Custom Truck One Source, Inc. (CTOS) Q1 2026 Earnings Call Transcript
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Overview
The earnings call presents several positive indicators: strong rental revenue growth, effective cost management, and a favorable pricing environment. The backlog and order growth in the TES segment, along with robust bidding activity, suggest continued demand. Despite modest guidance increases, the company remains cautious, indicating potential for future upward revisions. The sentiment from the Q&A session is generally positive, with no significant risks highlighted. Given the company's market cap, a 2% to 8% stock price increase is likely over the next two weeks.
Key Financial Performance
Revenue $462 million, up 9% year-over-year. Driven by strong momentum in core end markets and excellent execution.
Adjusted EBITDA $98 million, up 33% year-over-year. Supported by improved rental fundamentals and strong performance in T&D end markets.
Specialty Equipment Rentals (SER) Revenue $194 million, up 16% year-over-year. Growth driven by strong double-digit increases in rental revenue and rental equipment sales activity.
SER Segment Adjusted EBITDA $105 million, up 23% year-over-year. Segment adjusted EBITDA margin was 51.5%, up more than 415 basis points versus Q1 2025. Growth attributed to increased rental activity and scaling of fleet.
Utilization Rate (SER) 81.4%, up 370 basis points year-over-year. Reflects increased rental activity and strong demand.
Original Equipment Cost (OEC) on Rent (SER) $1.34 billion, up 12% year-over-year. Indicates strong demand and scaling of fleet.
STEM Revenue (excluding intersegment sales) $268 million, up 5% year-over-year. Growth driven by equipment sales growth of more than 4% and parts sales and service revenue growth of almost 17%.
STEM Segment Adjusted EBITDA $33 million. Segment adjusted EBITDA margin was 9%. Margin gains driven by significant cost out and productivity improvements.
New Sales Order Backlog (STEM) $411 million, up $76 million or 23% from Q4. Reflects strong order growth and healthy end market demand.
Net Debt $1.65 billion. Net leverage of slightly more than 4x, improved by approximately 80 basis points year-over-year.
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Operating Highlights
Specialty Equipment Rentals (SER): Generated $194 million in revenue, up 16% year-over-year. Rental fleet utilization averaged 81.4%, up 370 basis points from Q1 2025. OEC on rent averaged $1.34 billion, up 12% year-over-year. Strong demand in T&D utility markets and vocational rental market expected to drive growth.
Specialty Truck and Equipment Manufacturing (STEM): Revenue excluding intersegment sales was $268 million, up 5% year-over-year. New sales order backlog ended Q1 at $411 million, up 23% from Q4 2025. Strong order growth of 13% year-over-year in Q1, with continued growth in Q2.
Operational Efficiency in STEM: Gross margin expanded due to significant cost reductions and productivity improvements. Reduction in maintenance CapEx planned for 2026, contributing to increased free cash flow generation.
Fleet Management: Average fleet age is less than 3 years, positioning the company well to support customers. Planned decrease in maintenance CapEx in 2026 compared to 2025 to improve free cash flow.
Revenue and EBITDA Guidance: Affirmed 2026 revenue guidance of $2.005 billion to $2.12 billion. Adjusted EBITDA guidance raised to $415 million to $440 million, reflecting 8% to 15% growth.
Leverage and Cash Flow: Net leverage reduced to slightly more than 4x, with plans to reduce it below 4x by the end of 2026. Targeting $50 million in levered free cash flow generation in 2026.
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Risk or Challenges
Macroeconomic Volatility: The company acknowledges broader macroeconomic uncertainty, which could impact long-term demand drivers and financial performance.
Inventory Management: Seasonal order flow has led to increased inventory levels, and the company aims to reduce inventory and floor plan balances over the year. Failure to achieve this could affect free cash flow generation.
Regulatory Compliance: The company is preparing to navigate the impact of the EPA's 2027 emission standards, which could pose challenges in maintaining compliance and operational efficiency.
Leverage and Debt: Net leverage remains slightly above 4x, and while the company aims to reduce this, high leverage could limit financial flexibility and increase risk.
Supply Chain Dependencies: The company relies on strong relationships with chassis OEM partners and other suppliers. Any disruption in these relationships could impact operations and delivery schedules.
Market Demand Variability: While demand in T&D utility markets is strong, slower growth in the infrastructure end market could pose challenges to achieving revenue targets.
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Guidance & Outlook
Revenue Guidance for 2026: The company affirms its 2026 revenue guidance in the range of $2.005 billion to $2.12 billion, reflecting year-over-year growth of 3% to 9%.
Adjusted EBITDA Guidance for 2026: The company raises its adjusted EBITDA guidance to a range of $415 million to $440 million, representing year-over-year growth of 8% to 15%.
Specialty Equipment Rentals (SER) Segment Revenue: Projected revenue for the SER segment is between $835 million and $870 million in 2026.
Specialty Truck and Equipment Manufacturing (STEM) Segment Revenue: Projected revenue for the STEM segment is between $1.58 billion and $1.655 billion, with third-party revenue growth of 3% to 10%.
Rental Fleet Investment: Net investment in the rental fleet is expected to be approximately $150 million to $170 million in 2026, a reduction from $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, with a target of 3x by 2027.
Fleet Age and Utilization: The average age of the rental fleet is expected to increase slightly to just under 3 years, while utilization and OEC on rent are projected to remain strong in 2026.
Market Demand and Trends: Demand for equipment serving the T&D utility markets is expected to remain at record levels, with incremental growth anticipated in the vocational rental market.
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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 are the company's concerns regarding the recent changes to Section 232 tariffs?
