Q4 2024 Earnings Summary
- The company expects higher utilization rates driven by very good demand on the transmission side, with projects underway requiring more equipment in the coming weeks and months, which is expected to increase utilization to the low 80% range.
- Custom Truck maintains strong margin targets, with rental margins in the low to mid-70% range, used equipment sales margins in the mid-20%, and TES margins averaging in the mid-teens, and expects to mitigate the majority of cost increases from tariffs due to a natural hedge from its young rental fleet valued at $1.5 billion with an average age of just over 3.1 years, and significant inventory of over $1 billion.
- Despite a lower backlog, the company is confident in achieving TES revenue growth of high single digits to low double-digit percentages, supported by net orders up 35% in Q4 compared to Q4 last year and continued strong orders in Q1, as well as opportunities to grow market share in all end markets served.
- Significant Decrease in TES Backlog: The company's TES backlog has decreased by 35% to 50% year-over-year, from about $745 million to around $445 million, raising concerns about the company's ability to achieve its projected 12.5% TES revenue growth in 2025.
- Potential Margin Pressure from Tariffs: The company's reliance on imports from Mexico and Canada exposes it to increased costs due to tariffs. While management believes they can mitigate most of the cost increases, they have acknowledged that some cost increases are underwritten into their P&L, which could pressure margins in 2025.
- Limited Options for Further Leverage Reduction: Having already executed sale-leaseback transactions on most of its owned properties, generating over $52 million in net proceeds, the company has limited remaining real estate assets to monetize, restricting future opportunities to reduce leverage through asset sales.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +106% (from ~$447.22M to $923.24M) | Total Revenue more than doubled due to a dramatic rebound in Equipment Rental Solutions where revenue leaped from $3.0M to $421.97M, offsetting a severe reversal in Equipment Sales (which turned negative) and driving an overall sharp revenue growth. |
Rental Revenue | Soared (from $3.0M to $421.97M) | Rental Revenue rebounded strongly in Q4 2024 compared to Q3 2024, signaling a recovery in rental demand and a shift in market dynamics that restored revenue levels dramatically. |
Equipment Sales | Over 100% decline (from $259.90M to -$580.08M) | Equipment Sales reversed drastically from a positive $259.90M in Q3 2024 to a negative figure in Q4 2024, which may be attributed to market contractions, inventory adjustments, or cancellations that sharply undermined sales performance. |
Operating Income | Improved (from $23.04M to $67.28M) | Operating Income improved markedly through effective cost management and margin expansion; the turnaround was largely driven by the surge in rental revenue that more than compensated for the equipment sales shortfall, supporting a stronger overall operating performance. |
Net Income | Reversed from loss (-$17.42M) to profit ($27.57M) | Net Income turned positive due to the strong recovery in rental revenue and improvements in operating income, which shifted performance from a net loss in Q3 to profitability in Q4 2024. |
EPS | Reversed from -$0.08 to +$0.12 | EPS experienced a complete turnaround because the shift from a net loss to a net profit significantly boosted per-share earnings, reflecting overall operational improvements and a positive shift in business mix. |
Depreciation & Amortization | Reversed sharply (from $126.12M to -$92.16M) | Depreciation & Amortization reported a major adjustment with a reversal from a higher charge in Q3 2024 to a lower figure in Q4 2024, hinting at significant accounting revaluation or changes in depreciation methodology possibly related to rental equipment that impacted reported expense levels. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Revenue | FY 2025 | $1.8B to $1.89B | $1.97B to $2.06B | raised |
Adjusted EBITDA | FY 2025 | $340M to $350M | $370M to $390M | raised |
ERS Revenue | FY 2025 | $610M to $625M | $660M to $690M | raised |
TES Revenue | FY 2025 | $1.05B to $1.115B | $1.16B to $1.21B | raised |
APS Revenue | FY 2025 | $140M to $150M | $150M to $160M | raised |
Net Leverage Ratio (below 3x target) | FY 2026 | Goal to achieve below 3x | Goal to achieve below 3x | no change |
Net Leverage Ratio (below 4x target) | FY 2025 | no prior guidance | Target to get below 4x | no prior guidance |
Net Rental CapEx | FY 2025 | no prior guidance | Just under $200M | no prior guidance |
Levered Free Cash Flow | FY 2025 | no prior guidance | $50M to $100M | no prior guidance |
Seasonality Expectation | FY 2025 | no prior guidance | Approximately 45% in H1 and 55% in H2 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Revenue | FY 2024 | $1.8B - $1.89B | $1.802B | Met |
Equipment Rental Solutions (ERS) | FY 2024 | $610M - $625M | $597.80M | Missed |
Truck and Equipment Sales (TES) | FY 2024 | $1.05B - $1.115B | $1.0554B | Met |
