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Custom Truck One Source, Inc. (CTOS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue grew 2.7% year over year to $422.2M, but fell sequentially from Q4 due to seasonality; adjusted EBITDA declined 5.1% YoY to $73.4M as TES margins and used sales mix pressured profitability, while ERS fundamentals (utilization, OEC on rent) stayed strong .
  • ERS delivered double‑digit revenue growth (+13% YoY) on higher utilization (77.7%, +440 bps YoY) and 13% higher average OEC on rent; TES sales were modestly down YoY with gross margin at 15.1% amid pricing pressure and mix, though net orders and backlog improved sequentially .
  • Management reaffirmed full‑year 2025 guidance (Revenue: $1.97B–$2.06B; Adjusted EBITDA: $370M–$390M; LFCF target: $50M–$100M) and reiterated plans to grow the rental fleet mid‑single digits and reduce net leverage in 2025; wording on YE leverage shifted from “below 4x” (Q4) to “meaningful reduction,” with CFO noting high‑end FCF could get net leverage close to or slightly below 4x .
  • Stock reaction catalysts: reaffirmed full‑year guide, visible ERS momentum (utilization, OEC, rental demand), backlog/order strength carrying into Q2, and tariff‑mitigation/inventory unwind path supporting LFCF; offset by TES margin pressure, higher interest expense, and removal of explicit YE <4x leverage target .

What Went Well and What Went Wrong

What Went Well

  • ERS strength: rental revenue +9.4% YoY; utilization 77.7% (+440 bps YoY); average OEC on rent +13% YoY; ERS total revenue +13% YoY; management: “strong results in both our ERS and TES segments… average utilization… up 440 bps versus Q1 last year” .
  • Backlog and order momentum: TES new sales backlog rose to $420.1M (+22% vs Q4) with sequential order strength (record March and strong April), supporting 2025 TES growth confidence .
  • Reaffirmed 2025 outlook with targeted $50–$100M levered FCF and rental fleet growth mid‑single digits; CEO: “we are reaffirming our 2025 guidance” and “expect to generate meaningful free cash flow in 2025” .

What Went Wrong

  • Profitability pressure: gross profit down 5.7% YoY to $85.5M; adjusted EBITDA down 5.1% YoY to $73.4M; net loss widened to $(17.8)M; drivers included lower gross profit, higher variable-rate interest and floorplan costs .
  • TES margin pressure and pricing: TES revenue −3.1% YoY; gross margin 15.1% (down YoY) due to mix and industry inventory levels; APS gross profit down on higher material costs .
  • Leverage higher sequentially: net leverage rose to 4.80x (from 4.55x at YE), with total debt $1.618B and cash $5.4M; explicit YE “below 4x” leverage target removed, though CFO still targets meaningful reduction with potential to approach ~4x at high‑end FCF .

Financial Results

Consolidated P&L and Margins (USD Millions; periods oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue$447.2 $520.7 $422.2
Gross Profit$91.8 $118.5 $85.5
Adjusted EBITDA (non‑GAAP)$80.2 $102.0 $73.4
Diluted EPS$(0.07) $0.12 $(0.08)
Gross Margin % (calc)20.5% (from cited) 22.8% (from cited) 20.3% (from cited)
Adj. EBITDA Margin % (calc)17.9% (from cited) 19.6% (from cited) 17.4% (from cited)
YoY Revenue % (Q1 only)——+2.7%
QoQ Revenue % (Q1 vs Q4)——−18.9% (from cited)

Note: Margins and % changes are computed from the cited values.

