Welcome everyone to this fireside chat with Custom Truck One Source. My name is Tami Zakaria. I'm the machinery analyst here at J.P. Morgan. It is my pleasure to host Ryan McMonagle, President and COO, and Chris Eperjesy, CFO of Custom Truck One. Ryan, I'll pass it on to you.
Great. Thank you for having us, and thank you all for giving us a chance to talk about Custom Truck One Source. We love to tell the story. We thought we'd have a few just prepared slides to talk about the business, and then we'll get into a Q&A. Love to talk about CTOS or Custom Truck, and talk about how it truly is kind of the leading integrated provider of specialty equipment. For us, it means that we're a true one-stop-shop platform, which means we love to take care of our customers however they want to consume equipment. We'll talk about the different ways that we do that, but it's primarily through our rental fleet, which is a big part of our business, and our sales organization as well.
What makes us unique are a few things. One, the favorable end markets that we serve. We'll spend a minute talking about the four primary end markets, which we think continue to have great tailwinds and great demand drivers in them. Then we'll talk about where the growth opportunity is. Just from setting up the business, for fiscal year 2022, we are $1.57 billion in revenue, right at $393 million of Adjusted EBITDA. I said the rental fleet is a big part of our business. We have about 10,000 pieces in our rental fleet or just under $1.5 billion of capital tied up, there are four primary end markets that we serve. You'll see them in the first chart on the bottom.
T&D or transmission and distribution or the utility end market is the largest end market we serve. It's about 65% of our revenue. It's about 70% of our rental fleet today. It's our largest. We'll talk about why we like that. Infrastructure is our second-largest, and then rail and telecom are a big part of our business. You can see the mix of revenue that we show about 2/3 of revenue. 60% of revenue comes from the sales business or the TES segment that we talk about, and then about 30% of revenue comes from the ERS segment or the rental fleet in particular. I always love to start talking about Custom Truck and start with the end markets.
As I said, T&D is about 65% of revenue, and we have a very bullish view on all four of the end markets we serve. T&D right now, both transmission and distribution, are seeing strong growth. We're seeing good CapEx forecasts from the IOUs and power producers. We're seeing really strong backlog from the public utility contractors as well. Feel like T&D continues to have very good demand drivers in it. I think, we think the federal stimulus, both the IIJA and the IRA, both will support all four of the end markets, but T&D in particular. T&D is the core end market and the end market that we are the most bullish on right now.
Telecom and rail are each about 5% of revenue, and we think there are good demand drivers on both of those. Telecom, we're seeing some continued rollout of 5G, and we see some opportunity for Custom Truck to grow share in that segment as well. We think there's good demand for us in telecom. Rail is kind of that steady plotter for us. There are good CapEx projections for most of the major railroads. We serve not only the Class I railroads, but commuter and short line rail as well. Again, it's less than 5% of revenue. For us, it's a good area to continue to grow share. Infrastructure more broadly, there is a ton of federal stimulus. We think there is good demand for infrastructure right now as well.
We primarily participate in 2 pieces. First is refuse. That's a part of our business where we sell and rent roll-off trucks. Kind of more broadly in roads and bridges is a part of our work as well. I think understanding that there are 4 really strong end markets, I think is important to understanding the overall Custom Truck story. For us, it really is about offering what we call the one-stop shop business model. That means to the customer that we'll take care of the customer however they want to consume the equipment, whether it's through the rental fleet, whether it's selling new and used equipment, or it's the aftermarket parts and service business. For us, that all starts with what we call our integrated production capabilities.
Different than a pure rental company or a sales organization, we're buying the individual pieces. We're buying chassis directly from a Peterbilt or a Freightliner or a Ford or a Dodge, and then we're buying attachments, whether that's going to be a bucket truck or a digger derrick, which are the primary two trucks that are used in the utility segment from somebody like Terex, who's our primary partner there, or Versalift, who we buy from some in utility and more on the telecom side of the business. Then we put those trucks together. We have several hundred thousand sq ft of space where we are taking bare chassis, taking the body that we bought specifically for that application and the attachment, and putting those units together. It gives us a real cost advantage.
