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Custom Truck One Source, Inc. (CTOS)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered strong top-line growth: revenue rose 20.9% to $511.5M, adjusted EBITDA increased 16.7% to $93.4M; management reaffirmed FY2025 revenue ($1.97–$2.06B) and adjusted EBITDA ($370–$390M) guidance .
  • Segment performance was broad-based: ERS revenue up >23% YoY on higher utilization and OEC on rent; TES sales up >22% YoY with two consecutive $100M+ sales months; APS revenue +3% YoY with margin improvement .
  • Net loss widened to $28.4M due primarily to higher income tax expense tied to changes in expected taxable income across jurisdictions; annual cash taxes are expected to remain consistent with prior years .
  • Operational KPIs strengthened: fleet utilization ~77.6% (up ~590 bps YoY), Average OEC on rent $1.21B (+$162M YoY), Ending OEC $1.561B (record high) supporting ERS demand into H2’25/H1’26 .
  • Potential stock catalysts: reaffirmed guidance despite tariff headlines; improving TES margins and order flow; continued deleveraging focus (LTM adj. EBITDA $349.1M; net leverage 4.66x with goal <3x by FY2026) .

What Went Well and What Went Wrong

What Went Well

  • Strong revenue and EBITDA growth across segments; CEO: “we achieved strong year-over-year revenue growth of 21% and adjusted EBITDA growth of 17%, driven by growth in every segment” .
  • ERS fundamentals improved: utilization just under 78%, OEC on rent up ~16% YoY; CFO: “Adjusted gross margin for ERS was 59%” (in expected ranges), ORY 38.6% .
  • TES momentum: “two consecutive months of TES sales over $100M…second highest quarter of sales ever,” with signed orders up ~45% among local/regional customers and ~35% overall YoY .

What Went Wrong

  • Net loss increased: -$28.4M vs -$24.5M YoY, driven primarily by higher income tax expense; company expects annual cash taxes paid to remain consistent with previous years .
  • TES backlog declined sequentially and YoY; management acknowledged decline but emphasized strong intra-quarter orders and delivery from inventory/production .
  • Consolidated ORY down YoY (38.6% vs 40.0%) reflecting pricing/product mix dynamics; TES gross margin (15.5%) remains below prior year, though improved vs Q1 and expected to improve in H2’25 .

Financial Results

Consolidated performance vs prior periods and estimates

MetricQ2 2024Q1 2025Q2 2025Consensus (Q2 2025)
Revenue ($USD Millions)$423.0 $422.2 $511.5 N/A (S&P Global consensus unavailable)
Gross Profit ($USD Millions)$89.3 $85.5 $102.5 N/A
Adjusted Gross Profit ($USD Millions)$133.9 $135.6 $156.5 N/A
Net Income (Loss) ($USD Millions)$(24.5) $(17.8) $(28.4) N/A
Diluted EPS ($)$(0.10) $(0.08) $(0.13) N/A
Adjusted EBITDA ($USD Millions)$80.1 $73.4 $93.4 N/A

Note: Consensus values were not available from S&P Global for this period.

Segment breakdown

SegmentMetricQ2 2024Q1 2025Q2 2025
ERSTotal Revenue ($M)$138.4 $154.3 $170.5
ERSAdjusted Gross Profit ($M)$83.3 $93.0 $99.7
ERSAdjusted Rental Gross Profit ($M)$71.4 $82.6 $87.4
TESEquipment Sales ($M)$247.9 $232.5 $303.4
TESGross Profit ($M)$42.4 $35.0 $47.1
APSTotal Revenue ($M)$36.7 $35.4 $37.6
APSGross Profit ($M)$7.1 $6.9 $9.0

KPIs

KPIQ2 2024Q1 2025Q2 2025
Fleet Utilization (%)71.7% 77.7% 77.6%
Average OEC on Rent ($M)$1,044.7 $1,202.3 $1,207.2
Ending OEC ($M)$1,458.0 $1,548.2 $1,560.7
OEC on Rent Yield (ORY, %)40.0% 38.5% 38.6%
Sales Order Backlog ($M)$478.2 $420.1 $334.8

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated RevenueFY 2025$1.97B–$2.06B (Q1) $1.97B–$2.06B (Q2) Maintained
Adjusted EBITDAFY 2025$370M–$390M (Q1) $370M–$390M (Q2) Maintained
ERS RevenueFY 2025$660M–$690M (Q1) $660M–$690M (Q2) Maintained
TES RevenueFY 2025$1.160B–$1.210B (Q1) $1.160B–$1.210B (Q2) Maintained
APS RevenueFY 2025$150M–$160M (Q1) $150M–$160M (Q2) Maintained
Net Rental CapExFY 2025~<$200M (Q1) ~$200M (Q2) Maintained/clarified
Levered Free Cash FlowFY 2025$50M–$100M (Q1) >$50M (Q2) Lowered (range narrowed to “> $50M”)
Net Leverage TargetMulti-year<4x by YE 2025 (Q4’24) “Meaningful reduction” in 2025; <3x by FY2026 (Q2) Clarified/lowered near-term target

