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Custom Truck One Source, Inc. (CTOS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 delivered 8% revenue growth to $482.1M and 20% adjusted EBITDA growth to $96.0M; ERS rental fundamentals inflected with utilization at 79.3% (highest in 2+ years) and OEC on rent +17% YoY .
  • Consolidated FY25 guidance reaffirmed ($1.97B–$2.06B revenue; $370M–$390M adj. EBITDA); mix update: ERS seen finishing in the upper half of its range, TES toward the low end; company increased net rental CapEx to ~ $250M (from ~$200M) and now expects LFCF “less than” the prior $50M target .
  • TES demand solid (signed orders +30% YoY, +40% among local/regional); backlog at Q3-end fell to $280M given strong shipments, but rebuilt to >$350M in early Q4, aided by permanent bonus depreciation in the federal bill .
  • Balance sheet progressing: net leverage improved to 4.53x LTM, $238M ABL availability plus $232M suppressed; inventory reduction plan accelerated to $125–$150M by year-end vs. 2024, though higher CapEx pulls down FY25 LFCF .
  • Stock setup/catalysts: reaffirmed guide amid ERS strength (utilization >80% in October) and Q4 year-end selling tailwinds from bonus depreciation vs. offsets from higher CapEx and TES pricing pressure as industry supply normalizes .

What Went Well and What Went Wrong

  • What Went Well
    • ERS rental KPIs strengthened: utilization 79.3% (+600 bps YoY), average OEC on rent $1.26B (+17% YoY), rental revenue +18% YoY; ERS adj. gross margin 62% on improved mix and strong rental margins .
    • TES demand intact despite backlog normalization: signed orders +30% YoY (local/regional +40%); early Q4 backlog rebounded to >$350M; management cites bonus depreciation as Q4 sales catalyst .
    • Deleveraging path remains in focus: LTM adj. EBITDA $365M and net leverage 4.53x; company expects Q4 FCF generation and targets <3.0x by end FY26 .
  • What Went Wrong
    • TES gross margin compressed (15%) on elevated vocational equipment supply and pricing pressure; management now frames TES full-year revenue toward the low end of its range .
    • FY25 LFCF revised to “less than” prior $50M target given higher rental and non-rental CapEx and smaller inventory draw in Q4 than previously envisioned .
    • Macro hesitation among some customers (rates/inflation/tariffs) continues to weigh on certain infrastructure verticals (e.g., refuse, dump/water trucks), even as T&D remains strong .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Revenue ($M)$447.2 $511.5 $482.1
Net Income (Loss) ($M)$(17.4) $(28.4) $(5.8)
Diluted EPS ($)$(0.07) $(0.13) $(0.03)
Gross Profit ($M)$91.8 $102.5 $100.8
Adjusted Gross Profit ($M)$137.8 $156.5 $155.5
Adjusted EBITDA ($M)$80.2 $93.4 $96.0
Adjusted EBITDA Margin (%)17.9% (calc. from )18.3% (calc. from )19.9% (calc. from )
Note: Adjusted EBITDA Margin is calculated from reported revenue and Adjusted EBITDA.

Segment breakdown

SegmentQ3 2024Q2 2025Q3 2025
ERS Total Revenue ($M)$150.9 $170.5 $169.1
TES Equipment Sales ($M)$259.9 $303.4 $275.4
APS Total Revenue ($M)$36.4 $37.6 $37.5
ERS Gross Profit ($M)$42.5 $46.4 $50.3
TES Gross Profit ($M)$41.9 $47.1 $41.4
APS Gross Profit ($M)$7.4 $9.0 $9.1
ERS Adjusted Gross Profit ($M)$87.5 $99.7 $104.3

KPIs

KPIQ1 2025Q2 2025Q3 2025
Ending OEC ($M)$1,548.2 $1,560.7 $1,621.7
Average OEC on Rent ($M)$1,202.3 $1,207.2 $1,262.5
Fleet Utilization (%)77.7% 77.6% 79.3%
OEC on Rent Yield (%)38.5% 38.6% 38.2%
Sales Order Backlog ($M)$420.1 $334.8 $279.8