We will sell, some of our trucks to other rental providers. We know that we have, you know, a 10 or 15 point margin advantage over where other pure rental houses are buying equipment. We know that we have a unit economic advantage when it comes to putting assets into our rental fleet. We also have the ability to pivot as markets move. As perhaps utility heats up, we can add more assets to the rental fleet, if transmission gets stronger, we can do that. If there's demand to sell equipment, we can take our inventory and turn around and sell it. We also like that on the back end, when it's time to dispose of an asset, that we can sell those assets directly.
When an asset comes out of the rental fleet, we have an organization of about 130 sales and rental account executives who account managers who can then sell assets directly to their customers. It's the one-stop shop of taking care of customers however they want to consume equipment, but it's really built on that integrated production capability. Strong end markets in a one-stop shop and what we think is a really loyal customer base. You'll see there's a lot of diversification in the customer base. No customer is more than 4% of revenue today, and our top 15 customers are about 25% of revenue.
Good diversification, and you'll see, you know, really high quality names in terms of customers that we serve and that we've had very long-standing relationships with. The last piece I'll talk about, and then I'll turn it over to Chris, is really the branch network. Today we operate out of 35 locations across the U.S. and Canada, 32 in the U.S., 3 in Canada. Of our just over 2,100 employees, we have about 350 technicians who are keeping the rental fleet up and running, which is really the backbone of what we're doing out of our branch facilities. I think the point I'll highlight here is there's still plenty of room to grow.
There's the Northwest for us is certainly an area where we don't have locations today. We've called out the Southwest or Arizona in particular, and then the Carolinas and the New York and New Jersey metro area. We see good growth, which we'll talk about, but good organic growth from just continuing to grow the rental fleet and then some M&A opportunities as well as we continue to expand the footprint. With that, I'll turn it over to Chris.
Thanks, Ryan. Maybe just to start with, you know, this year was really a year of two halves. As we entered this year, we were somewhat constrained on the supply chain side, entered the year with less inventory than we would've liked. We entered the year at about $410 million of inventory. We finished the year just under $600 million. As the year progressed, we did see improvement in the supply chain, and ultimately it culminated in what was a record fourth quarter for us.
Whether that's new equipment sales on the TE, TES side, where we had $247 million in sales in the quarter, or it was on the ERS side or rental business, where we had record utilization, record rate, and then also, we achieved record OEC, so rental fleet. You look on the top left there, overall revenue for the quarter you'll see was up 37%, driven again by really good growth, 12% in the rental business, 53% in our new equipment sales. For the full year, given some of the constraints we faced in the first half of the year, we're up at roughly 6%. Top right, you see our gross profit, which again was up pretty significant, 35% Adjusted Gross Profit for the quarter.
You'll see there for the year just under a $100 million increase. In terms of our pro forma adjusted EBITDA, on the bottom there, up roughly $25 million, sorry, $30 million in the quarter, just under $60 million for the full year. Overall, just a great year, great strong fourth quarter. We set records in terms of new equipment sales, as well as on our rental business side in terms of our overall utilization and our overall rate. Looking at the balance sheet, we continued to de-lever, which is one of our focuses. You know, as we look at capital allocation, continuing to invest in our fleet 'cause we think there's demand and there's opportunity there is one of the priorities, but also de-leveraging.
You'll see here since the deal back in April 2021, we're just a little over 1 turn down on leverage in the quarter, a little over a quarter turn down. We finished at 3.5. We've given guidance that for this year our goal is to get below 3, assuming we don't have any significant M&A activity. On the top right, you'll see we continue to have a lot of availability and liquidity, so roughly $324 million, which was flat to the last quarter. You'll also see there was significant investment in inventory as well as significant investment in the overall rental fleet. We're able to maintain that availability with that significant investment.
Below the chart on the top right there, you'll see suppressed ABL availability, which has continued to grow, another $60 million versus the end of last quarter. We have about $190 million of additional suppressed availability on our ABL. Bottom left was just what I was talking about in terms of the significant investment we've continued to make throughout the year in the last two quarters, gross additions of just under $100 million and just over $100 million in the fourth quarter, and net CapEx in the last two quarters of roughly $100 million. Continuing to focus on that.
