Custom Truck One Source, Inc. (CTOS) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong revenue growth across segments, improved net leverage, and positive pricing trends, all contributing to a positive outlook. The Q&A highlights confidence in maintaining high utilization and growth in key segments, despite some uncertainties around emission standards. The market cap suggests moderate sensitivity to these factors. Overall, the company's strong performance, optimistic guidance, and strategic management of costs and inventory levels indicate a likely stock price increase of 2% to 8% over the next two weeks.
Key Financial Performance
Q4 2025 Revenue $528 million, adjusted EBITDA was $121 million, up more than 18% year-over-year. The key driver was continued strength in the rental business and improvements in the transmission and distribution markets.
Full Year 2025 Revenue $1.944 billion, up 8% year-over-year. Adjusted EBITDA was $384 million, up 13% compared to 2024. Growth was driven by strong performance in the rental business and improved rental KPIs.
Rental Fleet Utilization (Q4 2025) Averaged just under 84%, the highest in almost 3 years, supported by growth in OEC on rent. Average OEC on rent in Q4 was just under $1.4 billion, up 14% year-over-year.
TES Segment Revenue (Q4 2025) $284 million, down 8% year-over-year. Decline due to customers pulling forward capital spending earlier in the year, potential tariffs, price increases, and deferred deliveries into 2026.
TES Segment Full Year Revenue $1.1 billion, up 4% year-over-year, the highest annual level ever. Growth supported by strong order activity and backlog increase.
ERS Segment Revenue (Q4 2025) $207 million, up 20% year-over-year. Growth driven by strong double-digit growth in rental revenue and rental sales activity.
ERS Segment Full Year Revenue 17% year-over-year growth. Improved rental KPIs, including utilization up 470 basis points and OEC on rent up 14% year-over-year.
APS Segment Revenue (Q4 2025) $37 million. Gross margin remained stable at 27%. Full year APS gross margin improved by almost 120 basis points year-over-year.
Net Leverage (End of 2025) 4.3x, an improvement of almost a quarter turn from the end of 2024 and a half turn from Q1 2025. Improvement driven by higher gross profit, disciplined SG&A management, and lower interest expense.
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Operating Highlights
Strategic Partnership with Hiab: Custom Truck announced a partnership with Hiab, a manufacturer of truck-mounted cranes and forklifts, to enhance product portfolio and service capabilities.
Aftermarket Service Expansion: Investments are being made to expand aftermarket service capacity to support TES customers post-sale and grow parts and service revenue.
Market Expansion in T&D: Continued strong demand in the transmission and distribution (T&D) utility markets, with record levels of equipment utilization and OEC on rent.
Regional Customer Growth: Strong order growth from local and regional customers, contributing to a 21% year-over-year net order growth in Q4.
Record Revenue and EBITDA: Achieved record revenue of $1.944 billion in 2025, an 8% increase, and adjusted EBITDA of $384 million, a 13% increase year-over-year.
Improved Rental Metrics: Rental fleet utilization averaged 84% in Q4, the highest in three years, with OEC on rent up 14% year-over-year.
Inventory Reduction: Reduced inventory by over $100 million in Q4, contributing to lower working capital needs and interest expenses.
Segment Realignment: Starting Q1 2026, the company will shift to two reporting segments: Specialty Equipment Rentals (SER) and Specialty Truck Equipment and Manufacturing (STEM), to better align with business evaluation and provide transparency.
2026 Guidance: Revenue projected at $2.005 billion to $2.12 billion, with adjusted EBITDA of $410 million to $435 million, reflecting 3%-9% revenue growth and 7%-13% EBITDA growth.
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Risk or Challenges
TES performance below expectations: TES performance in the fourth quarter was below expectations due to customers pulling forward capital spending earlier in the year, deferring deliveries into 2026, and not fully utilizing accelerated depreciation provisions from federal tax legislation. This led to an 8% year-over-year revenue decline in Q4.
Pricing pressure on truck sales: Continued pricing pressure on certain truck sales impacted TES revenue, although some easing was noted in the second half of the year.
Inventory and working capital challenges: High inventory levels and working capital needs have been a challenge, though progress was made in reducing inventory by over $100 million in Q4. This issue has implications for interest expenses and cash flow.
Macroeconomic uncertainty: Significant macroeconomic uncertainty in 2025 posed challenges, though the company remains optimistic about long-term demand drivers.
Seasonal slowdown in rental metrics: A seasonal slowdown in rental utilization and OEC on rent was observed in December, though metrics rebounded in early 2026.
Regulatory and tariff risks: Potential tariffs and regulatory changes led to customers pulling forward capital spending, impacting revenue timing and creating uncertainty.
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Guidance & Outlook
Revenue Expectations: The company expects total revenue in the range of $2.005 billion to $2.12 billion for 2026, reflecting year-over-year growth of 3% to 9%.
Adjusted EBITDA Projections: Adjusted EBITDA is projected to be in the range of $410 million to $435 million for 2026, representing growth of 7% to 13%.
Segment Revenue Guidance: ERS revenue is projected to be $725 million to $760 million, TES revenue is expected to be $1.125 billion to $1.2 billion, and APS revenue is forecasted to be $155 million to $160 million for 2026.
Rental Fleet Investment: The company plans to grow its rental fleet by mid-single digits in 2026 with a net investment of approximately $150 million to $170 million, a reduction from over $250 million in 2025.
Free Cash Flow and Leverage: The company expects to generate more than $50 million of levered free cash flow and reduce its net leverage ratio to below 4x by the end of 2026, progressing toward a 3x target in 2027.
Market Trends and Demand: Demand for equipment serving T&D utility markets remains at record levels, and the vocational rental market is expected to provide incremental growth in 2026.