Aftermarket Parts and Services (APS) | FY 2024 | $140M - $150M | $149.08M | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Rental Fleet Utilization and Demand | In Q1, utilization dropped to just over 73% with soft demand and temporary headwinds. In Q2, there were signs of improvement from low utilization, although challenges persisted. Q3 reported sequential improvements with utilization reaching over 79% and growing rental demand. | Q4 shows further improvement with average utilization at about 79% and strong utility‐related demand driving rental KPI improvements. | Consistent recovery and improved sentiment as sequential improvements and strong utility demand have turned earlier softness into current positive performance. |
Transmission and Distribution Market Activity | Q1 commentary noted short‐term challenges like supply chain issues, regulatory delays, and bottlenecks even as long-term drivers (grid upgrades, electrification) were acknowledged. In Q2, early signs like increased quoting activity emerged. Q3 then described robust improvements with growing transmission starts and strong T&D market activity. | Q4 reinforced normalization with transmission and distribution utilization returning to the high 70s to low 80s range, and highlighted key indicators (transmission completions, IOU approvals) as fueling further growth. | Robust and recovering – despite earlier bottlenecks, market activity has normalized and appears well on track driven by long‐term structural demand drivers. |
TES Segment Performance and Backlog Dynamics | In Q1, the segment delivered strong double-digit revenue growth, record equipment sales, and a slightly overextended backlog. Q2 showed sequential revenue gains and moderating backlog levels as production improved. Q3 focused on normalization with improved net orders and reduced backlog duration. | Q4 reported record quarterly revenue with sequential increases, improved gross margins, and backlog dynamics reflecting strong customer demand (net orders up and backlog moderating). | Steady strength with gradual normalization – consistent revenue growth and backlog reduction with an evolving outlook for continued robust performance into the future. |
APS Segment Margin Contraction and Pricing Pressure | Q1 saw contraction with margins at 26% versus the prior year's 27%. Q2 continued with margins near 22% amid lower rentals and cost pressures. Q3 reported margins of around 23% driven by higher material costs and market softness. | In Q4, the adjusted gross margin rebounded to over 29% with revenue improvements, suggesting pricing pressure has eased compared to earlier quarters. | Improving sentiment – margins have rebounded in Q4 after several quarters of pressure, indicating a recovery in the pricing environment and operational cost controls. |
Financial Flexibility and Leverage Reduction Challenges | Q1 noted moderate leverage (3.79x) with an emphasis on generating free cash flow. Q2 experienced leverage around 4.1x with continued challenges in reducing balance sheet borrowings. Q3 saw increasing leverage (4.4x) amid higher inventory and borrowings. | Q4 ended with net leverage at 4.5x; however, strategic initiatives like a sale-leaseback transaction and inventory reduction efforts were highlighted to drive future improvements. | Persistent challenge with gradual strategic measures – while leverage remains high, initiatives to reduce debt are underway, though near-term reduction has been limited. |
Tariff Impact and Cost Mitigation Strategies | Not mentioned in Q1, Q2, or Q3 earnings calls. | Q4 introduced a focus on managing cost pressures from tariffs through a natural hedge (young rental fleet and high inventory) and supplier collaboration, particularly with partners in Mexico and Canada. | New emphasis – a topic not previously addressed now appears as part of the strategic cost management framework, reflecting emerging concerns about external cost pressures. |
Utility Market Growth Drivers | Q1 highlighted long-term drivers such as AI, electrification, and grid upgrades amid regulatory and supply chain headwinds. Q2 mentioned these drivers along with challenges like transmission bottlenecks. Q3 further underscored AI-driven data center development, onshoring, and grid investments as key drivers. | Q4 continued to emphasize these drivers with renewed focus on AI-driven data center growth, grid upgrades, and strong long-term electricity demand forecasts (24%-29% increase by 2035) supporting future market growth. | Consistently strong and reaffirmed – utility growth drivers have been a steady undercurrent throughout the year, with Q4 reinforcing the companies’ optimistic long-term outlook. |
Asset and Inventory Positioning | Q1 discussed a young rental fleet (average age ~3.5 years) and significant inventory as a natural hedge against market fluctuations. Q2 noted intentional inventory building and a slight improvement in fleet age. Q3 stressed strategic inventory positioning as a hedge and highlighted a young fleet. | Q4 reinforced a young, high-value rental fleet (valued at $1.5 billion, average age just over 3.1 years) alongside high inventory, maintained as a natural hedge and a tool for managing cost pressures. | Steady focus with slight improvements – the company continues to leverage its youthful fleet and strategic inventory as a hedge, with slight improvements in fleet age noted over time. |