We've given guidance for next year that we expect to see pretty significant growth both in revenue and in EBITDA, and our range on our outlook for revenue is $1.61 billion to $1.73 billion. On the EBITDA, $415 million to $435 million, which represents 6%-11% growth. We still think we're gonna continue to see significant demand in 2023 and continue to invest heavily in our rental fleet. With that, I'll turn it back to Ryan for closing comments.
Sure. Actually, we'll just go to Tami.
Sure.
jump into questions.
Thanks so much for the presentation. I've been asking this question to all the companies that have presented with me so far. The first question is, what are some of the near and long-term opportunities you see from the big three stimulus packages in the U.S., IIJA, CHIPS and IRA? Are you seeing any benefits of these already, or do you think the bulk of it is yet to come?
I'll start with the second half. We think the bulk of it is yet to come. I think the numbers that we quote in this presentation are kind of the direct spend that we see from the IIJA, so we're not including anything from the IRA or from the CHIPS bill. Those are less kind of direct spend that would affect us, but I think they're macro good tailwinds for some of the electrification that's happening and some of just the more broad manufacturing investment that's being made. We haven't seen any of those yet. We think we're starting to see some of it in the infrastructure, in our infrastructure category start to come into backlog.
You know, there are certain projects that we're starting to hear about that are IIJA projects that are starting to come into backlog, we don't think any of it yet is kind of in our performance on the, on the utility side in particular. We think it will be. The way we describe it, though, is we think it will just extend the duration of good demand. There was already really strong demand out there. Certainly, as we move towards electrification, I think that is a great tailwind for our business. Now with the federal stimulus to help accelerate some of that, we just think it will extend the duration of demand for us.
Great. You're a specialty rental company, right? Can you give us a sense of, like, how quickly this specialty rental market penetrates per year? What is the growth like? Because I know I've seen your presentations, like, the penetration is really low. I think you call it at about 25%. Where do you see that going and over what timeframe?
That's a good question. We think it will be gradual penetration. If you look at more general rental, right, you'll see that penetration is kind of 55%-60% or depending on kind of what metric you look at. We think again, it's another good tailwind. For us, the dynamic that seems to be driving that is as utility contractors perform more of the work for IOUs, utility contractors have a higher propensity to rent than the IOUs do themselves. IOUs have typically historically purchased kind of their fleet. As utility contractors perform more of the work, we think that that will mean that more of the universal fleet will be rented. We say that utility contractors typically rent between 30% and 50% of their fleet.
I think as they continue to perform more work, that will drive kind of more penetration of kind of that universal specialty rental fleet.
What do you think could the rate be like? Is it like 100 basis points every year or like 10% every five years?
Yeah, it's a good question. I don't know that we've. I think it'll be gradual, so it's somewhere in there. You know, a couple points a year I think makes sense. We see it as just another in addition to good macro demand from the foreign markets, we see that as just another driver of why we feel good about demand and deploying capital into our specialty rental fleet.
Great. While we are on this topic, for those who are relatively new to this story, can you sort of walk us through how you're different from, let's say, one of the... like URI or one of the national rental chains? What is your differentiation versus them?
Sure. I think there's a couple things that I would highlight that make our story, we think, unique. The first is the end markets. You know, we would say that the end markets that we've chosen have been largely recession-resistant. If you look at utility and telecom and rail and infrastructure, a lot less volatility in those end markets. One, I think the end markets have been intentional. Two, because of that, I think you see a lot less volatility in the rental operating metrics. If you look at utilization, you know, in Q4, we reported 86% utilization, which is, you know, even above what we've called kind of theoretical max from a utilization standpoint.
Really the troughs of utilization that we've seen have been in the low 70% for a quarter, the high 60% for a month. A much tighter band between 70 and kind of the 86% number. We see a lot less volatility on utilization. You see a lot longer duration contracts. A piece of equipment in our rental fleet typically stays out, now it's over 12 months. It's getting close to 13 months that a piece of equipment stays out when it goes out on rent, which is I think very different than general rental. The last piece is the residual value.
