Hello, and welcome to the Custom Truck One Source Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Now I would like to turn the call over to Brian Perman. Brian, the floor is yours. Brian Pe

Thank you. Before we begin, we would like to remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause results to differ, please refer to the Risk Factors section of the company's filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during the call in the press release we issued yesterday afternoon. That press release and our second quarter investor presentation are posted on the Investor Relations section of our website. We filed our second quarter 2025 10-Q with the SEC yesterday afternoon. Today's discussion of our results of operations for Custom Truck One Source Inc., or Custom Truck, is presented on a historical basis as of or for the 3 months ended June 30, 2025, and prior periods. Joining me today are Ryan McMonagle, CEO; and Chris Eperjesy, CFO. I will now turn the call over to Ryan.

Thank you, Brian, and welcome, everyone, to today's call. Custom Truck had a very strong second quarter, delivering 21% revenue growth and 17% adjusted EBITDA growth versus Q2 of 2024, characterized by continued solid fundamentals across our primary end markets and excellent execution by our entire team. Demand in our core T&D markets remained robust, leading to strong results in both our ERS and TES segments and overall sequential and year-over-year revenue growth for the quarter. We continue to navigate the volatile macroeconomic environment through regular engagement with our customers and suppliers. Our steady business activity and strong intra-quarter order flow continue to reinforce our optimism about achieving our expected growth targets in 2025. As a result, we are reaffirming our previous fiscal 2025 revenue and adjusted EBITDA guidance. While Chris will discuss our segment's performance in greater detail, I'd like to highlight some key trends. In ERS, our utility contractor customers continue to see sustained and increased levels of activity which they expect to persist for the foreseeable future, driven largely by unprecedented secular growth in electricity demand and the continuing need for substantial grid maintenance spending by the utilities. The strong rental demand in the utility end market and across our other primary end markets resulted in average OEC on rent for Q2 of over $1.2 billion, a 16% year-over-year increase. Average utilization in the quarter was just under 78%, up almost 600 basis points versus Q2 of last year and up sequentially as well. We continue to see mid-70% to mid-80% utilization rates across most of our fleet, demonstrating the long-term resilience of our end markets. These trends resulted in significant year-over-year increases in both rental revenue and rental asset sales, driving total ERS segment revenue up more than 23% versus Q2 of last year. We continue to leverage the substantial rental demand in ERS to selectively invest in our rental fleet. At the end of Q2, our total OEC was just over $1.56 billion, our highest quarter end level ever. We plan to continue to invest during the remainder of the year to ensure we have adequate equipment to meet current and projected rental demand. TES saw outstanding sales performance in the quarter, achieving several milestones. We experienced 2 consecutive months of TES sales over $100 million each for the first time in our history in the second quarter and saw our second highest quarter of sales ever. This resulted in significant year-over-year sales growth of more than 22% and sequential growth of more than 30%. While our backlog was down in the quarter, our intra-quarter order flow remains quite strong, particularly among local and regional customers. Signed orders in the quarter from this portion of our customer base were up more than 45% year-over-year, driving overall signed order growth of just under 35% on a year-over-year basis. As we expected, segment gross margin began to normalize in the second quarter and was up versus Q1. Overall, our current pace of orders and the continued strong demand for vocational vehicles across our end markets combined to provide us with the confidence in our outlook for TES for the rest of the year. There have been several legislative and regulatory matters that have affected the overall economic environment for which we gained greater clarity in the recent months. First, the passage of the recent federal spending and tax bill provided a clear understanding of the administration's economic policy and included an accelerated or bonus depreciation provision that we feel will be beneficial to Custom Truck's business, particularly for our small- and medium-sized customers. Next, while tariffs remain an area of focus for us, as a result of the combination of our proactivity around certain inventory purchases in the first half of the year and the current expectation for the tariffs effect on our vendors, we feel that tariffs will have a limited direct cost impact on our business this year. We continue to hear about uncertainty related to new equipment purchase decisions from some of our smaller customers. We obviously continue to monitor changes to the administration's product and regional tariff policies and will adjust our responses accordingly. Finally, with respect to the previously announced changes to emission standards from both the EPA and CARB, final decisions have yet to be made. However, last month, Congress revoked California's waivers that allowed CARB to separately legislate emission standards, effectively ending upcoming changes to truck and auto emission standards as well as plans to phase out gas-powered vehicles. The orders are being challenged in court by the State of California. In addition, we continue to wait for clarity from the EPA on the 2027 low NOx emission standards and warranty requirements. As we've stated in recent quarters, our current outlook for TES assumes no prebuy resulting from changes in either EPA or CARB emission standards. We are reaffirming our full year 2025 guidance. Our strong year-to-date results, our robust order flow and resilient end market demand continue to drive our expected growth across our consolidated business this year. Despite some volatility in the macro environment, our business outlook remains positive. Long-term sustained end market demand buoyed by secular megatrends and our ability to execute on behalf of our customers sets us apart from our competition. Our multi-decade relationships with strategic suppliers and our long-tenured and diversified customer base will continue to be keys to our success. I continue to have the highest degree of confidence in the Custom Truck team and want to thank everyone for their hard work and dedication that helped achieve these results this quarter. We look forward to updating everyone on our progress on next quarter's call. With that, I'll turn it over to Chris to discuss our second quarter results in detail.

