely normalized from what from the challenges that we saw in late ’twenty two and certainly early ’twenty three as well.

Tammy Zakaria, US machinery analyst, JPMorgan: Got it. So let’s switch to rental pricing or rental rate outlook. Your rental rate, I think, was down last year versus 2023. What is your expectation as you are starting 2025?

Chris Eppergesi, CFO, Custom Truck OneSource: Yes. I think we said last week on the earnings call that we’ve put a 3% to 5% price increase in. And typically our assets are out on rent on, I guess, the average ten years about thirteen months. And the pricing goes into effect once the asset turns or when a new asset goes out. And so it will be over the course of this year that you’ll see that, but you should see the impact of that as the year goes through.

We’ve kind of finished last year at the trough, and we’d expect it to start to go up.

Tammy Zakaria, US machinery analyst, JPMorgan: And how about new equipment? Is the 3% to 5% also applicable to new trucks?

Chris Eppergesi, CFO, Custom Truck OneSource: It’s applicable to rental.

Tammy Zakaria, US machinery analyst, JPMorgan: Okay. How about equipment sales? Is there any pricing you’re taking this year? I think you mentioned you didn’t take you gave back some pricing last year given weaker demand. How about pricing for new equipment in 2025?

Ryan McMonagle, CEO, Custom Truck OneSource: Yes. I’ll start with that. I think we’re still seeing new equipment. I think we’re still seeing supply availability of supply kind of in the market. So I don’t see a lot of opportunity to take price there.

Obviously, there’s some cost increases that come through. I think we’ll be able to pass those cost increases through. But I don’t see a big opportunity to take price sitting here today heading into 2025.

Tammy Zakaria, US machinery analyst, JPMorgan: So in that case, is how do you think about the price cost dynamic given steel prices have started to go up again? Would that be a margin headwind given not a lot of room to take pricing?

Ryan McMonagle, CEO, Custom Truck OneSource: I think we’ll be able to pass through cost increases that we see as those are internalized, but I don’t think there’d be an opportunity to kind of expand margin or take price that way.

Tammy Zakaria, US machinery analyst, JPMorgan: And given the relatively weaker demand environment you saw last year, did you see any change in preference amongst customers between renting versus owning?

Ryan McMonagle, CEO, Custom Truck OneSource: I think nothing significant. I think that the weaker demand environment we saw last year was specific to rental. The sales business was up about 7% last year. And so what we’ve seen is that the rental business is what has come back quickly through the third quarter and fourth quarter. So no, we’re not seeing any meaningful shift between wanting to rent and wanting to own equipment.

Tammy Zakaria, US machinery analyst, JPMorgan: Great. And so let’s talk about utilization. I think you ended fourth quarter at 79%. You mentioned December seasonally is weaker, but it went up to, I think, 78 in January. And so as you planned, based on your guide for the year, what is the expectation of utilization as you think about the four quarters, 1Q through 4Q?

Is 1Q sort of the low point and then we see gradual improvement?

Chris Eppergesi, CFO, Custom Truck OneSource: Yes. And so maybe historically, what we’ve seen is at the end of the year, utilization comes down, as you noted. We typically then in the first quarter see it rise through the spring, the summer and the hot months it comes back down and then it builds again in the fall and then again at the end of the year, we have the decline. Last year coming out of ’23 into ’24, we didn’t see that normal kind of trend. We saw it go from the end of the year and keep going down to the trough that Ryan talked about around 70% in the summer months, I think at the June.

This year, everything we’re seeing right now is we’re seeing the normal trend. We’ve seen OEC come back up from where it came down in December. And so for the year, our continued guidance would be in the high 70s, low 80s as we go through the year.

Tammy Zakaria, US machinery analyst, JPMorgan: And how about on rent yields? What is the expectation for that?

Chris Eppergesi, CFO, Custom Truck OneSource: Similar, we think with the price increases and with the utilization that we’re seeing that we’re going to get within the range that we’ve quoted, which is high 30s, low 40s. And so we think we’ll be able to maintain that for the year.

Tammy Zakaria, US machinery analyst, JPMorgan: Awesome. And rental CapEx, what is sort of the near term versus the long term target for rental CapEx as you think about growing the business?

Chris Eppergesi, CFO, Custom Truck OneSource: Yes. So we generally say that roughly $300,000,000 of gross CapEx is the maintenance CapEx, anything above that. So this year we said $400,000,000 would be growth CapEx. We also sell the assets as we take them out of the rental fleet. And typically, we’re kind of looking at a target of between $200,000,000 and $220,000,000 And so net CapEx for the year would be about $180,000,000 to $200,000,000 I think as we look forward, obviously, it’s going to depend upon what we’re seeing in the marketplace.