You know, we are, as we've sold assets in the financials in 2022, we had about $200 million of re-rental asset sales in there. We're seeing residual values that are 70%-80% of the original cost of the equipment. That's after holding them for, you know, 5 years to 8 years in some cases. We're seeing really strong residual values. All of that layers into really good, what we call unlevered ROIC. When we look at adding an asset into the fleet over its 5-year or 8-year life, we're generating 20-25 points of kind of annual return on an unlevered basis. We think it's just a great way to continue to deploy assets with a good collateral base and you know, what we think are recession-resistant end markets as well.
Great. I wanted to understand your one-stop shop business model a bit better. Does that have an impact on customer acquisition, or does it mostly drive higher retention? More broadly, what do your customers care about the most? Like, what is the usual first conversation like with a prospective customer?
I think that it, ... You know, I think there's a couple things. One, I think it gives us more initial touch points to get to work with a customer. I think it's a much easier purchase decision to rent a truck for a month and spend a few thousand dollars to rent it than to purchase a truck for several hundred thousand dollars. I think, you know, so I think it's much broader from our ability to acquire new customers. I think it's a much easier purchase decision for the customers. At the end of the day, though, the majority of our customers need equipment to do their job, and so they care about kind of the quality of the equipment and the uptime of the equipment.
That's where I think making decisions to reinvest in our fleet and have a young fleet is important, and it's why we continue to invest in our service organization to be able to continue to keep the equipment up and running. At the end of the day, our customers, you know, care about uptime to keep that equipment running.
Perfect. You just reported your fourth quarter earnings. I do want to ask a few sort of near-term questions, if that's okay. Supply chain was a big issue last year. You've had to sort of lower guidance for one of your segments twice. Looking into fiscal 2023, how are you thinking about supply chain? Is the current guidance predicated on supply chain sort of staying at these levels, or you expect some improvement?
You know, I think one of the challenges we had this year, I alluded to in my portion of the presentation, which is we entered the year light on inventory. We were probably a little more optimistic in terms of what was going to happen with the supply chain. I think we feel very good with where we are today, both in terms of an inventory level and what we see in terms of visibility when it comes to chassis and attachments in inventory.
you know, as you look at 2022 as a company, we came in within the guidance range for EBITDA, so I think we were able to really pull it out at the end of the year, and I think that really does go to the one-stop shop business model that Ryan was talking about, there's different levers we can pull and our customers can pull. To answer your question directly, you know, we're not expecting any, you know, significant further improvement in the supply chain in our numbers, but we feel like we're in a really good position to deliver within that range.
Could supply chain be a source of upside if, let's say, it improves from here on?
Yes. I'd answer that yes. If it does improve, if it continues to improve, I think it can be upside, right, to how we provided guidance.
If supply chain wasn't an issue last year, where do you think your TES segment revenues could have been?
Yeah. That's, we think it would be several hundred million dollars more that we would've sold last year. The, the way we think about it is we look at backlog. Backlog finished the year. We reported backlog at $754 million, so that's, you know, 10 or 11 months of sales, right? When you take kind of the midpoint of what we're talking about this year. Historically, that number has been closer to four or five months of sales.
Kind of the delta there, if supply chain had been open last year or closer to normal last year in 2022, you know, we think that there would've been $several hundred million that we would've sold additionally in the TES segment, and we think we would've been able to put another $50 million-$100 million into the rental fleet last year, given how strong demand was kinda throughout the year.
You had a record 86% fleet utilization, right? If I remember correctly in the fourth quarter. How do you think that would look like this year? Does it stay at those levels or tick down a bit?
It was a record. 86 was a record. Historically, 2 years ago, we said that our theoretical max was 85%, so we're proving that we can operate above 85%. As we come into January of this year, we're about 200 basis points where we were last year. Last January, we were in the 81s. This January, we're coming in at kind of the 83 area. We think that we're trending ahead from a utilization standpoint. There's 2 reasons. The team has done a great job of replacing CapEx. As we put in new CapEx, there's less R&M costs associated with it. Then the ops team has done a great job of focusing on how quickly they can turn equipment.