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
Tariffs/macroMonitoring tariffs (Mexico/Canada sourcing); natural hedge via fleet & inventory; minimal assumed P&L impact Tactical inventory pull-forward; vendor incentives; mitigate tariff costs; inventory unwind H2-weighted Minimal cost impact expected in 2025; some impact in Q3–Q4; managed via pre-tariff chassis purchases and supply base Stable/managed
Utilization/OECUtilization improved to ~79% in Q4; OEC on rent up; ending OEC >$1.5B Utilization ~78%; Average OEC on rent >$1.2B; continued fleet investment Utilization just under 78%; Average OEC on rent >$1.2B; ending OEC ~$1.56B (record) Improving
TES demand/marginsRecord Q4 sales; margin mid-teens; backlog normalized >4 months Backlog +$51M; margins 15–18% target; H2 margin improvement expected Sales +22% YoY; gross margin 15.5% (up vs Q1); backlog down but intra-quarter orders strong Improving sequentially
Regulatory (EPA/CARB)Monitoring emission standards; no pre-buy assumed Monitoring potential changes under new administration; no pre-buy in outlook Congress revoked CARB waivers (being challenged); awaiting EPA clarity; no pre-buy assumed Neutral/uncertain
AI/data center tailwindsUtility demand driven by data centers/electrification; sustained long-term drivers Secular tailwinds (data centers, electrification, onshoring) underpin demand CEO reiterates secular tailwinds (data centers, electrification, grid upgrades) Positive
Pricing/ORYORY improved seq in Q4; selective price actions On-rent yield flat; targeting +~100 bps over time ORY 38.6%; slightly up sequentially; maintaining margin ranges Stable/slight improvement

Management Commentary

  • CEO: “We achieved strong year-over-year revenue growth of 21% and adjusted EBITDA growth of 17%, driven by growth in every segment…we are reaffirming our previous fiscal 2025 revenue and adjusted EBITDA guidance” .
  • CEO on TES: “Two consecutive months of TES sales over $100 million…second highest quarter of sales ever…signed orders…up more than 45% year-over-year among local and regional customers” .
  • CFO: “Adjusted gross margin for ERS was 59%…ORY was 38.6%…Net rental CapEx in Q2 was $64M…we finished Q2 with net leverage of 4.66x” .
  • CEO on tariffs: “Minimal cost impact in the business this year…you’ll see some of that hit in Q3 and Q4” .
  • CEO on regulatory: “Congress revoked California’s waivers…orders are being challenged…we continue to wait for clarity from the EPA…our current outlook for TES assumes no pre-buy” .

Q&A Highlights

  • Tariffs: Minimal cost impact expected in 2025 due to pre-tariff chassis procurement and supplier management; any residual costs likely in Q3–Q4 .
  • Backlog: Declined QoQ and YoY, but management emphasized strong orders won (+~45% local/regional; ~30% overall YoY) and ability to deliver intra-quarter from inventory; supports H2 demand .
  • Deleveraging/FCF: Target >$50M levered FCF in 2025; net leverage improvement underway; <3x targeted by FY2026 .
  • Pricing/ORY: On-rent yield stable to slightly improving; selective price increases flowing through; ERS margins within expected ranges .
  • TES margins: 15.5% in Q2; expected to continue improving in H2 2025 within 15–18% target range .

Estimates Context

  • S&P Global consensus estimates for Q2 2025 EPS and revenue were unavailable for CTOS at the time of this analysis; direct comparison to Street expectations could not be made. Results were evaluated against prior periods and company guidance instead [GetEstimates attempted; no data returned].

Key Takeaways for Investors

  • Broad-based growth and KPI strength support the reaffirmed FY2025 guide; utilization and OEC trends suggest continued ERS demand into H2’25/H1’26 .
  • TES momentum is a key lever: second-highest quarter ever, improving margin trajectory, strong intra-quarter orders offsetting backlog normalization .
  • Tariff headwinds appear manageable near-term given pre-tariff chassis buys and vendor mitigation; watch Q3–Q4 for residual impacts and pricing adjustments .
  • Deleveraging remains central: LTM adjusted EBITDA $349.1M; net leverage 4.66x; management targeting <3x by FY2026 with >$50M levered FCF in 2025 .
  • Tax-driven net loss in Q2 was a non-operational headwind; company expects annual cash taxes paid to remain consistent with prior years .
  • Operational execution (inventory management, fleet investment, order-to-delivery cadence) is mitigating macro uncertainty and should underpin H2 performance .
  • Near-term trading implications: narrative centers on sustained utility/T&D demand, TES order flow/margins, and leverage reduction; reaffirmed guide likely stabilizes expectations pending any tariff/regulatory developments .