Custom Truck One Source, Inc. (CTOS) | The Buildout — AI Infrastructure
The Verdict
Custom Truck One Source is a specialty equipment rental, sales and service company. It rents and sells the trucks and attachments that electric utilities and their contractors use to build and maintain transmission and distribution lines — bucket trucks, digger derricks, cable placers, boom trucks, cranes and underground equipment. Its link to the AI buildout is second-hand: data centers need power, new power needs transmission capacity, and building transmission lines needs this equipment. Management frames data centers as a tailwind, not the fundamental driver of its demand. The company runs a one-stop-shop model spanning rentals, new and used equipment sales, and aftermarket parts and service, from more than 40 locations across the U.S. and Canada.
| Market Cap | — |
| Revenue (TTM) | $2.0B |
| Revenue Growth | +7.0% |
| EBITDA Margin (TTM) | 22.8% |
| Net Debt | $2.4B |
| Earnings Beats | 2 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Rental fleet original equipment cost ended Q2 2026 at $1.68 billion, the highest quarter-end level in company history, with average OEC on rent of $1.37 billion, up about 13% yoy.
- The SER rental segment earned a 53% adjusted EBITDA margin in Q2 2026, up more than 700 bps yoy, on a rental gross margin management describes as sustainable at the higher end of the mid-70s range.
- Consolidated guidance was raised twice at both ends in this window, to $2.1B–$2.2B of revenue and $437.5M–$455M of adjusted EBITDA.
- Net leverage fell to 3.85x at Q2 2026, more than 0.8 turns better than end-Q2 2025, on a path management targets toward 3x in 2027.
- Revenue is diversified: the 10-K states no single customer represented greater than 4% of total revenue in 2025.
What We’re Watching
- New sales backlog fell to $322M at Q2 2026, about 3.5 months and below the 4–6 month target. Management points to June quoting up 26% yoy and a current backlog above $340M; the next two quarters test whether that converts.
- STEM gross margin was slightly lower in Q2 2026 on increased sales to national accounts, which carry modestly lower margins, and new-sales margin sits at the lower end of the 15–18% target range.
- EPA 2027 non-conformance penalties are estimated at $4,500–$7,000 per unit depending on spec. The rule is expected to be finalized later in 2026, and the chassis prebuy could pull 2027 demand forward.
- Q3 2026 revenue and EBITDA are guided up yoy but modestly below Q2, with the H1/H2 split shifting to about 48%/52% from a historical 45–47%/55–57%.
The thesis looks strengthening on the operating numbers: record revenue, expanding rental margins, guidance raised twice, and leverage below 4x. The demand framing escalated sharply in a single quarter, from transmission demand 'continuing to pick up' to the 'early stages' of a once-in-a-generation super cycle. But that framing rests on customer planning conversations for projects beginning in 2027 and 2028, not on backlog, and the order book fell below its own target range. The open question is whether the transmission cycle converts from conversations into funded orders before the current demand momentum fades.
Earnings
Q2 2026 revenue was a record $563 million, up 10% yoy, at a 20.2% gross margin. Adjusted EBITDA was $117 million, up 25%, and GAAP net income was $10 million, or $0.05 per diluted share, versus a net loss of $28 million a year earlier. The rental segment drove the quarter: SER third-party revenue was $219 million, up 20% yoy, at a 53% segment adjusted EBITDA margin.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $563M | $462M | $512M | +10.1% |
| Gross margin | 20.2% | 20.1% | 18.1% | +210bps |
| EBITDA | $125M | $107M | $102M | +21.9% |
| EPS | $0.05 | $-0.02 | $-0.13 | −136.1% |
| New sales backlog | $322M | $411M | n/a | — |
We believe that we are in the early stages of what could be a once-in-a-generation transmission demand super cycle.— Ryan McMonagle, CEO, 2026-08-06
Management tone: Management's tone shifted markedly between the two calls. On the Q1 2026 call the CEO characterized transmission demand as 'not back to the highest levels that it has been over the past several years, but it is continuing to pick up.' One quarter later he said demand for equipment serving the T&D utility markets 'continues at record levels' and introduced 'once-in-a-generation transmission demand super cycle' language. Management also framed the market's two questions — the durability of T&D demand and the ability to convert improving rental KPIs into earnings and cash flow — and pointed to recent trending results as its answer.
