Custom Truck One Source Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 4, 2026

Key Takeaways

  • Positive Sentiment: Record Q2 performance: Revenue rose 10% year over year to $563 million, adjusted EBITDA increased 25% to $117 million, and the company reported GAAP net income of $10 million versus a loss in the prior-year quarter.
  • Positive Sentiment: Specialty Equipment Rentals benefited from strong transmission and distribution demand, with utilization reaching 81.6%, OEC on rent rising 13% to $1.37 billion, and total rental fleet OEC reaching a record $1.68 billion.
  • Positive Sentiment: Management raised full-year 2026 guidance to $2.1 billion-$2.2 billion of revenue and $437.5 million-$455 million of adjusted EBITDA, citing robust T&D demand, strong order flow, and expected growth in both segments.
  • Negative Sentiment: STEM backlog declined sequentially by $89 million to $322 million after record deliveries, while Q3 revenue and EBITDA are expected to be below Q2 levels due to equipment deliveries and RPO buyouts shifting forward; upcoming EPA 2027 emissions rules are also expected to increase customer costs.
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Earnings Conference Call
Custom Truck One Source Q2 2026
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Operator

Ladies and gentlemen, thank you for standing by and welcome to Custom Truck One Source's second quarter 2026 earnings conference call. Please note this conference call is being recorded. I would now like to hand the conference call over to your host today, Brian Perman, Vice President of Investor Relations for Custom Truck One Source.

Brian Perman
Brian Perman
VP of Investor Relations at Custom Truck One Source

Thank you operator, and good morning. 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 actual results to differ, please refer to the risk factor 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 after the market closed. That press release and our second quarter investor presentation are posted on the investor relations section of our website. Yesterday afternoon, we also filed our second quarter 2026 10-Q with the SEC.

Brian Perman
Brian Perman
VP of Investor Relations at Custom Truck One Source

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 three months ended June 30th, 2026 and prior periods. A reminder that beginning last quarter, our financial reporting now reflects our two new reportable segments, Specialty Equipment Rentals or SER, and Specialty Truck Equipment and Manufacturing or STEM. While our 2026 results in our earnings press release and SEC filing reflect the application of inter-segment pricing and margins as per accounting requirements for inter-segment sales, the segment results for 2025 reflect the inter-segment sales with no margin as no inter-segment agreement was in place in the period.

Brian Perman
Brian Perman
VP of Investor Relations at Custom Truck One Source

For an illustrative comparison of what the 2025 results would've been had inter-segment sales been reflected with the appropriate gross margin and had other internal accounting policies been in place at the time, please see the appendix of the Q2 investor presentation posted on our investor relations website. Joining me today are Ryan McMonagle, CEO, and Chris Eperjesy, CFO. I will now turn the call over to Ryan.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Thanks Brian. Good morning everyone. We delivered record revenue in the second quarter, capping a strong first half, driven by continued strong momentum in our core end markets and outstanding execution by our team. In the second quarter, we generated revenue of $563 million in adjusted EBITDA of $117 million, up 10% and 25% year-over-year respectively. Our specialty equipment rental segment continues to deliver consistently strong performance, driven by sustained and growing demand in the Transmission and Distribution or T&D markets. Our rental fleet averaged 81.6% utilization during the quarter, up 400 basis points from Q2 of last year. This was supported by continued robust levels of OEC on rent, which averaged $1.37 billion in Q2, up 13% year-over-year. So far in Q3, both measures have continued to show year-over-year growth.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

