8-K: CTOS Q3 2025: Revenue & EBITDA Up, Guidance Reaffirmed

Custom Truck One Source, Inc. reported strong third-quarter 2025 financial results with significant revenue and Adjusted EBITDA growth, while reaffirming its full-year guidance.

Summary

• Total revenue for Q3 2025 increased by 7.8% to $482.1 million compared to Q3 2024.
• Adjusted EBITDA grew by 19.6% to $96.0 million in Q3 2025, up from $80.2 million in Q3 2024.
• The company reported a net loss of $5.8 million in Q3 2025, a 66.9% decrease from the $17.4 million net loss in Q3 2024.
• Equipment Rental Solutions (ERS) segment saw rental revenue increase by 17.7% and average OEC on rent rise by 17% year-over-year, achieving over 79% average utilization.
• Truck and Equipment Sales (TES) segment revenue increased by 6.0%, with signed orders up 30% year-over-year, though TES gross profit decreased by 1.2% and backlog was down 29%.
• Aftermarket Parts and Services (APS) segment revenue increased by 3.0% due to higher rental revenue.
• Full-year 2025 consolidated revenue guidance is reaffirmed at $1,970 million to $2,060 million, and Adjusted EBITDA guidance at $370 million to $390 million.
• Net debt stood at $1,653.3 million with a net leverage ratio of 4.53x as of September 30, 2025.
• The company plans to invest up to an additional net $50 million in its rental fleet, expecting high-single digit fleet growth.
• Inventory reduction target is set at $125 million to $150 million by year-end, compared to the end of last year.

Sentiment

Score: 7

Explanation: The sentiment is largely positive due to strong revenue and Adjusted EBITDA growth, significant reduction in net loss, high fleet utilization, and reaffirmed full-year guidance. Strategic investments and a positive outlook on core markets also contribute. However, the persistent net loss, decreased TES backlog, and the impact of macroeconomic uncertainty on TES revenue temper the overall sentiment.

Positives

• Total revenue increased by $34.8 million, or 7.8%, to $482.1 million in Q3 2025 compared to Q3 2024.
• Adjusted EBITDA increased by $15.8 million, or 19.6%, to $96.0 million in Q3 2025.
• Net loss significantly decreased by $11.7 million, or 66.9%, to $5.8 million in Q3 2025.
• Equipment Rental Solutions (ERS) segment rental revenue increased by 17.7% year-over-year.
• Average OEC on rent increased by $179.8 million, or 16.6%, in Q3 2025 compared to Q3 2024.
• Average fleet utilization in the ERS segment reached over 79%, the highest level in more than two years.
• Signed orders in the TES segment were up 30% year-over-year, with local and regional accounts showing over 40% growth.
• Reaffirmed full-year 2025 consolidated revenue and Adjusted EBITDA guidance reflects confidence in business momentum.
• Expectation to come in at the higher end of ERS revenue guidance due to strong demand.
• Net leverage ratio improved to 4.53x as of September 30, 2025, from 4.66x at June 30, 2025.
• Made incremental non-rental fleet capital investments to expand production capabilities at the Kansas City location for future growth.

Negatives

• Reported a net loss of $5.8 million in Q3 2025.
• TES segment gross profit decreased by 1.2% in Q3 2025 compared to Q3 2024.
• TES backlog was down 29% compared to Q3 2024, falling just below the expected range of four to six months.
• Expectation to come in at the lower end of TES revenue guidance for the year due to macroeconomic uncertainty and high interest rates impacting smaller customers.
• Levered free cash flow is expected to be less than the previous $50 million target.

Risks

• Increases in labor costs.
• Changes in U.S. trade policy, including tariffs.
• Inability to obtain raw materials, component parts, and/or finished goods in a timely and cost-effective manner.
• Inability to manage rental equipment effectively.
• Competition in the equipment dealership and rental industries.
• Sales order backlog may not be indicative of the level of future revenues.
• Increases in unionization rate in the workforce.
• Inability to attract and retain key personnel, including management and skilled technicians.
• Material disruptions to operation and manufacturing locations as a result of public health concerns, equipment failures, natural disasters, work stoppages, or power outages.
• Any further increase in the cost of new equipment purchased for the rental fleet or for sale as inventory.
• Aging or obsolescence of existing equipment, and fluctuations of market value thereof.
• Disruptions in the supply chain.
• Business may be impacted by government spending.
• May experience losses in excess of recorded reserves for receivables.
• Uncertainty relating to macroeconomic conditions, unfavorable conditions in the capital and credit markets, and customers' inability to obtain additional capital.
• Increases in price of fuel or freight.
• Regulatory, technological advancement, or other changes in core end-markets may affect customer spending.
• Strategic initiatives, including acquisitions and divestitures, may not be successful and may divert management's attention.
• The interest of the majority stockholder may not be consistent with other stockholders.
• Volatility of common stock market price.
• Significant indebtedness may adversely affect financial position, limit available cash and access to additional capital, prevent business growth, and increase default risk.
• Inability to generate cash, which could lead to a default.
• Significant operating and financial restrictions imposed by debt agreements.
• Changes in interest rates, which could increase debt service obligations on variable rate indebtedness and decrease net income and cash flows.
• Disruptions or security compromises affecting information technology systems or those of critical services providers.
• Subject to complex laws and regulations, including environmental and safety regulations.
• Risks related to climate change.
• Increased attention to, and evolving expectations for, sustainability and environmental, social and governance initiatives.