I think those two things, you know, will allow us to continue to operate at a higher utilization level. From a guidance standpoint, we've wanted to be hesitant to say that we're gonna run at all-time highs for the full year, so we've assumed that we'll revert a little bit back to where we historically have operated, which has been in the low 80s, but we think that there can be some upside there for sure.
Perfect. I've heard you talk about your tiered pricing strategy. Can you elaborate on that a little bit? The rationale and what is, like, the purpose of that?
Yeah. I'd simplify it just saying that a customer who's renting hundreds of pieces of equipment is paying a little less than a customer who comes in off the street and is just renting one piece of equipment. We operate with tiers kinda that way.
Got it. I think you've mentioned in the past that contractors are generally your customers.
Right.
How exposed are these contractors to a rising interest rate? Is that a part of the conversation now? Do you see them holding back on maybe purchases and renting more?
It is a discussion that we're having. At the end of the day, I think it starts with really strong demand, so they know that they need the equipment. For a contractor, the cost of the equipment is not a significant component of their cost to go do the work. So it's something that we're aware of and watching, but it's also where we feel like the one-stop shop model wins because we become relatively agnostic to whether they buy the equipment or they rent the equipment from us. So we think that there could be a little bit of a shift from purchasing equipment to renting equipment, but we're okay with that because we're okay with kinda the economics of either.
Going back to your business segments, you have 3, right? The biggest is TES, followed by APS, and then parts and services. Let's say 5 years down the line, where do you see the mix of each going? Do you expect TES to remain the biggest chunk of your business or you wanna focus on rent more?
You know, I think our expectation is we see significant growth for both. You know, we were just talking about decisions that our customers are making based on interest rates, and so obviously, there can be decisions that'll be made. Even in this high interest rate environment, we're seeing record utilization. Ryan alluded to Q4 was 86%, but we actually achieved 89% in the quarter in one of the months. The backlog, we had record TES shipments for the quarter, yet our backlog grew another $50 million versus last quarter. We expect to see, you know, the good demand in both of those. There's probably not gonna be a significant movement in the overall mix that we're gonna see. You know, certainly that can happen as some of those decisions get made.
Got it. I think you mentioned you wanna spend gross $400 million in rental fleet this year. Are you expanding into existing categories, or are you going into new adjacent categories as well?
It will be a little bit of both. We will continue to grow in kind of the core. Utility is the core category for us. It's about 70% of the fleet, so we'll continue to grow the bucket and digger fleet. Then we're beginning to expand into some adjacent products that the same customers are using. Some of the other specialized vocational trucks, things like trailers and vac trucks and roll-off trucks are all really interesting ways for us to continue to take care of the customer, to capture a greater share of the customer's wallet, then, you know, are delivering comparable or if not, improving kind of the ROIC profile of adding those assets to the fleet.
Got it. Switching to, gross margin, the three segments you have, where do you see the most opportunity for organic gross margin expansion? What would be the drivers of that?
You know, we, this year we achieved pretty significant growth margin expansion, both in TES and ERS. You know, I think Ryan has touched on, you know, TES. We wouldn't necessarily expect continued growth from where we were at the end of Q4 'cause we had achieved kind of a high watermark. I think going forward the goal is, you know, to improve upon it, but I wouldn't expect, you know, meaningful improvement off of that. ERS, you know, there's the different levers that Ryan talked about in terms of, you know, putting the new equipment in there. With that new equipment comes with lower repairs and maintenance costs. We have utilization. Obviously, we have rate.
We think, you know, in terms of production efficiencies, in terms of other opportunities as we, you know, see the age of that fleet go down, there could be some further expansion there. I think really the growth story is just the volume that we're gonna get and, you know, there'll be some marginal improvement on margin, including in APS.
Got it. When I think about your competition, I think, one of your largest competitors is a private company. Can you help us understand, like, what's your differentiation versus, you know, your biggest competitor? Is it geographic? Is it a product line? Is it something else that we don't know?
Sure. Yeah, it's. You're right. The largest competitor in the utility segment is Altec, which is a privately owned company. They've taken approach of vertically integrating in buckets and diggers, so they manufacture their own buckets and digger derricks and are certainly a formidable competitor. We've taken a view of a bit of a broader product portfolio, so offering some of these adjacent products that our customers are looking for. We think that's been a competitive way, you know, to compete with them, and then to also offer high quality in service as well. We think customer service has been a big part of why we've been able to continue to grow.