Management Guidance
For FY2026, management guided consolidated revenue of $2.1 billion to $2.2 billion, 8–13% yoy growth, and adjusted EBITDA of $437.5 million to $455 million, 14–19% yoy growth, raised from $2.005 billion–$2.12 billion and $415 million–$440 million. Segment guidance is SER $850 million–$875 million and STEM $1.63 billion–$1.7 billion, with STEM third-party new sales growth of 3%–10%. Management raised net rental fleet investment to $170 million–$200 million from about $150 million–$170 million, held non-rental capex at $40 million–$50 million, reaffirmed its levered free cash flow target with $30 million–$40 million expected from working capital, and reiterated net leverage 'meaningfully below' 4x by year-end 2026, progressing toward a 3x target in 2027.
Trajectory
Consolidated revenue set a record at $563 million in Q2 2026, up 10% yoy and 20% above Q1, while the code-computed trajectory signal reads revenue decelerating as the company laps a strong second half of 2025. Margins are expanding on the computed signals — gross margin up about 420 bps and EBITDA margin up about 160 bps. The story underneath is mix: SER, the rental segment, grew third-party revenue 20% and runs at a 53% segment EBITDA margin, while STEM, the larger sales and manufacturing segment, grew 5% at an 8.5% margin. Management guided Q3 2026 up yoy but modestly below Q2, with an H1/H2 split of about 48%/52%.
The Model
The model projects FY+1 revenue of $2,155.0 million and EBITDA of $487 million, a 22.6% margin, and FY+2 revenue of $2,392.5 million and EBITDA of $566 million, a 23.65% margin. The near-term anchor is the T&D rental demand management describes as at record levels, plus the raised FY2026 guidance. FY+2 depends on transmission projects now in planning conversations — management cites projects beginning in 2027 and into 2028 — converting into equipment demand, and on the STEM margin mix.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $1.9B | $2.2B | $2.4B |
| YoY Growth | — | +10.9% | +11.0% |
| EBITDA | $415M | $487M | $566M |
| EBITDA Margin | 21.4% | 22.6% | 23.6% |
Projections are the median of 4 independent model runs. The model’s revenue sits 11.1% above analyst consensus.
For FY2026, management guided consolidated revenue of $2.1 billion to $2.2 billion, 8–13% yoy growth, and adjusted EBITDA of $437.5 million to $455 million, 14–19% yoy growth, raised from $2.005 billion–$2.12 billion and $415 million–$440 million. Segment guidance is SER $850 million–$875 million and STEM $1.63 billion–$1.7 billion, with STEM third-party new sales growth of 3%–10%. Management raised net rental fleet investment to $170 million–$200 million from about $150 million–$170 million, held non-rental capex at $40 million–$50 million, reaffirmed its levered free cash flow target with $30 million–$40 million expected from working capital, and reiterated net leverage 'meaningfully below' 4x by year-end 2026, progressing toward a 3x target in 2027.
What Could Go Right — and Wrong
- Transmission projects now in planning conversations for 2027 and 2028 convert into funded orders and reported backlog.
- STEM backlog rebuilds from above $340M back toward the 4–6 month target as June's quoting activity converts.
- STEM gross margin recovers toward the higher end of the 15–18% new-sales range as national-account mix normalizes.
- Federal infrastructure funding (IIJA, IRA, CHIPS) shows up in backlog, adding a revenue lever the utility side currently carries alone.
- Rental utilization holds in the low 80s and the roughly 5% price increase keeps cycling through on-rent yield.
- Quoting strength fails to convert and backlog stays below the 4–6 month target, weakening forward visibility in STEM.
- STEM margin stays diluted by national-account mix, capping consolidated margin even as the rental segment grows.
- The EPA 2027 prebuy pulls demand forward and leaves a 2027 air-pocket, or the Cummins X10 engine ramp slips.
- Chassis and engine supply constraints limit how fast STEM can convert orders into deliveries.
- Higher rental fleet investment plus floor-plan-diluted working capital keeps levered free cash flow below the guided target and delays the leverage glide path to 3x.