A:The company feels they are in a good position regarding tariffs due to having inventory on the ground. They are experiencing some tariff exposure on certain truck bodies but believe their team has managed it well. Discussions with OEMs are ongoing, but the focus is more on orders for 2027.
Q:How does the company compare to competitors in terms of fleet age?
A:The company does not have precise data on competitors' fleet ages but estimates they are ahead based on customer feedback. Their fleet's average age is currently under 3 years, down from about 4 years in 2021. They believe this range is optimal for performance and cash generation.
Q:What is driving the company's margin improvements?
A:Margin improvements are driven by strong rental revenue growth, productivity improvements, and effective cost management. The production team has optimized the cost structure, leading to an expansion in STEM gross margin.
Q:What factors are influencing OEC yield and pricing?
A:OEC yield is influenced by a 5% price increase implemented in December and a favorable mix shift towards higher-yield transmission equipment. The price increase takes a year to fully cycle through the fleet, and the mix impact depends on the strength of transmission demand, expected to remain strong through 2026.
Q:Why did the company only raise EBITDA guidance by $5 million despite outperforming expectations?
A:The company cited prudence and tougher comparisons in Q2 as reasons for the modest guidance increase. They feel comfortable with the current range of $415 million to $440 million and will adjust guidance if necessary later in the year.
Q:Is political pushback on data centers affecting the company's business?
A:The company has not observed any significant impact from political pushback on data centers. Demand for equipment remains strong, and customers are bullish on additional transmission work.
Q:How much of the impending infrastructure wave is reflected in the quoting pipeline, and are there supply chain concerns?
A:Demand for transmission equipment is picking up but has not reached peak levels. The company does not foresee any specific equipment shortages at this time and expects demand to remain strong through 2026 and into 2027.
Q:Why hasn't the company raised guidance for the SER segment despite strong performance?
A:The company is being cautious and thoughtful about the next 9 months. While margins and EBITDA are outperforming, they prefer to maintain current revenue guidance for now.
Q:What is the current state of bidding activity?
A:Bidding activity is robust, particularly in the transmission segment. Several projects are in process, and the company expects strong activity through 2026 and into 2027.
Q:What is the pricing environment for new equipment?
A:The pricing environment for new equipment is more stable compared to last year. While there is still some pressure, productivity initiatives have helped offset it.
Q:What are the normalized margins for the STEM segment, and what is driving backlog growth?
A:Normalized margins for the STEM segment are in the 15%-18% range, currently closer to 16%-17%. Backlog growth is driven by increased demand from small customers, particularly in the utility and forestry segments, while infrastructure-related segments like waste and dump trucks have seen less pickup.
Q:How much of the STEM backlog is for 2026 versus beyond?
A:The majority of the STEM backlog is for 2026 deliveries, with very little extending beyond that year.
Q:What is the mix of EBITDA guidance between the SER and STEM segments?
A:The company does not provide specific segment EBITDA guidance but suggests using prior year disclosures as a proxy, with a slight shift towards SER expected this year.
Q:What is the company's plan for debt paydown?
A:The company plans to use levered free cash flow, guided at over $50 million for the year, to pay down debt. This includes both EBITDA growth and cash from working capital improvements.
Q:Are data center trends affecting buy versus rent decisions?
A:Data center trends are not significantly impacting buy versus rent decisions. Transmission equipment is typically rented, while distribution equipment is more commonly bought or rented.
Q:What are the current inventory levels, and how will they trend?
A:Inventory levels are currently around 7.5 months and are expected to decrease to below 6 months by year-end. The company aims to reduce inventory by $100 million year-over-year, with most of the reduction occurring in the second half of the year.
Q:What are potential bottlenecks that could slow execution?
A:Potential bottlenecks include supply chain issues, particularly with transmission equipment suppliers and chassis OEMs. However, the company believes they are well-positioned to manage these challenges.
Q:Review of Unclear Management Responses
A:Management avoided providing specific segment EBITDA guidance, citing prior year disclosures as a proxy. They also did not provide detailed data on competitors' fleet ages, relying instead on customer feedback. Additionally, they did not specify the exact impact of EPA 2027 rules, stating only that they are well-positioned to address them.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CFO Ryan
CTOS fleet
Equipment Manufacturing
Equipment Rentals
Instructions conference
Manufacturing segment
OEM partner
Relations Vice
Relations website
Rentals segment
Ryan start
SEC filing
SER revenue
SER segment
STEM intersegment
STEM result
STEM sale
Specialty Equipment
Specialty Truck
Truck Equipment
Yesterday afternoon
accounting policy
accounting requirement
afternoon SEC
agreement place
appendix investor
application pricing
average OEC
change
condition
conversation
infrastructure
intersegment sale
sale SER
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strength
CTOS Transcript
Custom Truck One Source, Inc. (CTOS) Q1 2026 Earnings Call Transcript
Positive4-28
The earnings call presents several positive indicators: strong rental revenue growth, effective cost management, and a favorable pricing environment. The backlog and order growth in the TES segment, along with robust bidding activity, suggest continued demand. Despite modest guidance increases, the company remains cautious, indicating potential for future upward revisions. The sentiment from the Q&A session is generally positive, with no significant risks highlighted. Given the company's market cap, a 2% to 8% stock price increase is likely over the next two weeks.
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.
CTOS Slides
Custom Truck Q1 2026 slides: record revenue, 33% EBITDA growth2026-04-27
Custom Truck Q4 2025 slides: record results mask revenue miss concerns2026-03-10
Custom Truck One Source Q3 2025 slides: strong growth overshadowed by earnings miss2025-10-27
Custom Truck One Source Q2 2025 slides: revenue surges 21% amid strong rental demand2025-07-30
CTOS Report
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