10-Q: Custom Truck One Source Reports Q3 2026 Growth

Custom Truck One Source, Inc. reported a significant increase in net income for the third quarter of 2026, driven by strong rental revenue and improved operational efficiency.

Summary

• Custom Truck One Source, Inc. reported total revenue of $495.2 million for the three months ended September 30, 2026, an increase of 2.7% from $482.1 million in the prior year period.
• Net income for the third quarter of 2026 was $2.3 million, a substantial improvement from a net loss of $5.8 million in the same period of 2025.
• For the nine months ended September 30, 2026, total revenue increased by 7.4% to $1.52 billion, with net income turning positive at $8.6 million compared to a net loss of $51.9 million in the prior year.
• The company's Specialty Equipment Rentals (SER) segment showed strong performance, with revenue increasing by 15.9% for the quarter, driven by higher rental revenue and fleet utilization.
• The Specialty Truck Equipment & Manufacturing (STEM) segment experienced a 5.3% decrease in external revenue but saw an increase in intersegment sales, contributing to overall segment Adjusted EBITDA growth.
• Operating expenses increased by 10.4% for the quarter, primarily due to higher transaction and administrative costs.
• Interest expense decreased by 6.9% for the quarter, benefiting from lower inventory levels and reduced floor plan financing.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this filing as moderately positive, reflecting improved operational performance and a return to profitability, though significant debt and market risks remain.

Positives

• Significant improvement in net income, turning profitable in both the three-month and nine-month periods of 2026.
• Total revenue increased by 2.7% for the third quarter and 7.4% for the nine months ended September 30, 2026.
• Rental revenue saw a strong increase of 20.1% for the quarter and 19.4% for the nine months, driven by improved fleet utilization and higher average OEC on rent.
• Fleet utilization improved to 81.5% for the quarter, up from 79.3% in the prior year.
• OEC on rent yield increased to 39.4% for the quarter, up from 38.2% in the prior year.
• Sales order backlog increased by 22.2% to $341.9 million.
• Interest expense decreased by 6.9% for the quarter due to lower inventory levels and reduced floor plan financing.
• The company ended the quarter with $14.6 million in cash and cash equivalents, an increase from $6.3 million at the end of 2025.

Negatives

• Equipment sales revenue decreased by 3.4% for the quarter, impacted by lower unit sales volume and strategic prioritization of the rental fleet.
• Third-party equipment sales were adversely impacted by a vendor recall and hailstorm damage, delaying deliveries.
• Operating expenses increased by 10.4% for the quarter, driven by higher transaction and administrative expenses.
• The company carries significant long-term debt totaling $1.65 billion.
• Despite improvements, the company reported a net loss of $51.9 million for the nine months ended September 30, 2025, indicating past financial challenges.
• The STEM segment's external revenue decreased by 5.3% for the quarter.

Risks

• Increases in labor costs, changes in U.S. trade policy including tariffs, and inability to obtain raw materials, component parts, or finished goods in a timely and cost-effective manner.
• Competition in the equipment dealership and rental industries.
• Inability to attract and retain key personnel, including management and skilled technicians.
• Material disruptions to operations due to public health concerns, equipment failures, natural disasters, work stoppages, or power outages.
• Increases in the cost of new equipment and aging or obsolescence of existing equipment.
• Disruptions in the supply chain.
• Uncertainty relating to macroeconomic conditions, unfavorable conditions in the capital and credit markets, and customers' inability to obtain additional capital.
• Significant indebtedness which may adversely affect financial position, limit available cash, and increase the risk of default.

Future Outlook

The company believes its liquidity sources and operating cash flows are sufficient to address its operating, debt service, and capital requirements, including investments in its rental fleet, over the next 12 months and beyond. The company's strategic decision to prioritize production for rental fleet investment is expected to capitalize on current and anticipated rental demand.

