All right. Good afternoon. This is Tami Zakaria, U.S. Machinery Analyst here at JP Morgan. It is my pleasure to introduce Custom Truck One Source CEO Ryan McMonagle and CFO Chris Eperjesy. Thank you for being here. We will open up the floor for questions from the audience toward the end of the presentation. If anyone has any questions, just raise your hand and we'll get the mic to you. Ryan and Chris, I wanted to start off with 2024. In hindsight, it was a relatively challenging year given the slowdown in demand and utilization. We heard you talk about some green shoots finally in the T&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? Is it going to be a steady recovery throughout the year? How are you feeling about the end market demand? Yeah, we're feeling—thank you for having us, most importantly—but we're feeling really good about end market demand. I think we said at the end of Q2 of last year was kind of our trough from—and I'm talking about T&D transmission and distribution specifically—but we've seen OEC on rent and our utilization metrics improve significantly since Q2 was up another 570 basis points in the fourth quarter. We're seeing that trend hold here at the beginning of Q1. 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. Feeling good about T&D, for sure. I wanted to drill down on that comment. Can you sort of give us some examples, if 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? It feels like they're starting to spend is the answer. 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 shipping plenty of product out there for them. I think that's a very specific example. The same is true for Quanta and for MYR as well. We're seeing real demand happen in the transmission space. We have 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. We're seeing that pick up right now also. Fantastic. Are these projects, some of these projects, are they long-term, multi-year, or more six months, three months? How should we think about the duration of these projects and the consequent demand? Yeah, it's of course a mix is the answer. Transmission, generally speaking, are multi-year projects. 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. Remind us, which of the two is bigger for you, transmission or distribution? 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. For rental specifically, we have a little bit more transmission equipment in the rental fleet today than we do distribution equipment. Got it. Let's talk about tariffs. In your most recent call, you mentioned, I think, 30% of your purchases come from the countries that will see tariffs or are currently seeing tariffs. Can you tell us what your plan is to mitigate some of the risk? Two-part question. The other side is, how are some of your competitors positioned as it relates to exposure to those countries? Sure. Yeah, no, you're right. 30% of what we purchased last year came from Canada and Mexico. That's primarily—we have a little bit that comes from China, but it's a very little, it's a de minimis amount. From Canada and Mexico in particular, it's around some of our key chassis vendors and a few key attachment vendors as well. We're working through it in real time, right, is the answer. I think Custom Truck is uniquely positioned to mitigate tariffs, though, with really two things. The first is the rental fleet. The rental fleet, to me, is a great mitigant to an inflationary environment or to what tariffs could create. Having $1.5 billion 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. 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. We're still sitting here with $1 billion of new inventory. To me, that's another great mitigant, right? You think about the fact that to replace that, if it all were to be kind of subject to tariff, there would be several hundred million dollars of incremental cost associated with that. I think those are the biggest two mitigants. What we're doing to mitigate it is working with all of our suppliers. 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. We're working that way with each of our suppliers. Each supplier is different. Some have production facilities in the U.S. and in Mexico or the U.S. and in Canada. They are talking through how much production can they bring into the U.S. as well. We're working through it with each supplier individually. We think we have a good plan in place. We do not think, because we carry about $1 billion, it's about nine months of inventory. We think we have plenty of runway to continue to work through it. I think the second part of your question, Tami, 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. 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. Understood. 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? Yeah, I'd say it's largely returned to normal. I think there's really 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 with shorter lead times than historically has been the case. I'd say on the attachment side, we're working closely with our suppliers to make sure visibility has improved. I'd say that both of those supply chains have largely normalized from the challenges that we saw in late 2022 and certainly early 2023 as well. Got it. 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? Yeah, I think we said last week on the earnings call that we've put a 3-5% price increase in. Typically, our assets are out on rent. I guess the average tenure is about 13 months. The pricing goes into effect once the asset turns or when a new asset goes out. It will be over the course of this year that you'll see that. You should see the impact of that as the year goes through. We kind of finished last year at the trough, and we'd expect it to start to go up. How about new equipment? Is the 3-5% also applicable to new trucks? It's applicable to rental. Okay. How about equipment sales? Is there any pricing you're taking this year? I think you mentioned you didn't take price; you gave back some pricing last year given weaker demand. How about pricing for new equipment in 2025? Yeah, 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. 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. I don't see a big opportunity to take price sitting here today heading into 2025. In that case, 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? I think we'll be able to pass through cost increases that we see as those are internalized. I don't think there'd be an opportunity to kind of expand margin or take price that way. Given the relatively weaker demand environment you saw last year, did you see any change in preference amongst customers between renting versus owning? I think nothing significant. I think the weaker demand environment we saw last year was specific to rental. The sales business was up about 7% last year. What we've seen is that the rental business is what has come back quickly through the third quarter and fourth quarter. No, we're not seeing any meaningful shift between wanting to rent and wanting to own equipment. Great. 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. 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? Yeah. 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 it builds again in the fall. At the end of the year, we have the decline. Last year, coming out of 2023 into 2024, we did not 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 end of June. This year, everything we are seeing right now is we are seeing the normal trend. We have seen OEC come back up from where it came down in December. For the year, our continued guidance would be in the high 70s-low 80s as it goes through the year. How about on-rent yields? What is the expectation for that? 