Future Outlook

The company reaffirmed its full-year 2025 consolidated revenue guidance of $1,970 million to $2,060 million and Adjusted EBITDA guidance of $370 million to $390 million, anticipating double-digit growth. It expects to achieve the higher end of its ERS revenue guidance due to strong demand and plans to invest up to an additional net $50 million in its rental fleet, targeting high-single digit fleet growth. However, the TES segment is expected to be at the lower end of its revenue guidance due to macroeconomic uncertainty and high interest rates impacting smaller customers. The company aims to reduce inventory by $125 million to $150 million by year-end and expects a meaningful reduction in its net leverage ratio, despite levered free cash flow being less than the previous $50 million target. The permanent reinstatement of accelerated depreciation provisions could serve as a catalyst for year-end equipment sales.

Management Comments

• "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."
• "In our ERS segment, we saw substantial growth in OEC on rent, both on a sequential and a year-over-year basis, leading to average utilization in the quarter of over 79%, the highest level in more than two years."
• "We remain very positive on the mega trends driving the utility end market and the role we play in supporting the continued buildout."
• "We continue to see robust demand for vocational vehicles across our end markets. Signed orders in the quarter were up 30% on a year-over-year basis, more than 40% among our local and regional accounts."
• "Given current market conditions and ongoing customer conversations regarding demand for the remainder of 2025 and for 2026, we continue to believe Custom Truck is well-positioned to benefit from the spending required to address the unprecedented power demand required for data center and electrification investments, as well as for continued utility grid upgrades."
• "As a result, we are reaffirming our 2025 consolidated revenue and Adjusted EBITDA guidance for the year."

Industry Context

The company's strong performance is driven by continued strength in core Transmission & Distribution (T&D) markets and positive mega trends in the utility end market. This includes significant spending required for data center and electrification investments, as well as ongoing utility grid upgrades, which Custom Truck One Source is well-positioned to support. Robust demand for vocational vehicles across various end markets also contributes to the positive outlook, despite broader macroeconomic uncertainties and high interest rates affecting smaller customers.

Comparison to Industry Standards

• NA

Stakeholder Impact

• Shareholders: Positive financial results (revenue, EBITDA growth, reduced net loss) and reaffirmed guidance could positively impact investor confidence and stock valuation. However, the net loss and lower free cash flow target might be a concern.
• Employees: Expansion of production capabilities at the Kansas City location suggests potential for job stability or growth in that area.
• Customers: Robust demand for vocational vehicles and rental equipment indicates strong customer relationships. Smaller customers may face challenges due to high interest rates and macroeconomic uncertainty.
• Creditors: Improvement in net leverage ratio and significant availability under the credit facility indicate a stable financial position, though high total debt remains a factor.

Next Steps

• Continue to benefit from spending required for data center and electrification investments, and utility grid upgrades.
• Invest up to an additional net $50 million in the rental fleet to achieve high-single digit fleet growth.
• Make progress on unwinding significant strategic investment in inventory, aiming for a $125 million to $150 million reduction by year-end.
• Deliver a meaningful reduction in the net leverage ratio from current levels by the end of the fiscal year.
• Monitor the impact of the permanent reinstatement of accelerated depreciation provisions as a potential catalyst for year-end equipment sales.

Key Dates

Recommendation

While Custom Truck One Source demonstrated strong operational growth in revenue and Adjusted EBITDA, along with a significant reduction in net loss, the company still reported a net loss. The reaffirmation of guidance is positive, but the anticipated lower end of TES revenue guidance due to macroeconomic headwinds and a reduced levered free cash flow target introduce some caution. The high debt levels and the need to monitor the TES backlog suggest that while the company is performing well in key areas, there are still areas of concern that warrant a 'hold' position for a seasoned investor, allowing for further observation of sustained profitability and debt reduction.

Keywords

Specialty Equipment, Rental, Truck Sales, Utility, Telecom, Rail, Forestry, Waste Management, Infrastructure, Adjusted EBITDA, OEC on Rent, Fleet Utilization, Vocational Vehicles