Custom Truck One Source outlines new segment reporting and $2.12B revenue target for 2026 amid strong rental demand

Earnings Call Insights: Custom Truck One Source (CTOS) Q4 2025

MANAGEMENT VIEW

* CEO Ryan McMonagle highlighted a record finish for 2025 with quarterly revenue of $528 million and adjusted EBITDA of $121 million. For the full year, he announced "record revenue of $1.944 billion, up 8% and adjusted EBITDA was $384 million, up 13% compared to 2024 and ahead of the midpoint of our guidance." McMonagle attributed performance to "continued strength in our rental business as the improvements we saw in the third quarter in the transmission and distribution markets continued into Q4."
* The average rental fleet utilization was just under 84% in Q4, a near three-year high, with OEC on rent at just under $1.4 billion, up 14% year-over-year. McMonagle reported "total OEC of $1.64 billion, the highest quarter end level in our history."
* TES segment revenue for the full year was $1.1 billion, a 4% increase, with a year-end backlog of $335 million, up 20% from Q3. As of the call, backlog had grown further to around $370 million.
* McMonagle announced a "recently announced strategic partnership with Hiab," aimed at broadening the product portfolio and supporting long-term growth. The company will also expand aftermarket service capacity to grow parts and service revenue.
* A major change for 2026 will be the shift from three to two reportable segments, aligning reporting with business evaluation and enhancing transparency for investors. McMonagle stated, "we will report results under 2 segments: Specialty Equipment Rentals, or SER, and Specialty Truck Equipment and Manufacturing or STEM."
* CFO Christopher Eperjesy remarked, "For the fourth quarter, total revenue was $528 million and adjusted EBITDA was $121 million. For the full year, record revenue of $1.944 billion was 8% ahead of 2024, and adjusted EBITDA was $384 million, a year-over-year increase of 13%."

OUTLOOK

* Management provided full year 2026 guidance for revenue in the range of $2.005 billion to $2.12 billion and adjusted EBITDA between $410 million and $435 million. McMonagle described the outlook as reflecting "continued optimism about our business as long-term sustained end market demand buoyed by secular megatrends."
* Segment guidance for 2026: ERS revenue of $725 million to $760 million, TES revenue of $1.125 billion to $1.2 billion, and APS revenue of $155 million to $160 million.
* CapEx guidance includes a net investment in the rental fleet of approximately $150 million to $170 million, a reduction from over $250 million in 2025, and non-rental CapEx of $40 million to $50 million.

FINANCIAL RESULTS

* Q4 revenue was $528 million, adjusted EBITDA $121 million, and GAAP net income $21 million. The full year showed $1.944 billion in revenue and $384 million in adjusted EBITDA. GAAP net loss for the year was $31 million, impacted by a prior year gain on sale-leaseback.
* In ERS, Q4 revenue was $207 million, up 20% year-over-year, with utilization at 83.6% and average OEC on rent at $1.38 billion. ERS adjusted gross margin reached 78% in Q4.
* TES Q4 equipment sales were $284 million, with gross margin at 15.6%. APS Q4 revenue was $37 million, gross margin stable at 27%.
* Inventory declined by over $100 million in Q4, with net debt at $1.65 billion and net leverage at 4.3x, an improvement from Q1's 4.8x.

Q&A

* Daniel Hultberg, Oppenheimer: Asked about achieving the high end of guidance and upside drivers. McMonagle responded, "we're seeing really strong T&D demand...the high end would be that continuing or improving...and then I think it would be some of the vocational market or the infrastructure market seeing a pickup."
* Hultberg also queried on the pricing environment. McMonagle answered, "We're seeing good demand...we did pass some price increases through at the beginning of the year."
* Michael Shlisky, D.A. Davidson, raised concerns about sustainable high utilization and asset availability. McMonagle explained the team's ability to "keep utilization high" and noted the fleet is now "under 3 years."
* Shlisky further probed on seasonality. Eperjesy replied, "we do expect [Q1] to be a strong quarter...top line revenue will be up kind of mid- to high single digits."
* Justin Hauke, Robert W. Baird, asked about TES backlog trends and confidence. McMonagle pointed to "orders won in the quarter were up 12% versus last fourth quarter" as evidence.
* Further questions covered the impact of emission standards, vocational demand, gross margin outlooks, fleet aging, SG&A management, and inventory reductions, with management providing detailed operational responses.

SENTIMENT ANALYSIS

* Analysts asked about sustainability of demand, pricing power, margin trends, and capital allocation, indicating a slightly positive tone with focus on execution and risk management.
* Management maintained an optimistic and confident tone during prepared remarks and Q&A, frequently highlighting "strong demand," "positive indicators," and "confidence to expect another year of growth."
* Compared to the previous quarter, management's confidence level increased, especially around rental fundamentals and the ability to manage costs and capital efficiently. Analysts' tone shifted from cautious optimism to a more constructive engagement, probing for specifics on upside potential and operational execution.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for 2026 is modestly higher, with specific revenue and EBITDA targets provided, compared to a reaffirmation of guidance in the previous quarter.
* Strategic focus has shifted to new segment reporting, a major partnership (Hiab), and aftermarket service expansion, whereas the prior quarter emphasized capital investment and backlog trends.
* Key metrics such as rental utilization and OEC on rent set new highs this quarter, with stronger improvements in net leverage and inventory reduction.
* Management's tone in the current quarter is more assertive about growth prospects and operational discipline, while analysts' focus has shifted from visibility and risk to growth sustainability and margin potential.

RISKS AND CONCERNS

* Management noted that TES Q4 performance was "below our expectations," mainly due to customer purchase timing and deferral of deliveries, as well as less impact from accelerated depreciation provisions.
* Ongoing macroeconomic uncertainty and potential impacts from tariffs and emission regulations were identified as factors that could influence demand and operational performance.
* Analysts questioned the sustainability of high utilization rates, potential impacts from emission standard changes, and the implications of lower CapEx and resegmentation on future performance.
* Management is addressing risks by reducing maintenance CapEx, targeting inventory reductions, and focusing on free cash flow and deleveraging.

FINAL TAKEAWAY

Custom Truck One Source closed 2025 with record revenue and EBITDA, driven by strength in rental markets and a younger, highly utilized fleet. Management is optimistic for 2026, projecting revenue up to $2.12 billion and EBITDA up to $435 million, supported by robust backlog growth, a new partnership with Hiab, and expanded aftermarket services. The company is transitioning to a two-segment reporting structure for greater clarity and continues to prioritize inventory reduction, free cash flow generation, and deleveraging. End market demand, especially in transmission and distribution, remains a core growth engine, with management expressing confidence in the durability of these trends and their ability to maintain operational momentum into the new year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ctos/earnings/transcripts]

MORE ON CUSTOM TRUCK ONE

* Custom Truck One Source, Inc. (CTOS) Q4 2025 Earnings Call Transcript [https://seekingalpha.com/article/4880674-custom-truck-one-source-inc-ctos-q4-2025-earnings-call-transcript]
* Custom Truck One reports mixed Q4 results; introduces FY26 outlook [https://seekingalpha.com/news/4562630-custom-truck-one-reports-mixed-q4-results-introduces-fy26-outlook]
* Seeking Alpha’s Quant Rating on Custom Truck One [https://seekingalpha.com/symbol/CTOS/ratings/quant-ratings]
* Historical earnings data for Custom Truck One [https://seekingalpha.com/symbol/CTOS/earnings]
* Financial information for Custom Truck One [https://seekingalpha.com/symbol/CTOS/income-statement]