Thanks, Brian. For the second quarter, we generated $511 million of revenue, $157 million of adjusted gross profit and $93 million of adjusted EBITDA, up 21%, 17% and 17%, respectively, versus Q2 of 2024. On a year-over-year basis, all of our rental segment KPIs improved in the quarter. Average utilization of the rental fleet for Q2 was just under 78% compared to under 72% in Q2 of the prior year. Average OEC on rent in the quarter was over $1.2 billion compared to slightly more than $1 billion in Q2 of 2024. Both metrics so far in Q3 remain strong and are consistent with the averages we experienced in Q2, currently standing at almost $1.22 billion and 77%, respectively. As of today, OEC on rent is up more than $160 million or more than 15% versus a year ago. The ERS segment had $170 million of revenue in Q2, up more than 23% from $138 million in Q2 of 2024. Both rental revenue and rental asset sales were up meaningfully on a year-over-year basis, showing 17% and 40% growth, respectively. Adjusted gross profit for ERS was $100 million for Q2, up 20% from Q2 of last year. Adjusted gross margin for ERS was 59% in the quarter, slightly lower versus the same period last year, primarily driven by a higher mix of rental asset sales. For Q2, we maintained margins in the expected ranges of the low to mid-70% range for rental revenue and the mid-20% range for rental asset sales. On rent yield was 38.6% for the quarter, up slightly on a sequential basis. Net rental CapEx in Q2 was $64 million, and our fleet age improved slightly to 3 years. Our OEC in the rental fleet ended the quarter at over $1.56 billion, up more than $100 million versus the end of Q2 2024 and up $12 million in the quarter, reflecting our strategic investment in the rental fleet given the strong demand environment we continue to experience across our primary end markets. We expect to continue to invest in the fleet through the remainder of this year, resulting in mid-single-digit percentage OEC growth versus the end of 2024. As we always do, we will adjust our CapEx plans to reflect our customers' demand to both rent equipment and purchase used equipment out of our fleet. In the TES segment, we sold $303 million of equipment in Q2, up more than 22% year-over-year and more than 30% sequentially. The second quarter represented the second highest quarterly sales for TES in our history and saw 2 consecutive months of sales over $100 million for the first time in our history. Gross margin in the segment in Q2 was 15.5%, down from Q2 2024, but up more than 45 basis points from last quarter. We expect TES gross margins to continue to improve in the second half of this year. TES new sales backlog decreased by $85 million in the quarter, driven by strong sales activity in the quarter. At approximately 4 months of LTM TES sales, our TES backlog is within our targeted historical average range. Net orders were $218 million in Q2, up more than 15% to Q2 of 2024. So far in Q3, we continue to see strong sales and order flow and our backlog has grown as well. That, combined with ongoing feedback from our customers regarding their equipment needs for the second half of 2025, provides us with confidence that we will see the expected double-digit revenue growth in TES this year. Our strong and long-standing relationships with our chassis, body and attachment vendors continue to be an important driver of TES production. Our current level of inventory positions us well to meet our production, fleet growth and sales goals for the year as well as help mitigate any impact from tariffs. Our APS business posted revenue of $38 million in the quarter, up 3% compared to Q2 of last year and 6% sequentially. Adjusted gross margin in the segment was 26% for Q2, up both year-over-year and sequentially. Borrowings under our ABL at the end of Q2 were $670 million, an increase of $15 million versus the end of Q1, largely to fund rental equipment CapEx and certain other working capital needs. As of the end of Q2, we had $275 million available and over $230 million of suppressed availability under the ABL. With LTM adjusted EBITDA of $349 million, we finished Q2 with net leverage of 4.66x, an improvement from the end of Q1. Despite the tactical pull forward of some of our inventory purchases into the first half of the year, we continue to expect to reduce our inventory by the end of the year which should contribute to lower balances on our floor plan lines as well as reduced borrowings on the ABL. We intend to use our levered free cash flow this year to reduce our net leverage and continue to target a level of below 3x. This remains a primary and important goal for us and one that we expect to achieve by the end of fiscal 2026. We are reiterating our previous 2025 guidance with total revenue in the range of $1.97 billion to $2.06 billion, adjusted EBITDA in the range of $370 million to $390 million and net rental CapEx of approximately $200 million. Our segment guidance also remains unchanged. We continue to expect to generate meaningful levered free cash flow in 2025, setting a target of more than $50 million and to deliver a meaningful reduction in our net leverage by the end of the fiscal year. In closing, I want to echo Ryan's comments regarding our continued strong business outlook. Despite some macroeconomic uncertainty in the first half of the year, our year-to-date results and the continued strong fundamentals of our end markets allows us to be optimistic about the long-term demand drivers in our industry and our ability to return to double-digit adjusted EBITDA growth this year. With that, I will turn it over to the operator to open the line for questions.

