Custom Truck One Source, Inc. ((CTOS)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Custom Truck One Source, Inc. struck an upbeat tone on its latest earnings call, pointing to record first‑quarter results and sharply higher profitability. Executives balanced that optimism with a candid discussion of leverage, inventory and supply‑chain risks, but emphasized concrete steps to boost free cash flow and delever the balance sheet over the next two years.
Record Q1 Revenue and Soaring EBITDA
Custom Truck delivered first‑quarter revenue of $462.0 million, while adjusted EBITDA jumped to $98.0 million. That represented a staggering 933% year‑over‑year increase in adjusted EBITDA, underscoring both stronger demand and significant operational efficiency gains across the business.
Specialty Equipment Rentals Drives Profitability
The Specialty Equipment Rentals segment remained the profit engine, with third‑party revenue climbing 16% year over year to $194 million. Segment adjusted EBITDA rose 23% to $105 million, pushing margin to an impressive 51.5% and demonstrating the high‑return, recurring nature of the rental model.
Rental KPIs Show Healthy Demand
Key rental metrics continued to improve, signaling sustained end‑market strength. Fleet utilization averaged 81.4% in the quarter, up 370 basis points year over year, while average original equipment cost on rent rose 12% to $1.34 billion and total OEC hit a record $1.66 billion.
STEM Segment Growth and Margin Expansion
In the Sales, Truck and Equipment, and Manufacturing (STEM) segment, third‑party revenue increased 5% year over year to $268 million. Parts and service revenue grew about 17%, helping segment adjusted EBITDA reach $33 million, with margin at 9% thanks to cost‑out initiatives and productivity improvements.
Expanding Backlog Supports Future Sales
Order trends remained favorable, with new sales backlog ending the quarter at $411 million, up $76 million sequentially. Management noted that backlog continued to build into the second quarter and now stands above $425 million, providing visibility into future equipment sales.
Guidance Affirmed and EBITDA Outlook Raised
The company reaffirmed its 2026 consolidated revenue outlook of $2.005 billion to $2.12 billion, implying 3% to 9% top‑line growth. It also raised adjusted EBITDA guidance to a range of $415 million to $440 million, targeting 8% to 15% year‑over‑year EBITDA growth as rental performance and margin initiatives gain traction.
Capital Allocation Shifts Toward Cash Generation
Custom Truck plans to scale back net rental fleet investment to roughly $150 million to $170 million in 2026, down from $250 million in 2025. With tighter capital spending, the company expects to generate more than $50 million of levered free cash flow this year and to push net leverage below 4x by year‑end, on the way to about 3x in 2027.
Balance Sheet Strength and Liquidity Headroom
Net debt stood at $1.65 billion against trailing 12‑month adjusted EBITDA above $408 million, leaving net leverage just over 4x but improving about 30 basis points sequentially. Liquidity appears solid, with $257 million of asset‑based revolver availability and potential to add roughly $190 million of extra capacity through an upsizing.
Young Fleet Positions Company for EPA Changes
The company highlighted that its rental fleet has an average age of under three years, among the youngest in the industry. Management believes this modern fleet not only supports better service and reliability but also positions Custom Truck favorably ahead of stricter Environmental Protection Agency emissions standards coming in 2027.
High Leverage Still a Key Risk
Despite the improving metrics, management acknowledged that leverage remains elevated in the near term. The strategy now hinges on meeting free cash flow targets and executing on working capital reductions, which are critical to bringing net leverage meaningfully lower over the next two years.
Inventory and Working Capital Under Pressure
Inventory levels remain high at roughly 7 to 7.5 months on hand after a typical seasonal build in the first quarter. The company aims to cut that ratio to below six months by year‑end, with working capital release expected to be a major driver of free cash flow and balance‑sheet repair.
Difficult Q2 Comparisons Temper Near‑Term Visibility
Management cautioned that the second quarter faces tough comparisons against a very strong Q2 last year, which included two months of new sales above $110 million. That backdrop contributes to a conservative stance on near‑term equipment sales, even as longer‑term demand indicators remain constructive.
Segment Reporting Changes Cloud Comparisons
Starting in 2026, new segment reporting rules and intersegment pricing adjustments mean that prior‑year comparisons are not fully apples to apples. Certain 2025 STEM data in the appendix have also been corrected, leaving investors needing to interpret year‑over‑year trends with some caution.
Supply‑Chain and Tariff Exposure Persist
Custom Truck continues to face some exposure to tariffs on certain equipment bodies, as well as potential supply bottlenecks for chassis and specialized units like all‑wheel‑drive trucks. Management indicated that any deterioration in supplier performance could slow order execution, though current conditions remain manageable.
Residual Pricing Pressure on New Equipment
Pricing on new equipment has stabilized compared with last year, but some pressure still exists in competitive bids. The company is leaning on cost initiatives and productivity improvements to protect margins, seeking to offset any lingering discounting in new equipment markets.
Guidance and Outlook Emphasize Growth and Deleveraging
Looking ahead, management expects 2026 revenue of $2.005 billion to $2.12 billion and adjusted EBITDA of $415 million to $440 million, underpinned by mid‑single‑digit growth in rental OEC and 3% to 10% growth in STEM third‑party sales. Plans include $150 million to $170 million of net rental CapEx, $40 million to $50 million of non‑rental CapEx, more than $50 million of levered free cash flow and a path to meaningfully lower leverage as inventory is reduced.
Custom Truck’s earnings call painted a picture of a business firing on most cylinders, with rental strength, margin expansion and a deep backlog offsetting macro and capital‑structure concerns. For investors, the key watchpoints will be execution on working capital, supply‑chain resilience and the pace of deleveraging, which together will determine how long the current momentum can last.