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    CTOS
    Earnings call· Jun 2026(Q2 FY26)

    Custom Truck One Source Q2 FY26 earnings call CTOS

    Aug 4, 2026 Source

    Executive summary

    Custom Truck One Source Q2 FY26 — Record Revenue and Increased Full-Year Outlook Driven by T&D Super Cycle

    Custom Truck One Source delivered record Q2 FY26 results, driven by robust demand in the transmission and distribution (T&D) markets, which management characterizes as a "once-in-a-generation super cycle." The company raised its full-year revenue and adjusted EBITDA guidance, reflecting strong performance in both its Specialty Equipment Rentals (SER) and Specialty Truck Equipment and Manufacturing (STEM) segments, despite some sequential backlog reduction in STEM. Management is confident in navigating upcoming EPA regulations and expects continued growth.

    Highlights

    5

    • Generated record revenue of $563 million, up 10% year-over-year.

    • Achieved adjusted EBITDA of $117 million, representing 25% year-over-year growth.

    • Specialty Equipment Rentals (SER) segment third-party revenue increased 20% year-over-year to $219 million.

    • Average rental fleet utilization reached 81.6%, an increase of 400 basis points from Q2 last year.

    • Full-year 2026 consolidated revenue guidance raised to $2.1 billion - $2.2 billion, and adjusted EBITDA guidance raised to $437.5 million - $455 million.

    Concerns

    3

    • Specialty Truck Equipment and Manufacturing (STEM) new sales order backlog ended Q2 at $322 million, down $89 million sequentially.

    • STEM gross margins were slightly lower due to increased sales to national accounts.

    • Q3 consolidated revenue and adjusted EBITDA are expected to be modestly below Q2 levels due to timing shifts in deliveries and RPO buyouts.

    Guidance & targets

    14
    CategoryTargetConfidence
    Consolidated Revenue
    $2.1B - $2.2B
    high materiality
    High
    Adjusted EBITDA
    $437.5M - $455M
    high materiality
    High
    Net Rental CapEx
    $170M - $200M
    medium materiality
    Medium
    Levered Free Cash Flow
    more than $50M
    high materiality
    High
    Net Leverage Ratio
    meaningfully below 4x
    high materiality
    High
    Net Leverage Ratio
    3x
    high materiality
    Medium
    Non-Rental CapEx
    $40M - $50M
    medium materiality
    Medium
    SER Revenue
    $850M - $875M
    medium materiality
    High
    STEM Revenue
    $1.63B - $1.7B
    medium materiality
    High
    STEM Third-Party New Sales Revenue Growth
    3% - 10%
    medium materiality
    Medium
    STEM Overall Sales Growth
    marginally down to up 3%
    medium materiality
    Medium
    Consolidated Revenue
    up year-over-year, though modestly below second quarter levels
    medium materiality
    Medium
    Adjusted EBITDA
    up year-over-year, though modestly below second quarter levels
    medium materiality
    Medium
    Inventory Levels
    below 6 months
    medium materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Specialty Equipment Rentals (SER)
    Third-party revenue, excluding intersegment sales, driven by strong double-digit growth in both rental revenue and rental equipment sales activity. Rental sales benefited from increased RPO activity. Segment adjusted EBITDA margin up more than 700 basis points versus Q2 2025. On-rent yield within targeted upper 30s to low 40s percent range, with opportunities for rate improvement as transmission mix grows.
    Adjusted EBITDA margin: 53%Utilization: 81.6% (averaged)OEC on rent: $1.37B (averaged)On-rent yield: 39.4%
    		$219M20%—Adjusted EBITDA $117M
    Specialty Truck Equipment and Manufacturing (STEM)
    Third-party revenue was a quarterly record, up 5% versus Q2 2025. Gross margins were slightly lower due to increased sales to national accounts. New sales backlog was down sequentially on record Q2 deliveries but has grown so far in Q3. Backlog is just below the targeted range of 4 to 6 months.
    Adjusted EBITDA margin: 8.5%New sales order backlog: $322M (at quarter-end)Backlog months: 3.5 months
    		$345M5%—Adjusted EBITDA $37M

    Operational metrics

    18
    Consolidated Adjusted EBITDA
    $117Mup 25% YoY
    Q2 FY26

    Company-wide adjusted EBITDA.