But I think that level of spending is probably directionally what we’d be expecting for the next couple of years.

Tammy Zakaria, US machinery analyst, JPMorgan: And I know you’ve talked about opening new Greenfield locations. And what’s remind us, what’s the target? How many do you plan to open this year? And what kind of CapEx goes into a Greenfield location on average?

Ryan McMonagle, CEO, Custom Truck OneSource: We talk we we’ve talked about opening one to two a year. That’s how we talked about that. Last year, we opened four. Right? We acquired two locations in Long Island and Louisiana, and then we opened two greenfields in Salt Lake City and Sacramento.

This year on our call, we announced we’re opening another location in Portland, Oregon. So I think kind of that one to two a year is probably the right average to think about. From a CapEx perspective, we’re generally leasing those locations. There’s $1,000,000 of CapEx associated with opening the physical location. And then what we’re generally doing is we’re opening those locations where we already have rental equipment on the ground.

So all of our rental equipment is on wheels, so it’s moving across the country. But when we start to see pockets where we don’t have a physical location to service the equipment, that’s when we’re going in and opening locations. And so so the way we think about it is, Chris mentioned $100,000,000 or so of growth CapEx, so kind of that mid single digits from a percentage of the fleet that we’re growing every year. That feels appropriate adding one to two locations to just become more dense in servicing some of those markets where we are not today.

Tammy Zakaria, US machinery analyst, JPMorgan: And how long does it take usually for a new location for its four wall EBITDA to reach maturity?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. It’s, it’s, it will be positive from an EBITDA contribution standpoint within the first year, but it will take a couple of years, I guess, to get to maturity to build the local business in that market. We don’t look at it quite that way because we manage the fleet holistically. But if you were to take just the location P and L, it gets positive really quickly and then a couple of years once you have established relationships in those markets and with those local customers as well.

Tammy Zakaria, US machinery analyst, JPMorgan: And I remember in the most recent call, you mentioned sale leaseback, sale leaseback transaction. Can you just remind us what’s the benefit of doing that? And should we expect more?

Chris Eppergesi, CFO, Custom Truck OneSource: So the benefit is we we just saw it as an opportunity to unlock some value that we had in those properties. There was a total of eight properties, I believe, across six locations. That represents the majority of our owned facilities except for Kansas City, which is our headquarters. I don’t think we really envision doing anything with our headquarters space, just given the amount of land we have there and the ability to continue to grow and expand that. But really, we just saw it as an opportunity to unlock some of that value and then we used it to pay down the ABL.

Tammy Zakaria, US machinery analyst, JPMorgan: Awesome. So shifting to the new equipment side, there’s a regulation coming, NOx regulation, a lot of back and forth around whether there’s gonna be pre buy, whether NOx goes through, doesn’t go through. So is any of that baked into your guidance, any pre buy? Do you expect NOx to go through in its original form? Is what does your guidance assume?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. We’re in listen closely mode is how I would describe kind of our view on NOx. Right? It’s it it feels like there’s a lot of discussion of will it be in effect for 2027. And it feels like it feels likely that it will be, but it could be a little bit later, right?

So I think timing is probably more of a question than the regulation itself. And so it feels like right now our chassis OEM providers are asking for orders. So it’s not kind of indicative of a pre buy yet would be how I would answer the question. And so we’re watching that regulation and we’re also watching the ACT regulation too, which is more around electrification, but also has some implications for chassis that we can sell into certain states as well. So we’re in listen closely mode and react because we have such a good relationship with our chassis OEM partners to be able to pivot quickly.

But I would say in our guidance, we are not expecting much, if any, pre buy. It feels like it could be at the very end of this year and potentially into next year. And until I think the EPA makes a final ruling there, I think there’s a lot of people who are in a wait and see mode on what will happen with both the low NOx regulation and the ACT regulation related to electric trucks.

Tammy Zakaria, US machinery analyst, JPMorgan: And going back to that tariff comment, we’ve seen some third party studies, reports that came out and said if tariffs go through, it could potentially raise the price of a truck by somewhere between 5%, ten %, fifteen %. That’s a decent really large ticker shock. So from your perspective, you’re more vocational. So yours could be even higher. So are you having those discussions with customers that look, if these times go through, we may have to raise pricing.

This is what the cost burden would be?