We believe that we are in the early stages of what could be a once-in-a-generation transmission demand super cycle. We ended the quarter with total OEC of $1.68 billion, the highest quarter end level in our history, which will support our expected continued growth in SER revenues in the second half of this year. Our average fleet age is just over three years old, which we believe is one of the youngest fleets in the industry and positions us well to support our customers' needs across the country. Our trucks and equipment continue to power the people who strengthen and build critical infrastructure in the U.S. and Canada. The market has been focused on the durability of demand in T&D and our ability to convert improving rental KPIs into earnings and cash flow. We believe our trending results over recent quarters speak directly to that.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Bidding activity and ongoing conversations with our customers lead us to believe that these conditions will persist through the remainder of 2026 and beyond. Our specialty truck equipment and manufacturing segment had record performance in the second quarter, with equipment sales reaching an all-time quarterly high for the company and reflecting continued healthy end market demand and order flow. For Q2, STEM revenue, excluding sales to our SER segment, was up 5% versus Q2 of 2025, which at the time was a record for non-fourth quarter equipment sales. New sales order backlog ended the second quarter at $322 million, down $89 million from the end of Q1 on record Q2 deliveries. Despite the decrease in our backlog in Q2, intra-quarter order flow remains strong and our backlog has grown so far in Q3. We continue to see strong sales demand in the utility end market, especially focused on transmission equipment.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

In the infrastructure end market, our ongoing conversations with our customers and the pace of bidding and our order activity combine to provide us with the confidence to expect another year of growth in third-party customer revenue for STEM. With respect to the EPA 2027 NOx emission regulations, the EPA introduced its proposed changes to the rules in early July, which maintain the 2027 NOx standards while adding non-conformance penalty provisions. The regulations are expected to be finalized later this year. Given our current inventory position, the chassis pre-buy actions we have already taken, and our strong relationships with our chassis OEM partners, we believe CECO is well-positioned to navigate the impact of the upcoming emission standards changes.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Given our strong year-to-date performance, robust conditions in the T&D markets, and our outlook for the rest of the year, we are increasing our previous full year 2026 consolidated revenue and adjusted EBITDA outlooks. We expect consolidated revenue in the range of $2.1 billion-$2.2 billion and adjusted EBITDA in the range of $437.5 million-$455 million. Long-term sustained end market demand, buoyed by secular megatrends, combined with our ability to provide exceptional execution on behalf of our customers, sets us apart from our competition. Our long-standing relationships with our strategic suppliers and customers 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 our extraordinary results in the second quarter. We look forward to updating everyone soon.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

With that, I'll turn it over to Chris to walk through the numbers in more detail.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

Thanks, Ryan, and good morning, everyone. I'll start with the consolidated results for the quarter, then discuss segment performance, our balance sheet, liquidity, and leverage, and finally, our updated 2026 outlook. Our second quarter 2026 results reflect stronger operating performance across the business and improved rental fundamentals, particularly in our T&D markets. For the second quarter, total revenue was $563 million and adjusted EBITDA was $117 million, representing 10% and 25% growth, respectively, versus Q2 2025. On a GAAP basis, second quarter net income was $10 million, or $0.05 per diluted share, compared with a net loss of $28 million a year ago, bringing first half net income to $6 million. About $19 million of that year-over-year improvement reflects a favorable income tax rate as the prior year quarter carried a tax expense related to an adjustment in our estimated effective tax rate.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

The balance was driven by higher operating income. Turning to our segments. In SER, second quarter third-party revenue, excluding inter-segment sales, was $219 million, up 20% year-over-year, driven by strong double-digit growth in both rental revenue and rental equipment sales activity. Rental sales activity benefited from an increase in RPO activity in Q2 versus the same period last year. Segment adjusted EBITDA of $117 million was up 26% year-over-year, with segment adjusted EBITDA margin of 53%, up more than 700 basis points versus Q2 2025. Our key rental KPIs in SER remained quite strong in Q2, continuing the momentum we've experienced in recent quarters. In Q2, utilization averaged 81.6%, up 400 basis points versus Q2 2025. Average OEC on rent in the quarter was $1.37 billion, up almost $160 million, or 13%, versus the same period in 2025.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