Segment Breakdown (USD Millions; by period)

SegmentQ1 2024Q4 2024Q1 2025
ERS – Rental Revenue$103.3 $120.9 $113.0
ERS – Equipment Sales$32.7 $51.6 $41.4
ERS – Total Revenue$136.0 $172.5 $154.3
ERS – Gross Profit$39.4 $56.6 $43.6
TES – Equipment Sales$239.9 $307.7 $232.5
TES – Gross Profit$43.2 $51.0 $35.0
APS – Rental Revenue$2.9 $4.6 $3.3
APS – Parts & Services Revenue$32.5 $36.0 $32.1
APS – Total Revenue$35.4 $40.6 $35.4
APS – Gross Profit$8.1 $10.9 $6.9

Operating KPIs (periods)

KPIQ1 2024Q4 2024Q1 2025
Ending OEC ($M)$1,452.9 $1,515.5 $1,548.2
Avg OEC on Rent ($M)$1,065.7 $1,211.1 $1,202.3
Fleet Utilization %73.3% 78.9% 77.7%
OEC on Rent Yield % (annualized)40.5% 38.6% 38.5%
TES Sales Backlog ($M)$537.3 $368.8 $420.1

Balance Sheet / Leverage Snapshot (quarter‑end)

MetricQ4 2024Q1 2025
Cash & Equivalents ($M)$3.8 $5.4
Total Debt ($M)$1,547.7 $1,618.0
Net Debt ($M)$1,543.8 $1,612.6
Net Leverage (LTM Adj. EBITDA)4.55x 4.80x

Guidance Changes

MetricPeriodPrevious Guidance (3/4/25)Current Guidance (4/30/25)Change
Consolidated RevenueFY 2025$1.97B–$2.06B $1.97B–$2.06B Maintained
Adjusted EBITDA (non‑GAAP)FY 2025$370M–$390M $370M–$390M Maintained
ERS RevenueFY 2025$660M–$690M $660M–$690M Maintained
TES RevenueFY 2025$1.16B–$1.21B $1.16B–$1.21B Maintained
APS RevenueFY 2025$150M–$160M $150M–$160M Maintained
Levered Free Cash FlowFY 2025$50M–$100M target $50M–$100M target Maintained
Net Leverage TargetFY 2025 YE“Below 4x” by YE 2025 “Meaningful reduction by YE” (no explicit <4x) Wording softened; CFO: could approach ~4x at high‑end FCF

Earnings Call Themes & Trends

TopicQ3 2024 (10/31)Q4 2024 (3/5)Q1 2025 (5/1)Trend
Rental utilization & OECUtilization rebounded; OEC >$1.2B; storm work aided demand Utilization just under 79%; OEC >$1.2B; rental KPIs improved Utilization ~78%; Avg OEC on rent >$1.2B; KPIs holding into Q2 Positive, sustained
TES backlog/ordersBacklog normalized to ~4–6 months Backlog ~ $445M entering 2025; net orders +35% YoY Backlog $420M (+$51M QoQ); record March & strong April orders Improving sequentially
TES marginsPressure from mix/industry inventory Mid‑teens; expect normalization later 15.1%; still pressured, expect improvement later 2025 Stabilizing, gradual recovery
Tariffs/macroMonitoring tariffs; natural hedge via rental fleet/inventory Working with suppliers; exposure to MX/CA chassis Pulled forward chassis; supplier incentives; limited operational disruption expected Managed risk
IIJA/federal spendEarly IIJA benefits noted Mid‑innings; ongoing tailwind Demand strong; reaffirm guide despite policy uncertainty Supportive tailwind
Emission regs (CARB/EPA)Prepared for 2025–27 changes Monitoring under new administration Monitoring; TES guide not predicated on prebuy Watchful, not core driver
Inventory & FCFExpect decline; inventory normalization Inventory down $150M in Q4; 2025 LFCF $50–$100M Tactical Q1 build; unwind 2H‑weighted; reaffirm LFCF target Execution path intact
Leverage targetsAim <3x in 2026 Target <4x by YE’25; <3x by 2026 “Meaningful reduction” by YE; could approach ~4x at high‑end FCF Slightly softened YE’25 phrasing

Management Commentary

  • “Average utilization… up 440 basis points versus Q1 of last year… significant year‑over‑year increases in both rental revenue and rental asset sales, driving total ERS segment revenue up 13%” — CEO, prepared remarks .
  • “TES… ended with our strongest March in the history of the company… backlog increasing by over $51 million in the quarter” — CEO .
  • “We are reaffirming our previous fiscal 2025 revenue and adjusted EBITDA guidance” — CEO .
  • “Adjusted gross margin for ERS was 60% in the quarter, essentially flat versus the same period last year… On‑rent yield was over 38%” — CFO .
  • “We continue to expect to generate meaningful levered free cash flow in 2025, setting a target of $50 million to $100 million” — CFO .
  • “Despite ongoing challenges… new tariff policy, we remain cautiously optimistic about fiscal 2025… reaffirming our 2025 guidance” — CEO, press release .