Ryan McMonagle, CEO, Custom Truck OneSource: Not yet would be my answer. Right? So we were I was talking to our heads of commercial today about that, and that’s not a discussion, right, that we’re engaging in. Again, I think having nine months of inventory or $1,000,000,000 of trucks on the ground gives us some time to figure out how this really will play through. It’s a similar story to the no lock excuse me, the low NOx regulation, right?

They’re talking about a $25,000 to $30,000 increase in the cost of a Class A chassis related to the low NOx requirements. And so I think our customers are aware. I think our customers haven’t quite processed all the way through what’s going to happen and when is it going to happen. More importantly, I think custom truck is well positioned because of the rental fleet also. And so I think those are all things that might make people more interested in renting if the cost of the truck is X more for tariff and then Y more for low NOx requirements.

I think that’s where we think the one stop shop of being able to pivot between the two becomes really compelling from a company perspective.

Tammy Zakaria, US machinery analyst, JPMorgan: Understood. Before I move on to my next question, if anyone in the audience has a question, raise your hand and we’ll get the mic. I think we have a question here.

Unidentified speaker: Thank you. Going into the trough, shall we say, in the last eighteen months, one of the factors cited on a number of occasions was the inability for utility customers to get financing, to secure financing and or they’re waiting for better financing rates. So now that that business is kind of on an upswing, have they effectively resolved that problem? And how did they do that? Because it appears that financing rates haven’t necessarily dropped.

Ryan McMonagle, CEO, Custom Truck OneSource: Yes. I think what we’re watching closely there are rate case approvals, right? And so how are their rate cases being approved? And we’re seeing that more of those have been approved, which means that they’re then deploying their contracts to their customers their their providers, which are our customers, to the contractors. So it feels like that is kind of where that that unlock has happened.

The other big unlock that we’ve seen that we’ve talked about there is some of the regulatory unlock of getting some of these transmission jobs in particular moving, and it feels like that piece is also moving. And then I’d also highlight their supply chains, right? So there was a lot of discussion a year ago, talking about how their supply chains weren’t ready or their product wasn’t on the ground. It feels like that process of what we called mobilization and then demobilization has also been corrected where they have the product they need to begin construction. So less specific to the financing question, but all those three were the other three things we talked about kind of in that context.

Unidentified speaker: Right. Very helpful. Thank you. The second one is just in terms of the LA rebuild, how do you think about that? Or how do your what are they talking about in terms of what that could mean for your business and related kind of infrastructure?

Ryan McMonagle, CEO, Custom Truck OneSource: I would say for our customers, it’s still early days, right? There’s a lot of cleanup, obviously, that’s happening out there. We are seeing some dump truck and some of our roll off truck activity happen. The feedback we’re hearing from the ground is that it is space constrained. And so it’s not even a lot of roll off work.

It’s a lot of dump truck work that’s happening out there to clear some of the areas that were most impacted. So I’d say it’s still early days, from our customers. They all expect that it will be work and that they are well positioned to do that work, but it’s still early days in terms of planning it.

Tammy Zakaria, US machinery analyst, JPMorgan: Any other questions? So I’ll keep going. If anyone has, just raise your hand. U. S.

Megaprojects, that has been a theme, investment theme for about two, three years now. And with the change in administration, we’ve heard some headlines that some funds could be diverted away from, let’s say, the CHIPS Act. And so two part question. Where do you see this mega project? Where we are in that cycle of of mega project spend?

And secondly, how is your product portfolio positioned to take advantage of mega project spend over the next few years?

Ryan McMonagle, CEO, Custom Truck OneSource: Sure. Yeah. We always think about the CHIPS Act in the IRA, in the IIJA kind of all in that same construct. And I would say that our business is most aligned to the dollars that were being approved and are being allocated in the IIJA, which I think is the least at risk maybe is the right way to say it of those three federal stimulus bills. So we think about half of the IIJA has been allocated and of that it’s been allocated about two thirds or so is in process.

And so we see that as kind of good tail for some of our end markets when you think about roads and bridges and certainly some on the transmission and distribution side related to that there. And so I think that’s where Custom Trucks product portfolio was most aligned and where our customers are most focused. And I think that’s where we’re benefiting the most, less so from the CHIPS Act. Like there’s not a of course, there’s some secondary or tertiary kind of connections there, but it’s less of a direct spin based on the types of trucks that we have.

Tammy Zakaria, US machinery analyst, JPMorgan: And in terms of your product portfolio, do you see the bulk of the demand, let’s say, during groundbreaking or during the middle of the project or toward the tail end? When does the demand for you come in?