On rent yield in the second quarter was 39.4%, reflecting both sequential and year-over-year increases for the quarter. Our rent yield remained within our targeted upper 30s to low 40s% range, and we continue to see opportunities for rate improvement as transmission mix grows and pricing discipline holds. Our historically strong rental KPIs reflect both increased rental activity and the continued scaling of our fleet to meet demand. Net rental CapEx in Q2 was $36 million, and our fleet age at quarter end was just over three years. A modest increase from the end of last quarter, which is consistent with our plan to reduce maintenance CapEx and age the fleet somewhat this year. Our OEC in the rental fleet ended the quarter at almost $1.68 billion, up approximately $120 million versus the end of Q2 2025, and by almost $24 million sequentially.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

The increase reflects disciplined fleet investment in the face of strong demand, particularly in T&D. While we expect to continue to invest in the fleet in 2026, our planned decrease in maintenance CapEx in 2026 compared to 2025 should contribute to increased free cash flow generation this year versus last year. In STEM, second quarter third-party revenue was $345 million, a quarterly record and up 5% versus Q2 of 2025, which previously represented our highest non-fourth quarter revenue in our history. STEM segment adjusted EBITDA was $37 million, and segment adjusted EBITDA margin was 8.5% in the quarter. Recall that our 2025 segment adjusted EBITDA does not include any margin on inter-segment sales, while 2026 segment adjusted EBITDA does. STEM gross margins in the quarter were slightly lower as a result of increased sales to national accounts, which tend to carry modestly lower margins.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

Our new sales backlog ended Q2 at $322 million, down $89 million sequentially on record Q2 deliveries. At approximately three and a half months, just below our targeted range of four to six months of new sales. June quoting activity increased 26% year-over-year, supporting expected growth in our order intake in the second half. We've seen strong order growth so far in Q3, and our backlog currently stands at more than $340 million. Turning to the balance sheet and liquidity. With LTM adjusted EBITDA of more than $431 million and net debt of $1.66 billion, we finished Q2 with net leverage of 3.85x. This represents a sequential quarterly improvement of 0.17 turns and more than a 0.8 turn improvement versus the end of Q2 2025.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

Availability under our ABL was $229 million as of June 30th, and based on our borrowing base, we have more than $240 million of additional availability that we can potentially access via our existing facility. Free cash flow generation and de-leveraging remain key focus areas for us. The increase in our inventory during the first half was largely planned, reflecting chassis and whole goods positioning ahead of scheduled second half deliveries, together with the chassis pre-buy actions Ryan discussed. Even with that increase, we expect to reduce inventory and floor plan balances during the second half of 2026, which should support improved free cash flow generation. Through the first half of the year, levered free cash flow improved by approximately $40 million versus the prior year period. With respect to our 2026 guidance, the demand environment across our key end markets remains very strong.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

We expect the STEM segment to continue to benefit from an overall favorable macro demand environment, as well as our strong relationship with our key customers and chassis and attachment suppliers. Our order backlog supports this. In our SER segment, what we see on rent and utilization reached historically high levels in the second half of fiscal 2025, and consistent with our year-to-date results, we expect those levels to continue building sequentially in the second half of 2026. Demand for our equipment that serves the T&D utility markets continues at record levels, and we expect the locational rental market to provide incremental growth as we further penetrate this expanding end market. Given our young fleet age, we continue to expect to be able to significantly reduce our overall investment in our rental fleet in 2026 versus 2025 while continuing to generate growth.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

The small increase in our fleet age to just over three years in the second quarter reflects this. Given demand trends in our T&D end markets, we plan to modestly increase our net investment in our rental fleet from our previous estimate and now expect a range of $170 million-$200 million, which supports mid-single-digit net OEC growth this year. This represents a meaningful reduction from over $250 million in net fleet CapEx in 2025. After prior years investments in inventory driven by the strong demand environment, we expect to continue making progress on further net working capital improvements in 2026 as we continue on our path of reducing inventory levels on hand for a target level of below six months.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