Got it. In terms of your relationship with chassis and adjustment OEMs, your suppliers, have you looked to expand your supplier base given the disruptions you've seen last year? Do you think it's just a one-off, you don't really need to pivot?
I think we have pivoted in certain supplier categories. I think we feel like we've got a great relationship with our chassis OEMs, so with a Peterbilt or a Freightliner or a Ford or a Dodge on a smaller class chassis. We feel like we have a very good relationship as well with our primary attachment OEMs, so with the Terex or a Versalift or a Wastequip on the roll-off product. Where we've started to broaden our supplier base, are on some of the other product categories. Things like our bodies, which now go on multiple different types of chassis.
Mm-hmm.
You know, we've been intentional about broadening that supplier base as well. We feel like the supply chain is improving. It's, you know, I think as Chris mentioned, it's continuing to improve. We're seeing a lot better flows. Also just because of scale, we've wanted to make sure we can broaden our supplier base to make sure we can continue to meet the customer demand that we're seeing.
I wanted to ask you about your geographic expansion plans. I think I saw in your slide you highlighted six regions.
Right.
Where do you think you can expand more? Tell us about the strategy. Is it gonna be M&A? If so, what is the typical size you look at? Any thoughts on that?
Sure. We've taken kind of a dual approach to look at greenfielding sites and just signing a lease and opening a location. Then also looking at kinda geographic M&A. To your point, Tami Zakaria, just going into markets where there's a great local operator who maybe serves one of the end markets we serve or maybe has a small local rental fleet but doesn't have all the product category, and to buy that business and to bring it into Custom Truck. We found that to be a great way to grow because we can service our existing customers who are already there, and then we're able to sell and service the existing, the acquisitions customers as well.
We found those to be a great way to grow, you know, as long as they have the right facility and the right relationships and, you know, and the right employees as well, so.
Great. That brings me to the other part of this equation, which is leverage. I think you ended the year with about 3.5. Is that sort of the run rate for the near term as you remain acquisitive, or do you have plans to maybe take it down a little bit?
Our current plan, you know, we've talked a lot about the rental fleet. Clearly, investing in the rental fleet, we believe is a good investment, given the unlevered ROIC that Ryan talked about. Clearly that's a priority. We do think we can get below 3 times leverage by the end of the year, if we deliver, you know, within our EBITDA guidance range, even with the $400 million of gross CapEx into the rental fleet. That's priority number one. De-leveraging is obviously another priority. We know that's something that investors ask about and expect to get, you know, leverage below 3.
Having said that, we think the business can operate, you know, at the levels of leverage we are right now and the levels of leverage we've been at, just given the model and given what we see as a fairly long duration demand curve. You know, for the right acquisition or, you know, if the demand required, investing further into the rental fleet, you know, those are things that we would certainly consider.
You do expect leverage to come down to 3 times then?
Based on the guidance we've given for this year and absent any meaningful M&A, we think a combination of the EBITDA growth as well as some free cash flow that we'll be able to reduce debt as well as, you know, really drive that EBITDA growth, it'll help us get below 3x.
Perfect. In terms of rental CapEx, I think last year was about $340 million. This year, your growth, and this year you're targeting growth about $400 million. Is sort of like $50 million-$100 million growth investment sort of a good proxy for the next 2-3 years? Do you see it accelerating maybe in 2024 onwards?
We think as long as supply chain holds, right, that we can put it, you know, that amount into the fleet. I think as long as there's demand, we'll continue to make that investment because it gets back to kind of the unlevered ROIC. We'd love to. That incremental $50 million or $100 million in your case, right? We think it's great to deploy that into the rental fleet where we're able to generate the level of asset level returns that we're realizing.
Perfect. Your on-rent yield has grown about 110 basis points year-over-year last year. Should we expect that to keep growing or sort of hold at that level?