Ryan McMonagle, CEO, Custom Truck OneSource: Sure. So I think it depends on the type of project that we’re talking about. And so if we’re talking about a major transmission line, I think, it’s there is some of our equipment that’s required at the beginning. The bulk of it is, I’d call it, in the middle to end, you know, portions of of that project. So some of as they’re setting up lay down yards and they’re doing some of the ground clearing or pad formation work, I think there are some of our dump trucks and roll offs and heavy haul tractors that are being used.

And then as they’re going vertical with, transmission structures and then obviously lines, that’s where our equipment is much more necessary. And so it is kind of middle to late stages on projects like that.

Tammy Zakaria, US machinery analyst, JPMorgan: That’s very helpful. And, we always talk about specialty rental versus general rental. General rental has a higher penetration in The US, than specialty. Is there a structural reason why specialty penetration for rentals should be lower than general and and people would rather own than rent? Or do you think over time, specialty can also get to that higher penetration as general rental?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. I think it’s a great question, and it is kind of structure it’s structural to our end market. I think if you think about utility and transmission and distribution, today the majority of the equipment is still owned by IOUs or power producing entities. And so they are less likely to rent. We do rent some equipment to IOUs, but obviously they’re factoring that into their capital plans and into their rate cases.

Who is renting are primarily contractors. So we talk about utility contractors own about half of their fleet. They rent about half of their fleet. That’s a broad generalization and there’s people all around kind of that number. But I think as contractors perform more of the work for IOUs or as more of the work is outsourced to contractors, I think you’ll see kind of the universal rental fleet or kind of universal penetration continue to increase.

I think it could easily be less than where gin rent is today, but I think there’s still plenty of room to increase penetration right there over time.

Tammy Zakaria, US machinery analyst, JPMorgan: So I get this question from investors quite often, especially investors who are relatively new to the custom Truck OneSource story. And the question is, if you look at general versus specialty rental growth of some of your the peers that are public, specialty has grown double digit versus general general brand flat and down for some some companies. And so when I think about CITAS, you are in the specialty market, but your growth your rental income has actually gone down last year. So how would you bridge that disconnect of your performance versus some of the others out there?

Ryan McMonagle, CEO, Custom Truck OneSource: Yes. A couple of thoughts. I think it’s a great question. I think last year is the exception. And if you look at how the rental fleet has grown over the last five years or the last ten years, right, that I’ve been here, it’s been a double digit growth number over that time period.

So I think last year is the exception. I think when we’re looking at GenRent’s talking about their specialty fleet too, I think a lot of that has been acquisition, right, as you’re thinking about the last couple of years and in those cases, I think that’s a big difference. And then I don’t think anybody else has a utility focused specialty rental fleet. And so to me, you really have to begin to isolate to T and D and what’s going on with T and D. And while there are great macro tailwinds, there was this air pocket or low that we talked about for the first two quarters of last year that I think really is the reason.

But I think getting back to, as Chris said, kind of growing the fleet at kind of mid single digits from a growing the size of the fleet standpoint, thinking about improvements in utilization and improvements in rate, I think you get right back to those numbers fairly quickly.

Tammy Zakaria, US machinery analyst, JPMorgan: Got it. Let’s talk about used equipment. We’ve heard other rental companies talk about pressure in used equipment sales gains after very strong gains they’ve seen in 2022, ’20 ’20 ’3. And from your perspective, what is your view of the used equipment market? Are we done with the correction?

Could there be finally a stabilization or even inflection given if tariffs are put on usually used equipment prices tend to go up? So what is your view of the used equipment market?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. I think it’s probably a good comparison just to general rental too. We don’t see as much volatility as general rent does either in terms of utilization or in some of the residual values or sales price on used equipment as they do. And so I think it’s one of the things is that we have seen some decline, right? We give kind of a broad range of generally speaking a five year old asset is generally worth between 6070% of our costs kind of after five years.

And I would say the 70% is the high end of that bound and 60% seems to be the lower end of that bound. And so we have seen that pricing come back. We did see some of that last year in 2024. And I think we’re feeling like there are a couple of pockets where that’s starting to improve. And we expect that it will improve.

And certainly, it’s a beneficiary of inflationary tariff or of low NOx or of any of these kind of regulations that we see coming. Those should all be positive for residual values and for the used truck side of the business for sure.

Tammy Zakaria, US machinery analyst, JPMorgan: Awesome. We’re down to the last five minutes. Any questions from the audience?

Unidentified speaker: Can you talk about the data center in industry and the build out as expected there? Is there a way to think about the impact that may have on your business?