We continue to expect to generate more than $50 million of levered free cash flow and reduce our net leverage ratio to meaningfully below four times by year-end 2026 while progressing towards our three times net leverage target in 2027. Our increased 2026 revenue guidance reflects consolidated revenue in the range of $2.1 billion-$2.2 billion, or year-over-year growth of 8%-13%. The strong environment in the T&D end markets and overall strength across both of our segments, we are also raising both the bottom and top ends of our adjusted EBITDA guidance and now project a range of $437.5 million-$455 million, resulting in year-over-year growth of 14%-19%. We still expect non-rental CapEx of $40 million-$50 million. We are increasing our segment guidance for 2026 as well.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

We are projecting SER revenue of $850 million-$875 million and STEM revenue of $1.63 billion-$1.7 billion, with STEM third-party new sales revenue growth of 3%-10%. Overall STEM sales are expected to be down marginally to up 3%, with the variance attributable solely to a year-over-year reduction in inter-segment sales due to lower SER maintenance rental CapEx spending this year. For the third quarter, we expect consolidated revenue and adjusted EBITDA to be up year-over-year, though modestly below second quarter levels. A portion of our second quarter new and used equipment deliveries, including RPO buyouts, had been planned for the second half. That timing shifted results between quarters but did not reduce the full year expectations reflected in the ranges we raised today. Our rental business enters the third quarter with OEC on rents and utilization above prior year levels.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

We expect both to grow sequentially, with year-over-year growth rates naturally moderating from here as we lap a second half of 2025 that posted the largest increase in OEC on rents in our history. The fourth quarter remains our historically strongest quarter. In closing, I want to echo Ryan's comments regarding our continued strong business outlook. Despite broader macroeconomic uncertainty, recent results and end market fundamentals support our confidence in the long-term demand drivers and our ability to deliver meaningful adjusted EBITDA growth this year. With that, operator, we can open the line for questions.

Operator

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question is from Swetha Rakhecha from Cantor Fitzgerald. Your line is now open. Please go ahead.

Swetha Rakhecha
Swetha Rakhecha
Analyst at Cantor Fitzgerald

Hi. Good morning, Ryan and Chris. Swetha here on behalf of Manish. Congrats on the great quarter. My first question is on the quarterly cadence, given that you've indicated that third-party new equipment sales and used equipment sales and RPO buyouts have shifted from the second half into 2Q. Can you help us quantify the revenue and the adjusted EBITDA that is being pulled forward and clarify how much of it came from 2Q versus 4Q?

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

I can repeat the question. Basically, she was asking, this is Chris, she was asking about the cadence Q2, Q3, first half, second half. I think the way I'd answer that, Swetha, is typically, especially in Q2 and Q3, we have seen historically some push-forwards and push-outs, so to quantify the net is a little more challenging, but maybe just to give you a little bit of color, what we're expecting in Q3. If you look back last year, we saw Q3 growth of roughly 20% EBITDA year-over-year. What we're expecting this year is we're expecting both revenue and EBITDA to grow high single-digit percentage range, while coming in below the second quarter levels, as we have mentioned, which just reflects the delivery and RPO buyouts has shifted into Q2 from the second half.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

Historically, we've given guidance of the split first half, second half, which has been anywhere 45%-47% first half and then 55%-57% in the second half of the year. This year, we think because of that pull forward and just the timing of last year's ramp up on OEC on rent in the second half of the year, that it's likely to be more of a 48%, 52% split. First half 48%, second half 52%. Looking at Q4, that typically is our seasonally strongest quarter, and we'd expect that to continue to do the same this year.

Operator

Your next question comes from Michael Shlisky with D.A. Davidson & Co. Your line is now open. Please go ahead.

Michael Shlisky
Michael Shlisky
Analyst at D.A. Davidson

Good morning. Going to check my questions here. Can you hear me okay?

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Yep, we can hear you.

Operator

We can hear you.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Can you talk?