[Operator Instructions] And your first question comes from the line of Nicole DeBlase with Deutsche Bank.

This is Naim Kaplan on for Nicole DeBlase. So first question, can we get an update on the tariff impact to 2025 as well as the quarterly cadence of the impact?

Yes. Happy to talk about tariffs. It really is kind of going to be a very small impact in our business this year. So I think the team has done a great job of pulling forward some of our chassis purchases to receive those chassis kind of pre-tariff -- pre any tariff increase. And then we've done a great job of just managing the rest of our supply base. So minimal cost impact in the business this year. What cost impact we will see -- you'll see some of that hit in the third and fourth quarter this year, which will then be something that we're managing through as we head into 2026. But again, minimal cost impact, we saw TES gross margin increase from Q1 to Q2, which is what we talked about and are happy kind of that, that business is performing that way.

Okay. Got it. And just one follow-up, if I may. So the backlog has declined quarter-over-quarter and year-over-year. Is that a concern? And does the quarter-to-quarter decline reflect the business returning to a more seasonal pattern? And if you have an expectation also for the backlog at the year-end, like should we expect growth in the back at the end of the year?

Yes, it's a great question, and it did decline. You're correct that it did decline, but you have to remember too, revenue was up 21% in the quarter as well. And I think that's in my prepared comments, that's where I talked about what we're watching closely is order volume. So I think I said that our regional team, our local team orders won, right? So those are signed orders was up 45% Q2-on-Q2. And for the entire company, it was up almost 30% Q2-on-Q2. So we're still seeing really good orders won. It is part of why it's important for us to keep inventory at a level that we can deliver intra-quarter on those orders, too. But no, we're feeling really good. Any time you put up 21% growth, I think that's a positive trend, and we are feeling good about the back half of the year. And even at the midpoint of our guidance, you see that there's still an implied good growth rate in the back half of the year.

[Operator Instructions] There is no further question at this time. I will now hand it over to Ryan McMonagle for closing remarks. Ryan?

Great. Thanks, everyone, for your time today and your interest in Custom Truck. We look forward to speaking with you on our next quarterly earnings call. And in the meantime, don't hesitate to reach out with any questions. Thanks again, and have a great day.

That concludes today's conference call. You may now disconnect.