    GAAP Net Income
    $10Mvs net loss of $28M a year ago
    Q2 FY26

    Includes a $19M favorable income tax swing year-over-year.

    Net Leverage
    3.85ximproved 0.17 turns sequentially, improved 0.8 turns YoY
    Q2 FY26

    Calculated with LTM adjusted EBITDA of >$431M and net debt of $1.66B.

    Availability under ABL
    $229M
    June 30, 2026

    As of quarter end.

    Additional ABL Availability
    >$240M
    June 30, 2026

    Potentially accessible via existing facility based on borrowing base.

    Inventory Reduction Target
    below 6 months
    FY26

    Target level for inventory on hand.

    STEM Converted Orders Growth
    low single digitsYoY
    Q2 FY26

    Growth in orders that were converted.

    STEM Quotes Growth
    double digitsYoY
    Q2 FY26

    Growth in quotes, serving as a leading indicator.

    EPA '27 NOx Non-Conformance Penalties
    $4,500 - $7,000
    FY27

    Estimated range depending on spec, for continuing to run on current engines.

    H1/H2 Revenue and EBITDA Split
    48%/52%vs typical 45-47%/55-57%
    FY26

    Expected split for the full year, reflecting Q2 pull-forward.

    Net Rental CapEx
    $36M
    Q2 FY26

    Net investment in rental fleet for the quarter.

    Fleet Age
    just over 3 yearsmodest increase from end of last quarter
    Q2 FY26

    Positions the company well to support customer needs.

    OEC in Rental Fleet
    $1.68Bup $120M YoY, up $24M sequentially
    Q2 FY26

    Highest quarter-end level in company history, reflecting disciplined fleet investment.

    STEM Gross Margins
    slightly lower
    Q2 FY26

    Result of increased sales to national accounts, which tend to carry modestly lower margins.

    June Quoting Activity
    26%YoY
    June FY26

    Supporting expected growth in order intake in the second half.

    STEM Backlog (Current)
    >$340M
    Q3 FY26 (current)

    Backlog has grown so far in Q3.

    Rental Gross Margin
    mid-70%
    Q2 FY26

    Sustainable range, at the higher end of the typical low to mid-70s target.

    New Sales Gross Margin Target
    15% - 18%
    Ongoing

    Currently at the lower end of this range, but comfortable with potential to reach higher end.

    Industry KPIs

    5
    MetricValueDetails
    Rental CAPEX fleet$36MUSD
    Used equipment sales—
    End market growth mix—
    Time dollar utilization81.6%%
    Contract vs spot large customer mix—

    Orderbook & backlog

    3
    Total OEC$1.68BJune 30, 2026

    up $120M YoY, up $24M sequentially

    Highest quarter-end level in company history, supporting continued growth in SER revenues.

    New Sales Order Backlog (STEM)$322MQ2 FY26 end

    down $89M sequentially

    Down from Q1 due to record Q2 deliveries, representing approximately 3.5 months of new sales.

    New Sales Order Backlog (STEM)>$340MQ3 FY26 (current)

    grown so far in Q3

    Reflects strong intra-quarter order flow.

    Risks & headwinds

    4
    EPA '27 NOx Emission RegulationsStarting 2027

    Non-conformance penalties of $4,500-$7,000 per unit

    Mitigation: Chassis prebuy actions, strong OEM relationships, monitoring L9 to X10 engine transition.

    Infrastructure End Market GrowthCurrent period

    Less growth seen so far

    Mitigation: Expectation of future benefit from federal funding in late 2026 or 2027.

    STEM Gross Margin PressureQ2 FY26

    Slightly lower gross margins

    Mitigation: Attributed to increased sales to national accounts, which carry modestly lower margins; overall strong demand environment.