Ryan McMonagle, CEO, Custom Truck OneSource: Yes. I think, I put data centers in one of those great tailwind categories. So there’s, there and I kind of call it more of a secondary tailwind than a primary tailwind. So more demand obviously is good for our business, is good for our customers. I mean, technically, our customers, there is some distance, right, that our customers will be adding line or bringing power right to the data center.

But I think of it more of just a really good kind of long term demand driver for the amount of power that needs to be produced.

Tammy Zakaria, US machinery analyst, JPMorgan: Any other questions? Over there. We have one over there.

Unidentified speaker: Yes. Just curious to get your sense on how much of the IAA dollars and those tailwinds have actually kind of flown through versus what you expect over the next several years?

Ryan McMonagle, CEO, Custom Truck OneSource: Yes. I mean, it’s I wish there was an easy tracker on that. I think the best tracker that we’ve tracked is about half of the IAA dollars have been allocated and then about two thirds of that has been spent or is in process. So it’s still kind of we I think on the call we said middle innings and so that’s kind of what we meant by that is we seem to be somewhere along those lines.

Tammy Zakaria, US machinery analyst, JPMorgan: Any other questions? So I wanted to ask about M and A and leverage. So any thoughts on M and A and also thoughts on your leverage profile where you wanted to get to over the next twelve, eighteen, twenty four months?

Chris Eppergesi, CFO, Custom Truck OneSource: Yeah. I think the way I would characterize it is certainly there’s a lot of attractive opportunities out there. We’re not currently pursuing any of them. De leveraging is definitely a priority for us. As we said, our goal is to get below four times leverage this year and then three times next year.

Having said that, we do have liquidity. We have over $350,000,000 available on our ABL and then another $160,000,000 of suppressed availability. So if a very strategic acquisition were to come along, certainly it would be something we would consider. And historically, we have had no issue and felt comfortable at managing the business at this leverage level.

Tammy Zakaria, US machinery analyst, JPMorgan: We didn’t talk about the parts segment. So what’s the strategy there? What do you think is the growth algo of the parts business for you? And where do you is there any new initiatives, strategies that you’re taking on to accelerate the growth of that business?

Ryan McMonagle, CEO, Custom Truck OneSource: Yes. I’ll start. Look, parts, the aftermarket parts and service business has been something that has since we merged with Nesco, we realized we needed to use the service locations in particular to primarily take care of now the rental fleet that doubled when we did the merger with Nesco back in 2021. So I think our guide is less revenue growth in the APS segment. I would say there are two things though, Tammy, that we’re starting to get some momentum on.

The first is proprietary parts. So as we’ve started to manufacture more of our product, there’s a lot more proprietary parts where distribution is becoming more important that I think will be a growth lever for us this year and really heading into the future. And then we’re also starting to now stock the trucks that we sell with parts, tools and accessories more. And I think we did something like 700 trucks last year that we sent out, which was up meaningfully. And so we see that as another easy adjacency to selling trucks is that our customers need their trucks tooled up to be able to go to work on the job site.

And so those to me are the two areas initially that we’re focused on. We’ll come back around and think about how do we improve our service offering for our sales customers. We know that’s on kind of our couple of year roadmap, but it’s nothing that will make any strategic moves on in the near term.

Tammy Zakaria, US machinery analyst, JPMorgan: Awesome. Any other questions from the audience?

Unidentified speaker: Me one quick one on cash flow working capital. I think in terms of increasing free cash flow, working capital reduction has been part of the strategy. I think that’s expectations going forward. How could that be impact in any way given that the tariff and holding higher inventories that you’re talking about?

Chris Eppergesi, CFO, Custom Truck OneSource: Yes, I didn’t hear the last part. But

Unidentified speaker: in terms of the tariffs and holding inventory, you thought that was

Chris Eppergesi, CFO, Custom Truck OneSource: a mitigation. How does that impact the working capital reduction expectations this year? It could impact it, but it would be within the range that we’ve given kind of for our target. And just because we’re running out of time, in terms of networking capital reduction, I think we gave a target of $50,000,000 to $100,000,000 of levered free cash flow. And the working capital reduction by coincidence would be roughly the same.

So we’re expecting to get about $50,000,000 to $100,000,000 out, which will be further inventory reduction largely.

Tammy Zakaria, US machinery analyst, JPMorgan: Awesome. Any final thoughts before we call it?

Ryan McMonagle, CEO, Custom Truck OneSource: No. Thank you for having us, Tammy. We appreciate it, and we thank you for all the questions.

Tammy Zakaria, US machinery analyst, JPMorgan: Of course. Thank you so much, everyone, for joining.

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