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated RevenueFY 2025$1.97B–$2.06B $1.97B–$2.06B Maintained
Adjusted EBITDAFY 2025$370M–$390M $370M–$390M Maintained
ERS RevenueFY 2025$660M–$690M Upper half of range Tilted higher within range
TES RevenueFY 2025$1.16B–$1.21B Closer to lower end Tilted lower within range
APS RevenueFY 2025$150M–$160M $150M–$160M Maintained
Net Rental CapExFY 2025~ $200M ~ $250M Raised
Non-Rental CapExFY 2025$25M–$40M typical (historical) Higher in FY25; KS capacity projects +$10–$15M Raised vs typical
Inventory Reduction vs. YE24FY 2025Reduce by YE (no amount) $125M–$150M reduction by YE25 Quantified/raised
OEC Growth (net)FY 2025At least mid-single digit At least high-single digit Raised
Levered Free Cash FlowFY 2025>$50M target “Less than” prior $50M target Lowered
Net Leverage TargetBy end FY 2026<3.0x <3.0x (unchanged) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
AI/data center power demand (T&D)Secular electricity demand tailwind; robust ERS utilization, OEC on rent; reaffirmed growth outlook “Real bottleneck is electricity”; T&D CapEx ~$600B (2025–2029) industry view; ERS utilization >79%, >80% early Q4; transmission accelerating Improving
Supply chain & TES pricingTES margins pressured; gradual normalization expected; backlog within 4–6 months TES gross margin ~15%; industry supply elevated; expect improvement as balance returns Stabilizing (near-term pressured)
Tariffs/macroTariff cost impact limited in 2025 due to mitigation; some customer hesitancy; inventory pulled forward Limited direct cost impact; hesitancy persists (rates/inflation/tariffs) Mixed
Regulatory (EPA/CARB)No pre-buy assumed; monitoring emissions rules; CARB waiver uncertainty No new update; outlook not contingent on pre-buy Stable
Order flow/backlogSigned orders up ~35% YoY in Q2; backlog normalized but healthy Q3 signed orders +30% YoY (local/regional +40%); backlog grew to >$350M early Q4 (from $280M at Q3-end) Improving into Q4
CapEx/fleet age & leverageNet rental CapEx ~$200M; target <3.0x by FY26; fleet age ~3.0 yrs Rental CapEx ~ $250M; non-rental +$10–$15M; net leverage 4.53x; fleet age ~2.9 yrs Higher near-term spend; deleveraging path intact

Management Commentary

  • “We achieved strong year-over-year revenue growth of 8% and adjusted EBITDA growth of 20%, driven by continued strength in our core T&D markets... average utilization in the quarter [was] over 79%, the highest level in more than two years.” — CEO, Ryan McMonagle .
  • “For the third quarter, we generated $482 million of revenue... and $96 million of adjusted EBITDA, up 8%... and 20% respectively versus Q3 of 2024... adjusted gross margin for ERS was 62%... with improved rental margins of almost 76%.” — CFO, Chris Eperjesy .
  • “We are reaffirming our previous fiscal 2025 revenue and adjusted EBITDA guidance... we decided in the quarter to accelerate rental fleet CapEx... [positioning] us well for 2026.” — CEO .
  • “We now expect to reduce our inventory by $125 million–$150 million compared to the level at the end of last year... we expect our levered free cash flow to be less than our previous $50 million target.” — CFO .

Q&A Highlights

  • 2026 visibility and ERS yield: Management sees a strong transmission cycle; utilization >80% into October; on‑rent yield expected in high‑30s/low‑40s range, with slight increases as mix shifts to transmission and utilization rises .
  • Inventory and FCF: Clarified $125–$150M inventory reduction vs. YE24 will be achieved by YE25; expect Q4 FCF generation but full‑year LFCF below $50M due to higher CapEx/timing .
  • TES demand mix: Strongest demand in utility/forestry; more hesitation in some infrastructure categories (refuse/dump/water trucks); TES signed orders +30% YoY .
  • Transmission pipeline/GreenLink: Transmission utilization picked up late Q3 and into Q4; GreenLink pause not expected to impact Q4 given strong demand and customers retaining gear .
  • CapEx cadence and fleet age: Rental fleet age ~2.9 years (youngest utility fleet per company view); scope to age modestly over time to harvest cash flow; non‑rental CapEx $10–$15M for KC capacity .

Estimates Context

  • S&P Global/Capital IQ consensus for Q3 2025 EPS, revenue, and EBITDA was unavailable via our data pull at the time of analysis; as a result, we cannot provide vs‑consensus comparisons for this quarter (Values retrieved from S&P Global)*.
  • Given the reaffirmed FY guide and segment mix update, we would expect modest upward revisions to ERS and cautious TES revisions (toward low end) from the sell‑side to reflect higher rental demand and TES margin pressure cited by management .

Key Takeaways for Investors

  • ERS momentum is the core driver: utilization and OEC on rent continue to rise; adj. gross margin in ERS improved to 62% with rental margins near 76% .
  • TES remains a volume growth story with transitory margin pressure: robust intra‑quarter orders and local/regional strength offset near‑term pricing pressure from elevated supply; bonus depreciation supports Q4 sales .
  • Guidance credibility strengthened by quarter execution and mix detail: FY25 revenue and EBITDA maintained; ERS skew higher, TES skew lower within ranges .
  • Capital allocation tilts to growth: rental CapEx lifted to ~ $250M and non‑rental CapEx increased to expand capacity; near‑term LFCF lower but intended to drive higher sustained FCF from 2026 .
  • Deleveraging in focus: sequential improvement to 4.53x; targeted <3x by end FY26 remains intact with expected Q4 FCF and ongoing inventory normalization .
  • Trading setup: Year‑end sales catalyst (bonus depreciation), strong ERS prints, and early‑Q4 backlog rebuild could be near‑term positives; watch TES margin recovery pace and tariff/macrosensitive verticals as potential overhangs .

Footnote: *S&P Global/Capital IQ consensus unavailable at query time; no estimate comparisons shown.

Sources: Q3 2025 press release and 8‑K exhibit ; Q3 2025 earnings call transcript ; Q2 2025 press release and call ; Q1 2025 press release and call .