Michael Shlisky
Michael Shlisky
Analyst at D.A. Davidson

Okay, good. Because I couldn't hear you for a few moments there. Thank you. Okay. You had mentioned intra-quarter order flow was strong. Perhaps I missed this, but can you maybe just share with us how much were orders up year-over-year in the SER segment, whether put in the backlog or they made it through within the quarter?

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Yeah. It's a good question, Mike. We saw converted orders up in that low single digits range, and then orders or quotes were up in the double-digit range. That is a good leading indicator for the backlog.

Michael Shlisky
Michael Shlisky
Analyst at D.A. Davidson

Got you. Thanks for that. I also wanted to ask about the emissions standard changes. Basically, your customers aren't really hauling freight. They're not looking to be out on the road 12 hours a day driving around. Do you consider the emissions changes really just an inflation item that you need to pass along? If so, have the customers had a really negative reaction to the fact that because of things that are out of your control, you're going to have to raise prices a bit?

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Yeah. It's an interesting one to work through. It still feels like some of the regulation is still being finalized. I think the non-performance penalties have been announced. We're estimating those are in the $4,500-$7,000 range, depending on spec, obviously a few other factors in there. That's to continue running on the same engines that we're running on today. We've taken the position, Mike, as you know, that let's buy forward a little bit. Just the economics of the non-performance penalty to us makes sense to carry more inventory heading into 2027. Obviously for us, the engine that is most impacted is the L9 engine, which is shifting to the X10 engine from Cummins. We're watching that closely. Cummins is now saying we'll be in full production on the X10 later in Q3 of next year.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

We're watching how that plays through. Yes, it's going to be a cost increase for our customers. We're obviously doing everything we can to mitigate that heading into 2027.

Michael Shlisky
Michael Shlisky
Analyst at D.A. Davidson

Thanks for that, Ryan. Maybe lastly, just the map in the slide deck. How close are you to opening up some of those lesser served markets right now, like the New York/New Jersey metro area, the Carolinas, et cetera, the other items that you mentioned on the slide deck. I did see an opening in the Northwest. What might be next on the calendar for you for expanding your footprint here?

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Yep. We're working on all those markets. Those are areas where there's clearly opportunity to grow. We're not expecting any other openings this year. Those would be in the years ahead, and that would be fairly consistent with how we guided of opening a couple locations.

Michael Shlisky
Michael Shlisky
Analyst at D.A. Davidson

Great. Thanks so much.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Thanks, Mike. Good to talk to you.

Operator

Your next question is Naim Kaplan with Deutsche Bank. Your line is now open. Please go ahead.

Naim Kaplan
Naim Kaplan
Analyst at Deutsche Bank

Hi, good morning. This is Naim, on for Nicole DeBlase. My first question, you've consistently highlighted that your long-term demand is underpinned by major federal funding packages, including the IIJA, the IRA, and the CHIPS Act. Given that we're getting later into 2026, can you describe how these federal dollars are translating into actual order flow? What percentage of the $322 million spend backlog or SPR booking pipeline is directly tied to projects receiving federal subsidies or grants? In which fiscal year do you project the legislative tailwinds could reach their peak contribution to top-line growth?

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Good question. I will try to answer it with maybe kind of broad comments about our end market demand. Right now we are seeing really strong demand in Transmission and Distribution. I would argue that is less kind of backstop by some of the federal funding programs. Obviously, there are some grants and approvals that are going on out there. I would say those are less directly impacted by federal spending dollars. They are impacted by some of the regulatory improvements, right, that we are seeing on that side of the business. I think that is where we are seeing really strong demand right now. In some of our prepared comments, we mentioned the infrastructure side of things, which would be more directly impacted by some of those federal spending dollars. We have yet to see that pick up in a meaningful way.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

I would expect that as those dollars are released, it is kind of a future benefit, later this year, really into next year, that we would begin to see some of those dollars really impact backlog and ultimately our revenue.

