What Custom Truck One Source (CTOS) Said on Its Q3 Earnings Call

Key Points

• Strong quarterly performance: Third-quarter revenue rose 3% to $495 million, while adjusted EBITDA increased 16% to $111 million, expanding the margin to 22.4%. Net income improved to more than $2 million from a prior-year loss.
• Rental segment reached record levels: Specialty Equipment Rental revenue climbed 18% to $223 million, with utilization at 81.5% and rental-fleet OEC exceeding $1.39 billion. Management cited sustained transmission and distribution demand and raised SER revenue guidance.
• Higher investment, reduced near-term cash flow: CTOS increased planned 2026 rental-fleet investment to $210 million-$230 million to capture long-term demand, causing expected levered free cash flow to fall to slightly positive from more than $50 million previously. Adjusted EBITDA guidance was raised to $447.5 million-$460 million.

Custom Truck One Source NYSE: CTOS reported third-quarter results marked by record rental activity and higher profitability, prompting the company to raise its full-year adjusted EBITDA outlook for the third time in 2026.

Third-quarter consolidated revenue rose 3% from a year earlier to $495 million, while adjusted EBITDA increased 16% to $111 million. Adjusted EBITDA margin expanded about 250 basis points to 22.4%, marking the company’s fourth consecutive quarter above 20%, according to CFO Chris Eperjesy.

GAAP net income was more than $2 million, or $0.01 per diluted share, compared with a net loss of just under $6 million in the prior-year quarter. For the first nine months of 2026, net income approached $9 million, versus a loss of just under $52 million a year earlier. Eperjesy said the improvement reflected higher operating income, lower interest expense and a favorable income-tax comparison.

Rental Segment Sets Records

The Specialty Equipment Rental, or SER, segment led the quarter, supported by sustained demand for equipment used in transmission and distribution, or T&D, markets. SER revenue rose 18% year over year to $223 million, while segment adjusted EBITDA increased about 23% to $122 million. The segment’s adjusted EBITDA margin reached 54.6%.

Rental revenue increased 20% to $153 million, while rental-equipment sales grew 14%. Average fleet utilization was 81.5%, up 220 basis points from the same period in 2025. Average original equipment cost, or OEC, on rent exceeded $1.39 billion, an increase of more than $132 million, or more than 10%, from the prior year.

CEO Ryan McMonagle said rental demand has remained strong into the fourth quarter, with OEC on rent exceeding $1.5 billion and utilization above 84%. He said the company expects some customary seasonal moderation late in the year but indicated that transmission customers may retain equipment longer because of current demand conditions.

“We believe that we are in the early stages of what could be a once-in-a-generation transmission demand super cycle,” McMonagle said.

Rental gross margin was nearly 79% during the quarter, while on-rent yield was 39.4%, up 120 basis points year over year. Eperjesy said the yield remained within the company’s targeted upper-30% to low-40% range and that the company continues to see opportunities for pricing improvement as the transmission mix expands.

Fleet Investment Prioritized Over Near-Term Free Cash Flow

Custom Truck increased its expected 2026 net rental fleet investment to $210 million to $230 million, about $35 million above the midpoint of its previous range. The added capital is aimed at long-term transmission rentals and specialty equipment products, with the company also directing STEM production capacity toward its own fleet.

McMonagle said the investment is intended to capture demand from customers tied to long-duration projects. He noted that, at current utilization and rental rates, roughly $60 million of fleet investment can generate about $20 million of annualized revenue and $15 million of annualized adjusted EBITDA once fully deployed.

The decision reduces the company’s near-term cash-flow expectation. Custom Truck now expects 2026 levered free cash flow to be slightly positive, compared with its previous expectation of more than $50 million. Management said most earnings from the newly added units are expected to arrive in 2027.

The company ended the quarter with rental-fleet OEC of more than $1.76 billion, its highest quarter-end level, and an average fleet age of just under three years. Net leverage declined sequentially to 3.7 times, with net debt of $1.65 billion and last-12-month adjusted EBITDA of $446 million. Management reiterated its objective of reducing net leverage below 3 times during 2027.

STEM Revenue Affected by Timing Issues

The Sales, Service and Manufacturing, or STEM, segment generated total third-quarter revenue of $442 million, up 8% from a year earlier. Third-party revenue, excluding sales to the SER segment, declined 5% to $283 million.

Management attributed the third-party decline partly to its decision to prioritize production for the expanding rental fleet. The comparison was also affected by certain equipment sales delivered in the second quarter rather than the second half of the year.

In addition, more than $20 million of new-equipment sales were delayed by a chassis vendor recall and repairs required after a hailstorm damaged inventory at the company’s Kansas City facility. Management said it expects these issues to be temporary and anticipates the delayed sales will be completed during the fourth quarter.

Eperjesy said the hailstorm impact was relatively immaterial in the broader context and was covered by insurance, subject to a $1 million deductible. He added that the vehicle manufacturer is covering costs related to recall repairs.

STEM adjusted EBITDA was $37 million, with an 8.3% margin. New-sales backlog reached $342 million at quarter-end, up $19 million sequentially and 22% year over year. Management said backlog had increased to nearly $400 million so far in the fourth quarter.

Guidance Raised for EBITDA, SER Revenue

Custom Truck affirmed its 2026 consolidated revenue outlook of $2.1 billion to $2.2 billion, representing anticipated growth of 8% to 13%. It raised adjusted EBITDA guidance to $447.5 million to $460 million, implying year-over-year growth of 17% to 20%.

• SER revenue guidance: Raised to $870 million to $890 million.
• STEM revenue guidance: Maintained at $1.63 billion to $1.7 billion.
• STEM third-party new-sales growth: Expected at 3% to 10% for the year.
• Fourth-quarter outlook: Consolidated revenue and adjusted EBITDA are expected to rise both sequentially and year over year.

Management expects fourth-quarter third-party STEM new sales to increase at a mid- to high-teens rate from the prior year as delayed deliveries are completed. McMonagle said demand remains particularly strong in utility-related transmission and distribution markets, while some infrastructure categories, including dump trucks, water trucks and heavy-haul equipment, have begun to improve.

Looking ahead, Eperjesy said the company currently expects another year of double-digit adjusted EBITDA growth in 2027, with more detailed guidance planned alongside fourth-quarter results.

About Custom Truck One Source (NYSE:CTOS)

Custom Truck One Source, Inc is a specialty equipment provider serving the utility, telecommunications, rail, and related infrastructure industries. The company sells, rents, leases, and services new and used trucks and equipment, including aerial devices, cranes, digger derricks, bucket trucks, service trucks, trailers, and other specialized vehicles.

Through its parts and service operations, Custom Truck One Source provides replacement parts, maintenance, repair, refurbishment, and field support for specialty equipment.

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