Looking Ahead
The next 12 months turn on three things. First, the Q3 and Q4 cadence: management guided Q3 2026 up yoy but below Q2 and calls Q4 seasonally strongest, so the 48/52 H1/H2 split is the near-term test of the pull-forward claim. Second, the EPA 2027 rule, expected finalized later in 2026, which carries non-conformance penalties of $4,500–$7,000 per unit that customers must absorb. Third, the transmission cycle itself: projects management says do not begin until 2027 and into 2028, with equipment beginning to be staged.
- Q3 2026Q3 2026 results — Guided up yoy but modestly below Q2, at high-single-digit growth.
- 2H 2026Inventory and floor-plan unwind — Targets inventory below 6 months; a $100M inventory reduction would yield about $20M cash because 75–80% is floor plan.
- Later in 2026EPA 2027 final rule — Sets non-conformance penalties and warranty details.
- End FY2026Leverage below 4x — Management targets net leverage meaningfully below 4x.
- 20273x leverage target — Management points to a 3x net leverage target in 2027.
- Q3 2027Cummins X10 production — Full production gates the L9-to-X10 engine transition.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $1.8B | $1.9B | $2.0B | +7.9% |
| Gross Margin | 19.4% | 19.1% | 20.2% | 32bps |
| EBITDA | $366M | $415M | $463M | +13.3% |
| EBITDA Margin | 20.3% | 21.4% | 22.8% | +103bps |
| Net Income | −$29M | −$31M | $21M | -8.7% |
| Free Cash Flow | −$354M | −$108M | −$109M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)20.2%
- EBITDA Margin (TTM)22.8%
- Net Margin (TTM)1.1%
- ROIC4.4%
- FCF Conversion-23.6%
- SBC / Revenue0.2%
The Company
Custom Truck One Source rents and sells specialty equipment through what management calls a one-stop-shop model: equipment rental, new and used equipment sales, and aftermarket parts and service. Its product set — bucket trucks, digger derricks, cable placers, boom trucks, rail trucks, roll-off trucks, knuckleboom trucks, vacuum trucks, cranes and underground equipment — maps to electric utility transmission and distribution, infrastructure, rail, telecommunications, forestry and waste end-markets. The 10-K describes it as owning 'one of the industry's largest fleets of specialty rental equipment' focused on electric utility transmission and distribution.
The company operates from more than 40 locations across the U.S. and Canada and is headquartered in Kansas City, Missouri, where a mega-center performs the majority of its production and manufacturing. The rental fleet ended Q2 2026 at $1.68 billion of original equipment cost, with average fleet age just over 3 years — management describes it as one of the youngest fleets in the industry, though the CEO acknowledged there is not great data on other fleets. Revenue is diversified: the 10-K states no single customer represented greater than 4% of total revenue in 2025. Reporting was re-architected in Q1 2026 into two segments, Specialty Equipment Rentals and Specialty Truck Equipment and Manufacturing.
Business Segments
Competitive Landscape
The source material describes CTOS as owning 'one of the industry's largest fleets of specialty rental equipment' focused on T&D, with a differentiated one-stop-shop model spanning rental, equipment sales and aftermarket service. Competitors named in the inferred supply-chain wiring are Herc Holdings and United Rentals — both wired as competitors and customers — plus OSK/JLG in adjacent equipment. The neighbor read-through says Herc and OSK/JLG are adding capacity into the same demand, and describes rental pricing as 'rational and constructive.' No market-share data is disclosed in the source set.
- Herc Holdings (HRI)Wired as both a competitor and a customer. The neighbor read-through says HRI raised its mega-project share target from 15% to 20%, increased fleet investment, and describes rental pricing as 'rational and constructive.'
- United Rentals (URI)Wired as both a competitor and a customer. Named in the source set; not otherwise discussed.
- OSK/JLGNamed among adjacent-equipment competitors adding capacity into the same demand; the neighbor read-through says its Access business is recovering, with orders of $1.5B, a 1.1x book-to-bill and a $2B backlog.
Supply Chain
CTOS sits between chassis and attachment manufacturers and the electrical contractors and utilities that build transmission and distribution lines. No neighbor in the source set mentions CTOS by name, so these relationships are inferred ecosystem mapping rather than confirmed contracts.
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