Naim Kaplan
Naim Kaplan
Analyst at Deutsche Bank

Got it. That is helpful. One question on SER, if I may. SER average fleet utilization reached 81.6%. This utilization is at the very high end of your sort of target ranges, with a young average fleet of about three years. Is 81-82 sustainable run rate in the supply environment, or should we model a normalization back down to the high 70s as you raise net rental CapEx brings new fleet online in the second half?

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

I think that low 80s is a good spot to live. Right? I think a couple of things are benefiting that, right? You mentioned the fleet age, which I think is positive. Certainly as you are heading into a transmission cycle, those projects are generally longer duration projects which should benefit utilization, kind of where it is or even climbing into the fall, which is generally what happens in our business.

Naim Kaplan
Naim Kaplan
Analyst at Deutsche Bank

All right. Thank you very much. I will pass it on.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Good to talk to you.

Operator

Your next question is from Justin Hauke from Baird. Your line is now open. Please go ahead.

Justin Hauke
Justin Hauke
Analyst at Baird

Oh, great. Yeah, I guess, Chris, you kind of answered this question with the seasonality, but I was just wondering if you could quantify specific pull forward of orders that you saw in Q2 that were expected in Q3. I guess maybe a broader question is just, is some of that people converting from what would otherwise have been a rental and they want to own equipment ahead of long-term visibility or what's driving that?

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Yeah. I'll let Chris start maybe on seasonality, Justin, then I can give you some commentary on what's driving.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

Yeah. Justin, it's hard to quantify because there would've been pull forward and pushout last year as well. I don't want to give a gross number when it really should be a net number. It was tens of millions, I guess, between both new sales and used sales. Again, last year there would've been a similar pull forward related to some of the pre-buy pre-tariff to get ahead of the tariff pre-buy last year. I'll let Ryan answer the second part.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Yeah. Justin, we've talked about this in the past, certainly when several years ago when the business was performing well, we see kind of that some of that pre-buy is just a good indicator of long-term demand. Some of that showed up in transmissions on those sides. Some of that showed up in our rental asset sales line. That was customers who wanted to go ahead and have their equipment for the long term. We take that as a good indicator of future demand.

Justin Hauke
Justin Hauke
Analyst at Baird

Great. I guess my second question, I apologize if you gave this number, I didn't hear it, obviously the levered free cash flow guidance isn't changed, you did talk about holding the inventory or I guess investing a little bit more there sequentially. Are you still expecting kind of $100 million of inventory benefit for the year? I think on a working capital basis, I think it was supposed to be a little closer to $30 million-$40 million. I'm just trying to see if there was any change in sort of the inventory expectations.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

Sitting here today, that is still our target. I think more importantly, we still feel comfortable we'll be above the $50 million of levered free cash flow. How that comes, either the growth versus net working capital versus other potential cash flow triggers, they're kind of moving parts, but I think we still feel like there's a path to get the numbers that you just quoted.

Justin Hauke
Justin Hauke
Analyst at Baird

Great. Thank you.

Operator

Your next question is from Scott Schneeberger from Oppenheimer. Your line is now open. Please go ahead.

Scott Schneeberger
Scott Schneeberger
Analyst at Oppenheimer

Thank you very much. Good morning, all, and congratulations on the strong quarter. Ryan, I very much appreciate the transition demand super cycle phrase coined. I'd like to dig in a little bit there. Could you maybe take us a little bit deeper about what is driving in transmission? What you're seeing there, how sustainable is it, why coining it a super cycle? Maybe some digging into just some other verticals that are very strong. Maybe you're seeing a lot of data center and obviously transmission-related enabling of power tied to it. Just a bit digging in more to the end markets. Thanks.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Good to talk to you, Scott, and happy to do that. There's a couple things I think that we're really lasered in on. One is obviously a lot of what our customers are saying. Both our public company customers and kind of what they've reported even in this quarter and how they're talking about it. Maybe more importantly for us is what our kind of day-to-day conversations are with those customers. There's a lot of planning going on for new lines that are beginning, that are being prepared, that are being designed, and the equipment is beginning to be staged. For us, that's really kind of that indicator of, hey, this is a long-term cycle. It's projects that don't begin until 2027 and going into 2028 as well.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