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%. We think we'll be able to maintain that for the year. Awesome. Rental CapEx, what is sort of the near-term versus the long-term target for rental CapEx as you think about growing the business? Yeah. We generally say that roughly $300 million of gross CapEx is the maintenance CapEx. Anything above that, this year we've said $400 million would be growth CapEx. We also sell the assets as we take them out of the rental fleet. Typically, we're kind of looking at a target of between $200 million and $220 million. Net CapEx for the year would be about $180 million-$200 million. I think as we look forward, obviously, it's going to depend upon what we're seeing in the marketplace. I think that level of spending is probably directionally what we would be expecting for the next couple of years. I know you've talked about opening new greenfield locations. Remind us, what's the target? How many do you plan to open this year? What kind of CapEx goes into a greenfield location on average? 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. 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. 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 million of CapEx associated with opening the physical location. What we're generally doing is we're opening those locations where we already have rental equipment on the ground. All of our rental equipment is on wheels, so it's moving across the country. When we start to see pockets where we do not have a physical location to service the equipment, that is when we are going in and opening locations. The way we think about it is, Chris mentioned $100 million or so of growth CapEx. So kind of that mid-single digits from a percentage of the fleet that we are growing every year. That feels appropriate, adding one to two locations to just become more dense and servicing some of those markets where we are not today. How long does it take usually for a new location for its four-wall EBITDA to reach maturity? Yeah, it will be positive from an EBITDA contribution standpoint within the first year. It will take a couple of years, I guess, to get to maturity to build the local business in that market. We do not look at it quite that way because we manage the fleet holistically. If you were to take just the location P&L, it gets positive really quickly. In a couple of years, once you have established relationships in those markets and with those local customers as well. I remember in the most recent call, you mentioned a sale lease-back transaction. Can you just remind us what's the benefit of doing that, and should we expect more? The benefit is 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 do not 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. We just saw it as an opportunity to unlock some of that value, and then we used it to pay down the ABL. Awesome. Shifting to the new equipment side, there is a regulation coming, NOx regulation. A lot of back and forth around whether there is going to be pre-buy, whether NOx goes through, does not go through. Is any of that baked into your guidance, any pre-buy? Do you expect NOx to go through in its original form? What does your guidance assume? Yeah, we're in listen closely mode is how I would describe kind of our view on NOx, right? It feels like there's a lot of discussion of will it be in effect for 2027. It feels like it feels likely that it will be, but it could be a little bit later, right? I think timing is probably more of a question than the regulation itself. It feels like right now our chassis OEM providers are asking for orders. It's not kind of indicative of a pre-buy yet would be how I would answer the question. We're watching that regulation. 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. 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. I would say in our guidance, we are not expecting much, if any, kind of pre-buy. It feels like it could be at the very end of this year and potentially into next year. 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. Going back to the 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%, 10%, 15%. That's a decently large ticker shock. From your perspective, you're more vocational, so yours could be even higher. Are you having those discussions with customers that, look, if these tariffs go through, we may have to raise pricing? This is what the cost burden would be? Not yet would be my answer, right? I was talking to our heads of commercial today about that, and that's not a discussion that we're engaging in. Again, I think having nine months of inventory or a billion dollars 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 low NOx regulation, right? They're talking about a $25,000-$30,000 increase in the cost of a Class 8 chassis related to the low NOx requirements. 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. 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. 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. Thank you. Going into the trough, shall we say, in the last 18 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. Now that that business is kind of on an upswing, have they effectively resolved that problem? How did they do that? Because it appears that financing rates haven't necessarily dropped. Yeah, I think what we're watching closely there are rate case approvals, right? How are their rate cases being approved? We're seeing that more of those have been approved, which means that they're then deploying their contracts to their customers, their providers, which are our customers, to the contractors. It feels like that is kind of where 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. It feels like that piece is also moving. I'd also highlight their supply chains, right? 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've called mobilization and then demobilization has also been corrected where they have the product they need to begin construction. Less specific to the financing question, but all those three were the other three things we talk about kind of in that context. All right. Very helpful. Thank you. The second one is just in terms of the L.A. rebuild. How do you think about that? Or what are they talking about in terms of what that could mean for your business and related kind of infrastructure? 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. 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. I would 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. It's still early days in terms of planning it. Any other questions? I'll keep going. If anyone has, just raise your hand. U.S. mega projects, that has been an investment theme for about two, three years now. With the change in administration, we've heard some headlines that some funds could be diverted away from, let's say, the CHIPS Act. Two-part question. Where do you see this mega project, where we are in that cycle of mega project spend? Secondly, how is your product portfolio positioned to take advantage of mega project spend over the next few years? Sure. Yeah, we always think about the CHIPS Act and the IRA and the IIJA kind of all in that same construct. 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. 