    Q3 Seasonality and Timing ShiftsQ3 FY26

    Consolidated revenue and adjusted EBITDA expected to be modestly below Q2 levels

    Mitigation: Timing shifts of new and used equipment deliveries and RPO buyouts from H2 to Q2; full-year expectations remain strong.

    What to watch in Q3 FY26

    5

    Transmission demand super cycle progression

    Remainder of 2026 and beyond
    CurrentEarly stages, projects into 2027-2028
    TargetContinued strong bidding activity and order flow

    Why it matters

    Confirms the long-term thesis for SER segment growth and sustained demand.

    Bidding activity and ongoing conversations with our customers lead us to believe that these conditions will persist through the remainder of 2026 and beyond.

    Q&A highlights

    6

    Can you quantify the revenue and adjusted EBITDA that was pulled forward from the second half into Q2, and clarify if it came from Q3 or Q4?

    Chris Eperjesy explained that it's challenging to quantify the net pull-forward due to historical push-forwards and push-outs. He indicated it was "tens of millions" between new and used sales. For Q3, he expects revenue and EBITDA to grow in the high single-digit percentage range year-over-year but to be modestly below Q2 levels. The full-year H1/H2 split is now expected to be 48%/52%, compared to a typical 45-47%/55-57%, due to the Q2 pull-forward and last year's OEC on rent ramp-up. Q4 is still expected to be the seasonally strongest quarter.

    “it was tens of millions, I guess, between both new sales and used sales. But again, last year, there would have been a similar pull forward related to some of the prebuy pre-tariff to get ahead of the tariff prebuy last year.”

    asked by Swetha Rakhecha · answered by Christopher Eperjesy

    2 min read5 chapters

    Detailed Narrative

    01

    Transmission Demand Super Cycle

    Management highlighted a "once-in-a-generation transmission demand super cycle," driven by long-duration projects extending into 2027 and 2028. This outlook is supported by ongoing customer conversations, planning for new lines, and industry aggregators' data on line miles and starts, indicating sustained growth beyond current federal funding impacts. The tone of these conversations has shifted meaningfully, providing comfort that the company is in the early innings of a very long cycle.

    02

    Segment Performance Highlights

    The Specialty Equipment Rentals (SER) segment achieved 20% year-over-year revenue growth and 26% year-over-year adjusted EBITDA growth, with average fleet utilization at 81.6% and average OEC on rent of $1.37 billion. The Specialty Truck Equipment and Manufacturing (STEM) segment recorded its highest non-Q4 quarterly revenue at $345 million, up 5% year-over-year, driven by strong utility end-market demand. Both segments contributed to the company's record Q2 performance.

    03

    EPA '27 NOx Regulations Preparedness

    Custom Truck One Source is well-positioned to navigate the upcoming EPA '27 NOx emission regulations, which include non-conformance penalties estimated at $4,500-$7,000. The company has proactively taken chassis prebuy actions and maintains strong relationships with OEM partners. The transition of the L9 engine to Cummins' X10, expected in full production by Q3 next year, is being closely monitored to mitigate potential impacts on customers and operations.

    04

    Capital Allocation and Deleveraging Progress

    Net rental CapEx for Q2 was $36 million, with the fleet age remaining young at just over 3 years. The company plans to reduce maintenance CapEx in 2026 compared to 2025, which is expected to contribute to increased free cash flow generation. Net leverage improved sequentially to 3.85x, and the company is targeting a net leverage ratio meaningfully below 4x by year-end 2026, with a further goal of 3x by 2027, supported by improved free cash flow and inventory reduction efforts.

    05

    Federal Funding Impact and End-Market Dynamics

    While federal funding packages like IIJA, IRA, and CHIPS Act are recognized as long-term tailwinds, their impact on the infrastructure side has yet to materialize meaningfully in terms of order flow. Management expects these federal dollars to primarily affect backlog and revenue in late 2026 or 2027. Current strong T&D demand is driven more by regulatory improvements and underlying market dynamics than direct federal spending, with the infrastructure end market showing less growth currently.

    AI-generated summary of the company’s earnings call. Not investment advice.