I think that's where the tone of the conversation has changed maybe. Obviously that's what we're listening to most closely. A lot of kind of the industry aggregators of what's going on with line miles, completes and expected starts obviously is strong and is encouraging there as well. I would say that's kind of the fundamental thing, Scott, that really gives us comfort that this is the beginning or early innings, beginnings of a very long cycle here, which generally is how transmission plays if you look back historically as well. I'd say that's certainly where the strongest is. To ask about some of the other end markets, distribution is still good. It does feel like maybe there are some IOU dollars shifting from distribution to transmission to meet the demand that we're seeing in the short term.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

You're right, Scott, things like data centers, they are a good tailwind. They're a good tailwind for us but not fundamentally what's driving kind of the growth that we're seeing in the T&D end market.

Scott Schneeberger
Scott Schneeberger
Analyst at Oppenheimer

Thanks. Appreciate that, Ryan. Can we talk a little bit about pricing? Obviously a lot of dynamics impacting how pricing is right now, how it is going to be going forward. OEC yield on rent has been accelerating in each of the quarters of the first half. Coming into some tougher comps and obviously engine changes in the next year. Can you just speak about appetite of the customers on taking pricing? It seems like it's pretty good right now and there's understanding of cost pressure, but just where you think that can go over, let's say, the next two to six quarters, please. Thanks.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

I'll start and Chris can kind of give some historical perspective, too. Look, Scott, two things are going on right now. There's obviously when there's strong demand, we obviously want to be competitive and take price kind of where we can. The other dynamic that we've talked about, too, is as transmission picks up, it's generally at a higher on-rent yield than distribution. You're seeing a little bit of that impact in our business today as we talk about this transmission super cycle and this period that we're going into. I think we talked about on the Q1 call, we took price up about 5%. Obviously the way that gets applied is it's not just a peanut butter spread, but we took price up about 5% at the very end of last year, beginning of this year.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Chris, do you want to add anything else?

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

No, probably the only other thing I would add is we've talked about kind of wanting to live in that 15%-18% range on new sales. We're at the lower end of that range right now, largely that is driven in this quarter, really high volume with some mix, some larger customers and then some product mix. We still feel comfortable that we can live in that range and get certainly towards the higher end of that range as demand continues to be strong in the next year.

Scott Schneeberger
Scott Schneeberger
Analyst at Oppenheimer

Thanks. Just following on that, how important a driver is it of margin expansion and what do you see as the primary drivers of margin expansion in the SER segment? That's all. Thanks.

Chris Eperjesy
Chris Eperjesy
CFO at Custom Truck One Source

I can start. We've lived in that mid-70% kind of gross margin range, certainly on the rental side, which we think is a good spot. We typically have said we want to be in the kind of low- to mid-70s and we're at the higher end of that range. I guess the way I'd answer it is we think that's sustainable. There could be some upside there, but we feel really comfortable kind of where we're living right now in that mid-70% range.

Scott Schneeberger
Scott Schneeberger
Analyst at Oppenheimer

Thank you.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Thanks, Scott.

Operator

There are no further questions at this time. I will now turn the call back to CEO Ryan McMonagle for closing remarks.

Ryan McMonagle
Ryan McMonagle
CEO at Custom Truck One Source

Thanks, everyone, for your time today and your interest in Custom Truck. We appreciate the continued engagement and look forward to updating you next quarter. In the meantime, please don't hesitate to reach out with any questions. Thank you again and have a great day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.

Executives
    • Brian Perman
      Brian Perman
      VP of Investor Relations
    • Ryan McMonagle
      Ryan McMonagle
      CEO
    • Chris Eperjesy
      Chris Eperjesy
      CFO
Analysts
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