Custom Truck One Source Projects Growth After Record Year

Custom Truck One Source, Inc. ((CTOS)) has held its Q4 earnings call. Read on for the main highlights of the call.

Custom Truck One Source, Inc. struck an upbeat tone on its latest earnings call, pointing to record revenue and adjusted EBITDA for both the quarter and the year. Management acknowledged pockets of softness and macro uncertainty, but emphasized strong rental fundamentals, a healthier fleet, growing backlog, and a clear path toward lower capital intensity and gradual deleveraging.

Record Revenue and EBITDA Underscore Momentum

Custom Truck reported fourth‑quarter revenue of $528 million and adjusted EBITDA of $121 million, lifting EBITDA more than 18% year over year. For 2025, revenue reached a record $1.94 billion, up 8% from the prior year, while adjusted EBITDA climbed 13% to $384 million, finishing ahead of the midpoint of the company’s guidance range.

Rental Segment Delivers Strong Utilization and Yields

The equipment rental solutions business continued to be a standout, with Q4 rental utilization averaging just under 84%, roughly 470 basis points higher than a year ago. Average original equipment cost on rent rose 14% to about $1.38 billion, and rental gross margins hit their best quarterly levels of the year, supported by a 38.7% on‑rent yield and lower repair expenses.

TES Achieves Record Year Amid Q4 Soft Patch

The truck and equipment sales segment delivered a record $1.1 billion of full‑year revenue, up 4% and the highest in company history, even as Q4 came in softer. New sales backlog ended the quarter at $335 million, up more than 20% sequentially, and management noted that early 2026 backlog had already improved to roughly $370 million on the back of 21% order growth in Q4.

Backlog and Orders Signal Underlying Demand

Order activity in TES was constructive, with net orders up 21% year over year in the fourth quarter and total orders won rising 12%. Management highlighted that the growing backlog reflects healthy end‑market demand and positions the business for steadier revenue conversion once delivery timing normalizes, even as short‑term swings continue.

Fleet Health Improves as Capital Intensity Set to Ease

The rental fleet finished 2025 with an average age of about 2.9 years, more than a full‑year younger than in 2022, reflecting significant refresh investments. Net rental CapEx exceeded $40 million in Q4 and pushed end‑of‑year OEC to a record $1.64 billion, but 2026 rental spending is expected to drop sharply to $150 million to $170 million, implying only mid‑single‑digit OEC growth.

Balance Sheet Makes Progress but Still a Focus

Net debt stood at roughly $1.65 billion at year‑end, corresponding to net leverage of 4.3 times, an improvement of about a quarter‑turn versus 2024 and half a turn from the recent peak. Liquidity remained solid with $248 million of availability on the asset‑based lending facility and the option to further increase capacity by more than $200 million if needed, while inventory fell by over $100 million in the quarter.

Guidance Points to Further Growth and Deleveraging

Management laid out 2026 guidance calling for revenue of $2.005 billion to $2.12 billion and adjusted EBITDA of $410 million to $435 million, implying mid‑single‑ to high‑single‑digit revenue growth and high‑single‑ to low‑teens EBITDA growth. They projected more than $50 million of levered free cash flow, net leverage meaningfully below 4 times, reduced rental CapEx, modest OEC growth, and mid‑ to high‑single‑digit revenue and double‑digit EBITDA growth in the first quarter.

Margin Gains Highlight Operational Improvements

Operationally, the company reported notable margin traction, especially in rental and aftermarket services, as scale and discipline took hold. ERS rental gross margin approached 78% in Q4 on strong utilization and lower maintenance costs, APS full‑year gross margin improved by about 120 basis points to roughly 24%, and TES margin ticked up sequentially in Q4 to 15.6% despite volume and pricing pressures.

TES Revenue and Pricing Face Near‑Term Headwinds

The TES segment saw Q4 equipment sales decline about 8% year over year as some customers accelerated purchases earlier in the year and others deferred deliveries into 2026. Management also cited ongoing pricing pressure in certain truck categories, which weighed on reported revenue and contributed to the quarter’s softer top‑line performance for the segment.

GAAP Results Tempered by Prior‑Year One‑Time Gain

On a GAAP basis, the company posted roughly $21 million of net income in the fourth quarter but recorded a full‑year 2025 net loss of approximately $31 million. Management stressed that comparability was affected by a $23.5 million sale‑leaseback gain booked in 2024, making adjusted metrics a better indicator of underlying operational progress in the latest period.

Leverage and Interest Costs Remain Watchpoints

Despite improvement, leverage still sits above Custom Truck’s longer‑term target of 3 times by 2027, keeping balance sheet management in focus for investors. Floor plan and other inventory financing structures also add to working capital interest costs, magnifying the financial benefit of the company’s planned reductions in inventory and capital spending.

Inventory Elevated but Trending in the Right Direction

Year‑end gross inventory totaled about $930 million, with net inventory, after floor plan payables, around $275 million. Management aims to shrink whole goods inventory to less than six months of supply, expecting roughly $100 million of stock reduction and a resulting $25 million to $50 million improvement in net working capital during 2026.

Seasonality and Timing Add Volatility to Results

Executives cautioned that quarterly results can swing as deliveries, customer schedules, and production timing move between periods, citing a typical slowdown in December and an unusually strong second quarter in 2025 from pull‑forward activity. Investors were urged to focus more on annual trends, backlog health, and cash generation rather than reading too much into individual quarter fluctuations.

Macro and Policy Uncertainty Influence Customer Behavior

The company noted that its end markets remain sensitive to broader economic and policy dynamics, which can drive shifts in order timing and purchasing behavior. Factors such as trade and tax considerations, along with evolving environmental and emissions standards, have influenced when customers commit to equipment, adding another layer of unpredictability to near‑term revenue cadence.

Guidance and Strategic Outlook Emphasize Growth with Discipline

For 2026, Custom Truck plans to grow revenue across all segments, with targets of $725 million to $760 million in ERS, $1.125 billion to $1.2 billion in TES, and $155 million to $160 million in APS, while tightening capital discipline. The company expects mid‑single‑digit growth in net OEC on rent, lower maintenance spending, a meaningful working capital release from inventory reductions, and will begin reporting under two new operating segments to better reflect its strategic focus.

Custom Truck One Source’s latest earnings call painted a picture of a company balancing robust rental fundamentals and record revenue against lingering leverage and inventory overhangs. With guidance pointing to continued EBITDA growth, positive free cash flow, and a path toward lower leverage, investors will be watching execution on TES normalization, inventory drawdown, and capital allocation as key drivers of equity value in the coming year.