CapEx Investment Strategy Amidst Weak Utility Demand | Q1 described a flexible CapEx approach with strategic investments despite weak utility demand. Q2 reported a cautious approach—holding back on significant growth CapEx in response to tepid utility demand and scaling back investments. Q3 reiterated this cautious investment stance amid soft utility conditions. | Q4 maintained a cautious and strategic CapEx approach, emphasizing selective investments in the rental fleet and close monitoring of tariffs and emission regulations to manage weak utility demand. | Ongoing cautious and flexible strategy – the CapEx approach remains conservative in light of persistent weak utility demand, with an emphasis on responding nimbly to market signals. |
ERS Segment Performance Concerns | Q1 raised concerns with revenue declines, lower utilization (73% vs. 84%), and downward revised guidance due to utility sector softness. Q2 reiterated these headwinds with lowered revenue and guidance adjustments. Q3, however, showed recovery with improved utilization, higher OEC on rent, and growing rental asset sales. | Q4 reflected strong sequential improvements with rising utilization (nearly 79%), improved gross margins (up to 61%) and increasing rental asset sales, effectively alleviating earlier performance concerns. | Shift from concern to recovery – initial performance issues have given way to sequential improvements and stabilized performance, easing earlier concerns by Q3/Q4. |
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TES Revenue Guidance vs Backlog
Q: Why is TES revenue growth expected despite backlog decline?
A: Management expects 12.5% revenue growth in TES despite a 35% year-over-year backlog decline. They are confident due to increased orders in Q4, with net orders up, and this trend is continuing into Q1. They believe normalized backlog is 4 to 6 months and are building revenue forecasts from a bottoms-up approach based on customer orders. -
Margin Outlook and Tariffs Impact
Q: What are the margin expectations and tariff impacts for 2025?
A: Margins are expected to remain consistent, with rental margins in the low to mid-70% range, used equipment sales around mid-20%, and TES at mid-teens. The company is working to mitigate tariff impacts through a natural hedge provided by their $1.5 billion rental fleet, averaging 3.1 years old, and over $1 billion in inventory. They anticipate minimal cost increases due to tariffs in 2025. -
Rental Yield Outlook
Q: How will rental yields and pricing develop in 2025?
A: Rental yields improved sequentially and are expected to hold or slightly improve in 2025. Management is selectively increasing prices as the business environment improves and has already taken some pricing actions in 2025. -
Infrastructure Bill Benefit
Q: How is the infrastructure bill affecting business growth?
A: Management sees some benefit from the IIJA, describing it as mid-innings, and expects it to be a continued tailwind into 2025. They believe it's still early in the cycle but acknowledge the positive impact on their business. -
Sale-Leaseback Impact
Q: How does the sale-leaseback affect lease expenses in 2025?
A: The sale-leaseback will result in an incremental lease expense of approximately $4.5 million to $5 million per year, which is a headwind included in the 2025 guidance. About 80% of this expense will appear in cost of goods sold, with the remaining 20% in SG&A. -
Utilization Outlook
Q: What is the expected progression of equipment utilization in 2025?
A: Utilization is holding in the high 70s to low 80s range and is expected to continue or slightly improve. Increased demand from utility customers, especially in transmission and distribution projects, is driving higher utilization. -
Seasonality and Growth Cadence
Q: Is the 45%-55% revenue split between halves expected in 2025?
A: Management anticipates a similar 45%-55% revenue and EBITDA split between the first and second half of 2025, with potential slight variations of plus or minus 1% or 2%. Q1 is expected to be the slowest quarter, potentially down slightly or up slightly year-over-year. -
Emergency Restoration Benefit
Q: What is the impact of emergency restoration on results?
A: Emergency restoration efforts continue to provide some benefit, particularly in the Carolinas and California, though less than in Q4. The impact is not quantified but is considered not overly significant at this time. -
Real Estate Property Sales
Q: Will there be more real estate property sales to unlock value?
A: Management does not plan further property sales, having sold the majority of owned properties. The recent sale-leaseback was deemed the right time to unlock value, and they intend to continue using these properties under long-term leases.