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Custom Truck One Source (CTOS) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 4, 2026

Source: earnings call transcript

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

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

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

Orderbook & backlog

Total OEC $1.68B June 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) $322M Q2 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) >$340M Q3 FY26 (current)

grown so far in Q3

Reflects strong intra-quarter order flow.

Risks & headwinds

EPA '27 NOx Emission Regulations Starting 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 Growth Current period

Less growth seen so far

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

STEM Gross Margin Pressure Q2 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 Shifts Q3 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

Transmission demand super cycle progression

Remainder of 2026 and beyond
Current Early stages, projects into 2027-2028
Target Continued 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.

Find out whether CTOS delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 5 chapters

Detailed narrative

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.