Custom Truck One Source, Inc. Q3 FY2025 earnings call

• Custom Truck had a strong third quarter with 8% revenue growth and 20% adjusted EBITDA growth vs Q3 2024.
• ERS segment benefited from sustained demand in T&D markets, with rental revenue up 18%, OEC on rent ending at over $1.62 billion.
• TES segment saw 6% y-o-y revenue growth in Q3, though gross margin was slightly down, but net orders remained strong.
• Company reaffirmed full year 2025 guidance, with plans to invest more in rental fleet due to strong demand.
• Mitigation actions taken earlier this year limited tariff impact, but macroeconomic factors still affect customer equipment purchases.

For the ERS segment, revenue was $169 million in Q3 2025, up more than 12% from $151 million in Q3 2024. Rental revenue was up 18% y-o-y, segment adjusted gross profit was $104 million, up 19% y-o-y, and adjusted gross margin was 62%, more than 370 basis points higher than the same period last year. OEC on rent ended the quarter at over $1.62 billion. For the TES segment, revenue was $275 million in Q3 2025, up 6% y-o-y. Gross margin in Q3 was 15%, down from Q3 2024. Net orders in Q3 were strong at $220 million, up more than 24% y-o-y.

• Reaffirming fiscal 2025 revenue ($1.97 billion to $2.06 billion) and adjusted EBITDA ($370 million to $390 million) guidance.
• Planning to invest more in rental fleet this year, resulting in net rental CapEx of approximately $250 million.
• Expecting ERS to finish 2025 with revenues in the upper half of $660 million to $690 million range, TES in the lower end of $1.16 billion to $1.21 billion range.
• Inventory reduction of $125 million to $150 million by end of 2025, levered free cash flow expected to be under $50 million.

• Macro environment uncertainty affecting customer equipment purchase decisions.
• Economic uncertainty, high interest rates, and inflationary pricing from tariffs impacting customer spending.
• Volatility in the overall market environment posing risks to business outlook.

Q: Can you elaborate on the visibility for 2026 to sustain momentum?

A: Ryan McMonagle said strong demand in utility sector, especially transmission, with OEC on rent averaging $1.26 billion, finishing at $1.3 billion and continuing to grow, and utilization north of 80%.

Q: Hone in on ERS and OEC on rent yield. How about pricing environment?

A: Ryan McMonagle stated on-rent yield guided in high 30s to low 40s, saw increase in September/October, expects it to continue as transmission shifts and utilization increases.

Q: Clarification on inventory reduction and cash flow timing. When will inventory reduction of $125 million to $150 million occur? Expectations for fourth quarter cash flow?

A: Chris Eperjesy said inventory reduction of $125 million to $150 million versus start of year will occur by end of 2025, expects to generate free cash flow in fourth quarter but full year levered free cash flow under $50 million.

Q: Latest on utility T&D customers' ability to execute projects?

A: Ryan McMonagle said distribution picked up, transmission picked up with good tailwinds, back to normal and improving on transmission side.

Q: Color on drivers of 30% organic growth in PES and backlog?

A: Chris Eperjesy said backlog historically not a strong driver, order-driven, backlog grew over 25% in first 3 weeks of October, strong new sales growth year-to-date.

Q: Update on large transmission pipeline projects, impact on fourth quarter?

A: Ryan McMonagle said transmission utilization strong in third and fourth quarter, GreenLink project not impacting fourth quarter, transmission sector staying strong.

Q: Sense on telecom and rail sectors?

A: Ryan McMonagle said seeing some activity pick up in telecom and rail, though they are less than 5% of revenue, strongest growth in T&D, less growth in inventory-heavy product categories.

Q: T&D and data center co-located energy projects, role of Custom Truck?

A: Ryan McMonagle said good sustained demand for T&D, including temporary generation for data centers leading to expected sustained demand.

Q: CapEx plan, pull forward from 2026, when to pause and pay down debt?

A: Christopher Eperjesy said fleet age is now around 2.9 years, started from over 4 years, should see improved free cash flow as net investment pulls back