Q&A Highlights

  • Growth cadence and conviction: Management cited sustained ERS demand and TES order momentum (backlog +$50M in Q1; strongest March; record April) as drivers of accelerating revenue through the year; seasonality remains 45%/55% 1H/2H split .
  • Tariffs/inventory: Exposure mainly to Canada/Mexico chassis; mitigation via supplier engagement, incentives, and pulled‑forward purchases; inventory reduction expected to be second‑half weighted .
  • ERS pricing/yield: On‑rent yield roughly flat QoQ; where possible rates are increasing; outlook suggests flat to modest improvement (~+100 bps potential) through 2025 .
  • TES margins: Guidance remains 15%–18% with expected improvement later in 2025 as mix/inventory conditions normalize .
  • Leverage pathway: While YE “<4x” was not reiterated, CFO said that achieving $100M LFCF could get net leverage close to or slightly below 4x .

Estimates Context

  • S&P Global consensus for Q1 2025 revenue and EPS was unavailable at the time of analysis; therefore, a formal beat/miss versus Street cannot be assessed. Values for consensus estimates were not returned by S&P Global and thus are unavailable for comparison at this time (we will update when available) [GetEstimates returned no data]*.
  • Directionally, CTOS reaffirmed full‑year guidance, supported by ERS utilization/OEC and sequential TES backlog/order improvement, which may prompt modest upward estimate revisions to ERS and support TES volume expectations contingent on margin recovery .

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • ERS is the growth and stability engine: improving utilization and OEC on rent are driving double‑digit segment growth and underpinning reaffirmed guidance .
  • TES volume visibility is improving on sequential backlog/order gains, but margins remain the swing factor; monitor 2H mix, pricing discipline, and supplier incentives for margin recovery within the mid‑teens range .
  • Tariff risk appears manageable in 2025 through supplier shifts, incentives, and tactical inventory purchases; inventory unwind should support $50–$100M LFCF and deleveraging in 2H .
  • Leverage: near‑term narrative softened (from explicit YE <4x to “meaningful reduction”), but management’s plan can approach ~4x if high‑end FCF is achieved; multiyear target remains <3x by 2026 .
  • Trading setup: reaffirmed FY guide and ERS momentum are positives; watch TES gross margin trajectory, interest expense headwinds, and cadence of backlog conversion (orders → sales over ~3–4 months) for confirmation in Q2/Q3 .
  • Structural tailwinds (AI/data centers, grid upgrades, onshoring) continue to support multi‑year demand across CTOS end markets, with network expansion (new Portland branch) adding regional capacity .

Appendix: Additional Data Tables

Reconciliations and Non‑GAAP Highlights (USD Millions)

MetricQ1 2024Q4 2024Q1 2025
Adjusted Gross Profit$134.5 $167.6 $135.6
EBITDA$64.9 $115.8 $62.6
Adjusted EBITDA$77.4 $102.0 $73.4

Cash Flow (Selected) (USD Millions)

MetricQ1 2024Q1 2025
Net Cash from Operating Activities$(14.4) $55.6
Purchases of Rental Equipment$(75.6) $(111.9)
Proceeds – Rental Equipment Sales$60.1 $44.5
Net Cash from Financing Activities$45.5 $17.2

Select ERS Margins (non‑GAAP, as disclosed)

MetricQ1 2024Q4 2024Q1 2025
ERS Adjusted Gross Profit$82.1 $104.8 $93.0
ERS Adjusted Rental Gross Profit$73.5 $92.6 $82.6

All data and quotations are from CTOS Q1 2025 press release and Q1 2025 earnings call transcript, with prior quarter references for context , and Q4 2024/Q3 2024 materials .