Backlog and Order Growth: The TES segment's backlog is currently at $370 million, up more than 10% since year-end, with strong order growth expected to continue in 2026.
Operational Changes: The company will transition to a new reporting structure with two segments: Specialty Equipment Rentals (SER) and Specialty Truck Equipment and Manufacturing (STEM), starting Q1 2026. Historical financials and guidance will be recast to align with this structure.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What do you expect to see in the market to achieve the high end of the guidance range?
A:The high end of the guidance range would be achieved by continued or improving strong T&D demand, a pickup in the vocational or infrastructure market, and reduced political or economic uncertainty.
Q:How do you view the pricing environment and pricing as a contributor to OEC on rent yield?
A:The pricing environment is positive, with OEC on rent up meaningfully year-over-year. Price increases were implemented at the end of last year and the beginning of this year, contributing to the on-rent yield.
Q:Can you sustainably maintain 84% utilization and balance asset availability with higher utilization?
A:The team has done well in maintaining high utilization, but normalized levels are expected to be in the high 70s to low 80s. The fleet's young age (2.9 years) supports high utilization, and current utilization is at 82%.
Q:Have there been any onetime storm impacts in the Northeast affecting demand?
A:No, the demand has been T&D-focused everyday business with strong transmission and distribution demand.
Q:Can you provide insights into first half versus second half performance for 2026?
A:Historically, revenue splits are mid-to-high 40% in the first half and low-to-mid 50% in the second half. For Q1 2026, revenue is expected to grow mid-to-high single digits, and EBITDA is expected to grow double digits year-over-year, driven by the rental business.
Q:What is the outlook for the TES segment and its order trends?
A:The TES segment is expected to grow 3% to 9% in 2026. Backlog was up sequentially and orders won increased by 12% year-over-year in Q4. The backlog is at $370 million, providing confidence in the growth range.
Q:Are there any impacts from emission standards changes on demand?
A:The EPA 2027 mandate is still in play, and there is some prebuy activity from over-the-road customers. However, the company has good relationships with OEM suppliers and sufficient inventory to meet demand.
Q:What gives confidence in the sustainability of vocational strength?
A:Strong demand is seen in transmission and distribution, which is 55%-60% of overall revenue. There is also decent order uptick in vocational categories like dump trucks and water trucks, which supports confidence in improvement for 2026.
Q:Why were gross margins up in ERS but down in TRS, and what is the outlook?
A:ERS gross margins were strong due to high utilization and lower repair costs, expected to stay in the mid-70% range. TRS gross margins were at the lower end of the 15%-18% range due to pricing pressure but improved slightly in Q4.
Q:How much do you expect to age the fleet in 2026, and what is the impact?
A:The fleet is expected to age by a few months, not years, in 2026. The fleet's young age (2.9 years) allows for aging without significant impact on gross margin or utilization.
Q:What drove SG&A lower in Q4, and what is the outlook for 2026?
A:SG&A was reduced through cost control and some cuts. For 2026, SG&A is expected to grow modestly in the low single digits.
Q:What is the outlook for inventory levels and their impact on floor plan?
A:Inventory levels are targeted to decrease by $100 million in 2026, with a net working capital pickup of $25 million to $50 million.
Q:Why was the resegmentation done, and are there any associated costs?
A:The resegmentation reflects how the business is managed today, providing better clarity to investors. There are no costs directly associated with the resegmentation.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the impact of emission standards changes, stating that they are still waiting for clarity on the EPA 2027 mandate. Additionally, while they mentioned cost control measures for SG&A, they did not provide detailed examples of the cuts made.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bidding activity
CFO Ryan
Canada market
Conference conference
Equipment Manufacturing
Equipment Rentals
Full Conference
Hiab manufacturer
Hiab part
KPIs cash
Manufacturing STEM
Relations Source
Rentals SER
Ryan finish
SEC Today
SER Specialty
STEM change
Source Full
Source press
Specialty Equipment
Specialty Truck
TES capital
TES confidence
TES expectation
TES level
TES sale
Truck Equipment
conversation
delivery
infrastructure
order activity
part service
reporting
strength
utilization OEC
CTOS Transcript
Custom Truck One Source, Inc. (CTOS) Q4 2025 Earnings Call Transcript
Positive3-10
The earnings call reveals strong revenue growth across segments, improved net leverage, and positive pricing trends, all contributing to a positive outlook. The Q&A highlights confidence in maintaining high utilization and growth in key segments, despite some uncertainties around emission standards. The market cap suggests moderate sensitivity to these factors. Overall, the company's strong performance, optimistic guidance, and strategic management of costs and inventory levels indicate a likely stock price increase of 2% to 8% over the next two weeks.
Custom Truck One Source, Inc. (CTOS) Presents at Bank of America Leveraged Finance Conference Transcript
Neutral12-2
Custom Truck One Source, Inc. (CTOS) Q3 2025 Earnings Call Transcript
Positive10-28
The earnings call summary reflects strong financial performance, with significant growth in key segments and strategic investments. The Q&A highlights optimism in utility demand and transmission projects, though management was vague on some specifics. The reaffirmed guidance and positive market trends support a positive outlook. Given the small-cap nature of the company, the stock price is likely to react positively within the 2% to 8% range over the next two weeks.
Custom Truck One Source, Inc. (CTOS) Q2 2025 Earnings Conference Call Transcript
Positive8-1
The earnings call highlights strong financial performance with a 21% revenue increase, improved gross margins, and positive growth in key segments. The company is effectively managing tariff impacts and has a positive outlook despite backlog declines. The Q&A session reinforced confidence with clear responses, and the overall guidance remains optimistic. Given the company's market cap, these factors suggest a positive stock price movement of 2% to 8%.
CTOS Slides
CTOS Report
Frequently Asked Questions
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