Custom Truck One Source, Inc. Q1 FY2026 earnings call

• 2026 started strong with record first quarter revenue of $462 million and adjusted EBITDA of $98 million, up over 9% and 33% year over year. • Key driver was strength in SER, with rental fleet utilization at 81.4% and OEC on rent at $1.34 billion, up 12% year-over-year. • STEM performance was strong with revenue up 5% year-over-year, gross margin expansion due to cost out and productivity improvements, and new sales backlog at $411 million. • CTAS well positioned with young rental fleet, current inventory positions, and strong relationships with chassis OEM partners to navigate EPA's 2027 admission standards. • Long-term, sustained in-market demand buoyed by secular megatrends and exceptional execution.

In the first quarter, Specialty Equipment Rentals (SER) had third-party revenue excluding intersegment sales of $194 million, up 16% year-over-year. Segment adjusted EBITDA was $105 million, up 23% year over year, with a margin of 51.5%, up over 415 basis points. Rental utilization averaged 81.4%, up 370 basis points from Q1 2025. Average OEC on rent was $1.34 billion, up 12% year-over-year. For Specialty Truck Equipment and Manufacturing (STEM), first quarter third-party revenue was $268 million, up 5% year-over-year. Equipment sales grew over 4%, and parts sales and service revenue grew almost 17%. Stem segment adjusted EBITDA was $33 million, with a margin of 9% in the quarter. New sales backlog ended Q1 at $411 million, up more than $76 million sequentially.

• Affirmed 2026 revenue outlook in the range of $2.005 to $2.12 billion. • Raised adjusted EBITDA guidance to a range of $415 to $440 million. • Expect STEM segment to benefit from favorable macro demand environment and strong order backlog. • SER segment expected to continue strong with OEC on rent and utilization trends. • Project to grow rental fleet by mid-single digits in 2026 with net investment of approximately $150 million to $170 million. • Expect to generate more than $50 million of levered free cash flow and reduce net leverage ratio to meaningfully below four times by end of fiscal 2026, progressing towards three times net leverage target in 2027.

Q: Any worries on recent changes to Section 232 tariffs and chassis pricing?

A: We're in a good spot with inventory, some tariff exposure on bodies but team managing it well.

Q: Comment on average fleet age being roughly three years and how far ahead of second place?

A: Average age of fleet was just under four years when businesses were put together in 2021, now under three, and we hear from customers it's a good band.

Q: Elaborate on margin improvement and cost management in STEM?

A: Production team drove productivity improvement and cost structure right-sizing led to gross margin expansion.

Q: Speak to OEC yield and pricing opportunity?

A: 5% price increase in December last year flowed through, mix also influences yield with transmission at higher yield.

Q: Reason for EBITDA guidance increase?

A: Rental outperforming and operating execution, with mix driving it, but Q2 tough comp.

Q: Impact of data center political pushback on TND projects?

A: Still seeing strong demand from customers, conversations bullish on transmission work.

Q: Quoting pipeline and supply chain shortages for T&D?

A: Transmission demand picking up, no product category with supply chain issues yet.

Q: Why not raise SER guidance?

A: Thoughtful on pricing, operating leverage, and heading into next nine months.

Q: Bidding activity and new equipment pricing?

A: Bidding robust on transmission, new equipment pricing more stable than last year.

Q: Normalized margins for STEM and backlog composition?

A: Historically 15% to 18%, now closer to 16% to 17%, backlog biggest pickup in small customers.

Q: Backlog breakdown by 2026 deliveries and segment EBITDA mix?

A: Far majority for 2026 deliveries, no segment EBITDA guidance.

Q: Debt pay down and cash flow?

A: Levered free cash flow north of $50 million to pay down debt.

Q: Impact of data centers on demand and buy vs rent?

A: Not significantly impacting demand or buy vs rent.

Q: Inventory levels and EPA 2027 impact?

A: Inventory north of seven months, well positioned with young fleet and current inventory, EPA 27 in good spot.

Q: Bottlenecks and cash flow drivers?

A: Supply chain watched, cash flow driven by incremental EBITDA, lower net rental capex, and working capital unlock