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. We see that as kind of good tailwind 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. I think that's where Custom Truck's product portfolio is most aligned and where our customers are most focused. I think that's where we're benefiting the most. Less so from the CHIPS Act. There's not a, of course, there's some secondary or tertiary kind of connections there, but it's less of the direct spend based on the types of trucks that we have. 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? Sure. I think it depends on the type of project that we're talking about. If we're talking about a major transmission line, I think 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 portions of that project. 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-off trucks and heavy haul tractors that are being used. As they're going vertical with transmission structures and then obviously lines, that's where our equipment is much more necessary. It is kind of middle to late stages on projects like that. That's very helpful. We always talk about specialty rental versus general rental. General rental has a higher penetration in the U.S. than specialty. Is there a structural reason why specialty penetration for rentals should be lower than general and people would rather own than rent? Or do you think over time, specialty can also get to that higher penetration as general rental? Yeah, I think it's a great question. It is kind of 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. 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. We talk about utility contractors own about half of their fleet. They rent about half of their fleet. That's a broad generalization. There's people all around kind of that number. 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 gen rent is today, but I think there's still plenty of room to increase penetration right there over time. I get this question from investors quite often, especially investors who are relatively new to the Custom Truck One Source story. The question is, if you look at general versus specialty rental growth of some of the peers that are public, specialty has grown double-digit versus general rent flat and down for some companies. When I think about CTOS, you're in the specialty market, but your rental income has actually gone down last year. How would you bridge that disconnect of your performance versus some of the others out there? Yeah, a couple thoughts. I think it's a great question. I think last year is the exception, right? If you look at how the rental fleet has grown over the last five years or the last 10 years, right, that I've been here, it's been a double-digit growth number over that time period. I think last year is the exception. I think when we're looking at gen rents 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 in those cases. I think that's a big difference. I don't think anybody else has a utility-focused specialty rental fleet. To me, you really have to begin to isolate to T&D and what's going on with T&D. While there are great macro tailwinds, there was this air pocket or lull that we talked about for the first two quarters of last year that I think really is the reason. 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. 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, 2023. 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. What is your view of the used equipment market? 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. I think it's one of the things is that we have seen some decline. We give kind of a broad range of, generally speaking, a five-year-old asset is generally worth between 60% and 70% of our costs kind of after five years. I would say the 70% is the high end of that bound and 60% seems to be the lower end of that bound. We have seen that pricing come back. We did see some of that last year in 2024. I think we're feeling like there are a couple pockets where that's starting to improve. We expect that it will improve. Certainly, it is a beneficiary of inflationary, of 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. Awesome. We're down to the last five minutes. Any questions from the audience? Can you talk about the data center in the industry and the build-out as expected there? Is there a way to think about the impact that may have on your business? Yeah, I think I put data centers in one of those great tailwind categories. There, and I kind of call it more of a secondary tailwind than a primary tailwind. 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. 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. Any other questions? Over there, we have one over there. Yeah, just curious to get your sense on how much of the IIJA dollars and those tailwinds have actually kind of flown through versus what you expect over the next several years. Yeah. Yeah, I mean, I wish there was an easy tracker on that. I think the best tracker that we've tracked is about half of the IIJA dollars have been allocated. And then about two-thirds of that has been spent or is in process. It is still kind of, I think on the call, we said middle innings. That is kind of what we meant by that is we seem to be somewhere along those lines. Any other questions? I wanted to ask about M&A and leverage. Any thoughts on M&A and also thoughts on your leverage profile where you wanted to get to over the next 12, 18, 24 months? 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. Deleveraging 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 million available on our ABL and then another $160 million of suppressed availability. If a very strategic acquisition were to come along, certainly it would be something we would consider. Historically, we had no issue and felt comfortable managing the business at this leverage level. We did not talk about the parts segment. What is the strategy there? What do you think is the growth algo of the parts business for you? Is there any new initiative strategies that you are taking on to accelerate the growth of that business? Yeah, I'll start. Look, parts, the aftermarket parts and service business has been something that, 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. I think our guide is less revenue growth in the APS segment. I would say there are two things, though, Tami, that we're starting to get some momentum on. The first is proprietary parts. 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. We're also starting to now stock the trucks that we sell with parts, tools, and accessories more. I think we did something like 700 trucks last year that we sent out, which was up meaningfully. 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. 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 we'll make any strategic moves on in the near term. Awesome. Any other questions from the audience? Maybe 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 impacted in any way given the tariff and holding higher inventories that you talked about? Yeah, I didn't hear the last part, but in terms of the tariffs and holding inventory, you thought that was 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. Just because we're running out of time, in terms of networking capital reduction, I think we gave a target of $50 million-$100 million of levered free cash flow. The working capital reduction, by coincidence, would be roughly the same. We're expecting to get about $50 million-$100 million out, which would be further inventory reduction largely. Awesome. Any final thoughts before we call it? No, thank you for having us, Tami. We appreciate it. We thank you for all the questions. Of course. Thank you so much, everyone, for joining.