You know, as Ryan talked about, we had, you know, records across the board in terms of the fleet size, in terms of our utilization as well as rate. That, you know, there was significant growth last year. We shouldn't expect that same level of growth this year. You know, our goal would be to maintain as close as we can to the OEC rent yield and, you know. Clearly we're looking for opportunities wherever we can.
Perfect. We have probably five more minutes. If any questions from the audience, feel free to jump in. I think you have one.
Thanks. Just thinking about how your 2 segments, 2 main segments work together. First, I guess, how much of the record utilization you saw was really driven by the shortage in supply chain, the inability to source new trucks for your customers? I guess, second part with the residual at, I think you said 75-85 years later, that seems abnormally high. Where would that usually be? As supply chain normalizes and trucks come in, you're able to sell more and there's more at customer locations, how do you think about scaling down, I guess, managing your rental fleet in response to that?
You wanna take that?
Yeah. Yeah. I can take one of the parts of it. In terms of the 80%-85%, you know, typically I think we see closer to 60%-70%, so still relatively high and relatively good, unlevered ROICs. You know, in terms of the demand, we did add significantly to the fleet this year. You know, you are correct. We probably could have added a little bit more, which is why we're doing that, certainly in 2023. You know, in the fourth quarter we got to 89%. I don't know that it would've meaningfully moved it below that. I think we would've had, you know, near record levels for, you know, certainly in the fourth quarter like we did. Ryan, I'll let you answer.
No.
The other piece. Okay, good.
Thanks.
Yeah.
Any more questions? Thank you. Of course.
If you could talk about your mix of business over the longer term, intermediate to longer term, the rental business versus the assembly manufacturing side. Which side would you expect to invest both on an organic basis and also inorganically, as we look forward here, how should we be thinking about the relative mix?
Sure. I'll, we think there's great opportunity in both, would be how I would answer the question. We think there's plenty of opportunity to continue to grow the rental fleet. I think the constraint to growing the rental fleet will be capital, right? It's just a capital allocation question of how much capital do you want to deploy into the rental fleet. You know, the TES side of the business we think can grow more because it's not as capital dependent. We think the capital investment to grow TES is just larger production facilities, which is small kinda relative to continuing to grow the rental fleet. We see good demand for both.
I think the mix will stay relatively the same, I think, which is, you know, similar to how what Chris suggested. I think that will be the case. We see really good demand on both sides, all predicated on making sure that we're able to get the supply that we need to continue to grow both sides of the business, so.
I wanna throw in a couple of more-.
Sure.
-because we do have a couple of more minutes. One is, your manufacturing capacity, do you feel the need for any expansion there or you think you're good for now?
We're talking about adding one more production center to be able to hit kind of our longer term goals. No, everything that we're talking about for 2023 we think we can do with the existing capacity that we have, and really the majority of 2024 as well.
Great. I think you have 35 branches, if I'm not mistaken.
Right.
Any targets to grow branch location per year?
We've said internally, we've said kinda 2-4 a year. It feels about right to be able to continue to add branches, to make sure we staff up those branches appropriately and to maintain the pace of rental fleet growth that we've talked about.
Probably like 1 or 2 branch additions every year. Is that a fair-
I think 1 or 2. As many as 4 in a busy year would be kinda my thought. I think somewhere in that 2 to 4 feels about right.
Got it. Okay, last question from me.
Yeah.
I think you launched a share buyback program. Can you talk about the rationale for that? Is it gonna be like a regular per quarter sort of purchase, or you wanna be opportunistic only?
Yeah. I'll answer the last part. opportunistic for sure. Back in the third quarter, the board approved a $30 million stock buyback plan, really just to support the stock. We felt the stock was undervalued, as we have felt, you know, since that was program was approved. We have been opportunistically in the market and buying back. You know, to date, I think we announced in our Qs, roughly, you know, between $10 million and $11 million on that $30 million authorization. We'll continue to monitor that and, you know, as needed, support the stock.
Great. I think if there are no further questions, Ryan, you have any closing remarks?
No, thank you for having us. We love telling the Custom Truck story. If you have any questions, we're happy to talk to you about it. Tami, thank you for having us. We appreciate it.
Pleasure. Thank you, everyone.
Thank you.