Management Comments

• Management believes that all adjustments, consisting of normal recurring adjustments and disclosures necessary for a fair statement of these interim statements, have been included.
• Management does not believe the likelihood of a loss resulting from the IRS assessment to be probable at this time.
• In the opinion of management, there are no pending litigation, disputes or claims against the Company that, if decided adversely, would have a material adverse effect on its consolidated financial condition, cash flows or results of operations.
• Management concluded that disclosure controls and procedures were effective as of September 30, 2026.
• Management has disclosed no changes in internal control over financial reporting that have materially affected or are reasonably likely to materially affect internal control over financial reporting during the fiscal quarter ended September 30, 2026.

Industry Context

StockSavvy.ai notes that Custom Truck One Source's performance aligns with broader trends in the infrastructure and utility sectors, where increased demand for equipment rentals is driven by ongoing development and maintenance projects. The company's strategic shift towards prioritizing its rental fleet reflects a response to this demand, potentially positioning it to capture more stable, recurring revenue compared to cyclical equipment sales.

Comparison to Industry Standards

• The company's fleet utilization of 81.5% for the quarter is a key performance indicator in the rental industry. While specific industry benchmarks can vary, this figure suggests efficient deployment of assets.
• OEC on rent yield (ORY) of 39.4% for the quarter is another critical metric. This represents the return generated from the rental fleet relative to its original cost. Comparisons would require access to specific ORY data from direct competitors like United Rentals or Sunbelt Rentals, which are not provided in this filing.
• The company's segment reporting structure, separating Specialty Equipment Rentals (SER) and Specialty Truck Equipment & Manufacturing (STEM), is a common approach in diversified industrial equipment companies to provide clearer operational insights.
• The use of Adjusted EBITDA as a key performance metric for segment evaluation is standard practice in the industry for assessing operational profitability before financing and non-cash items.

Legal Proceedings

• Various claims, lawsuits, and other contingencies arising in the ordinary course of business are not expected to have a material adverse impact.
• An IRS audit concerning federal excise taxes for 2015 resulted in an assessment of $2.4 million, to which an appeal was filed. Management believes a loss is not probable.

Related Party Transactions

• The Company rents and sells equipment and provides services to R&M Equipment Rental, a business partially owned by management.
• The Company rents equipment and purchases inventory from R&M Equipment Rental.
• The Company rents and sells equipment to entities in which Platinum Equity, LLC (a major shareholder) has an ownership interest.
• The Company purchases inventory and services from entities in which Platinum Equity, LLC has an ownership interest.
• The Company has purchased products and aircraft charter services from entities owned by management and their families, which are immaterial.
• Management fees are payable to Platinum Equity, LLC under a Corporate Advisory Services Agreement.

Stakeholder Impact

• Shareholders: Improved financial performance and return to profitability may positively impact shareholder value, though significant debt remains a consideration.
• Creditors: Compliance with loan covenants and improved financial metrics are positive. The company's net leverage ratio was 3.70 as of September 30, 2026.
• Suppliers: The company's strategic decision to prioritize rental fleet investment may influence demand for new equipment and parts.
• Customers: Continued investment in the rental fleet and improved operational efficiency could lead to better service availability and potentially more competitive rental rates.

Next Steps

• Continue to prioritize production for rental fleet investment to capitalize on anticipated rental demand.
• Monitor and manage inventory levels, particularly in light of past vendor recalls and weather-related damage.
• Continue to manage debt obligations and ensure compliance with loan covenants.
• Evaluate the impact of recently issued accounting standards (ASU 2025-11, ASU 2025-06, ASU 2024-03).

Key Dates

Recommendation

The company has demonstrated a significant turnaround with improved profitability and revenue growth, particularly in its rental segment. However, the substantial debt load and ongoing risks related to supply chain, macroeconomic conditions, and competition warrant a cautious approach. A 'hold' recommendation reflects the balance between positive operational improvements and persistent financial and market risks.

Keywords

Specialty Equipment Rentals, Specialty Truck Equipment, Manufacturing, Rental Fleet, Equipment Sales, Parts and Services, Floor Plan Financing, Adjusted EBITDA