8-K: Custom Truck One Source Reports Record Q3 2026 Results

Custom Truck One Source announces record Q3 2026 results, driven by strong rental revenue and increased Adjusted EBITDA, leading to raised full-year guidance.

Summary

• Custom Truck One Source (CTOS) reported record third-quarter 2026 financial results, with total revenue of $495.2 million, a 2.7% increase year-over-year.
• Rental revenue saw a significant increase of 20.1%, contributing to a record average OEC on rent of $1.39 billion and fleet utilization of 81.5%.
• Adjusted EBITDA rose by 15.6% to $110.9 million, with a margin expansion of 250 basis points to 22.4%.
• The company raised its full-year 2026 guidance for both SER segment revenue and Consolidated Adjusted EBITDA.
• Net leverage ratio improved to 3.70x from 4.31x at year-end 2025, reflecting successful deleveraging efforts.
• More than $20.0 million of third-party STEM deliveries were shifted to the fourth quarter due to a vendor recall and a hailstorm.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a positive report, with strong revenue growth, increased profitability, and raised guidance, indicating robust operational performance and positive future prospects.

Positives

• Record third-quarter revenue of $495.2 million, up 2.7% year-over-year.
• Rental revenue increased by 20.1% compared to Q3 2025.
• Record average OEC on rent of $1.39 billion, up 10.5% year-over-year.
• Fleet utilization reached 81.5%.
• Gross profit increased by 12.4% to $113.3 million.
• Adjusted Gross Profit increased by 9.4% to $170.2 million.
• Net income improved significantly to $2.3 million from a loss of $5.8 million in Q3 2025.
• Adjusted EBITDA increased by 15.6% to $110.9 million, with margins expanding to 22.4%.
• SER segment Adjusted EBITDA grew 22.5%, with margins expanding to 54.6%.
• Net leverage ratio reduced to 3.70x.
• Full-year 2026 Adjusted EBITDA guidance raised to $447.5 million $460 million.
• Full-year 2026 SER segment revenue guidance raised to $870 million $890 million.

Negatives

• More than $20.0 million of third-party STEM deliveries were shifted from Q3 to Q4 2026 due to a vendor recall and a hailstorm at the Kansas City facility.
• Third-party STEM new equipment sales declined by 5.5% due to lower unit sales volume, partly due to prioritizing production for the rental fleet.
• Levered free cash flow for 2026 is now expected to be slightly positive, down from prior guidance of more than $50 million, due to increased rental fleet investment.

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.
• Competition in the equipment dealership and rental industries.
• Increases in unionization rate in the workforce.
• Inability to attract and retain key personnel.
• Material disruptions to operations due to public health concerns, equipment failures, natural disasters, work stoppages, or power outages.
• Increases in the price of new equipment, aging or obsolescence of existing equipment, and fluctuations in market value.

Future Outlook

The company is increasing its full-year 2026 guidance, expecting consolidated revenue to increase 8% to 13% year-over-year and Adjusted EBITDA to increase 17% to 20%. Net rental fleet investment is projected at $210 million to $230 million. Levered free cash flow for 2026 is expected to be slightly positive. The net leverage ratio is expected to be meaningfully below four times by year-end 2026, with a long-term target below three times in 2027. STEM third-party new sales revenue is expected to increase 3% to 10% in 2026.

Management Comments

• "In the third quarter, record demand across our core T&D markets drove 16% year-over-year Adjusted EBITDA growth and 24% growth year to date, and we are raising our full-year Adjusted EBITDA outlook for the third time this year."
• "Our SER segment continued to benefit from strong utility end-market demand, with our rental fleet generating a record quarterly average OEC on rent of nearly $1.4 billion and average utilization of 81.5%."
• "We also ended the quarter with record total OEC of $1.76 billion, providing strong visibility into continued SER growth through the fourth quarter and into 2027."
• "As we look to the remainder of 2026 and beyond, CTOS is well positioned to participate in powerful secular trends, including utility grid upgrades and transmission expansion, electrification, data center-driven load growth, and infrastructure spending."
• "Increasing our investment in the rental fleet reflects that discipline as we put capital behind visible, long-duration transmission demand at attractive returns, with the larger earnings benefit arriving in 2027."
• "In STEM, we prioritized production capacity for our own rental fleet, and more than $20 million of third-party deliveries shifted out of the quarter as a result of a hailstorm and a vendor recall."
• "Those units remain in backlog and are expected to ship in the fourth quarter, and with orders up 22% year-over-year, we expect fourth quarter consolidated revenue and Adjusted EBITDA to be up both year-over-year and sequentially."
• "The incremental fleet investment moderates our 2026 levered free cash flow expectations, but it is being deployed against visible, longer-term, high-return demand whose earnings contribution will largely arrive in 2027."

Industry Context

StockSavvy.ai notes that Custom Truck One Source is capitalizing on significant secular trends in infrastructure, particularly grid modernization, electrification, and data center growth, which are driving demand for their specialty equipment rental and manufacturing services. The company's strategic decision to increase rental fleet investment aligns with strong demand in the utility transmission and distribution market.

Comparison to Industry Standards

• The company's Adjusted EBITDA margin of 22.4% in Q3 2026 is a key performance indicator. While direct public comparisons for this specific non-GAAP metric are difficult without knowing competitors' adjustments, the 250 basis point expansion year-over-year suggests strong operational leverage.
• The OEC on rent yield of 39.4% indicates a healthy return on rental assets. Industry benchmarks for equipment rental yields can vary significantly by asset type and market, but this figure appears robust.
• The net leverage ratio of 3.70x is being actively managed down, with a target below 3x in 2027. This aligns with industry best practices for companies with significant capital asset bases and debt financing.

Stakeholder Impact

• Shareholders: Positive impact from improved financial performance, raised guidance, and deleveraging efforts, suggesting potential for increased shareholder value.
• Creditors: Positive impact from reduced net leverage ratio, strengthening the company's credit profile.
• Employees: Continued investment in fleet and operations may lead to job security and potential growth opportunities.
• Suppliers: Increased demand for rental fleet investment may lead to higher orders for equipment and parts.

Next Steps

• Deliver the $20.0 million in STEM units delayed from Q3 to Q4 2026.
• Continue to invest in the rental fleet with $210 million to $230 million in net rental fleet investment for 2026.
• Achieve slightly positive levered free cash flow for 2026.
• Reduce net leverage ratio to meaningfully below four times by the end of fiscal 2026.
• Achieve the long-term target of a net leverage ratio below three times in 2027.
• Expect continued double-digit Adjusted EBITDA growth in 2027.

Key Dates

Recommendation

The company is demonstrating strong operational execution with record results and raised guidance, particularly in its rental segment. However, the slight decrease in expected 2026 levered free cash flow due to increased fleet investment, coupled with the delays in STEM deliveries, warrants a cautious approach. While the long-term outlook is positive, the current environment suggests holding the stock to observe the impact of increased capital deployment and the resolution of STEM delivery issues.

Keywords

Specialty Equipment Rentals, Specialty Truck Equipment, Grid Modernization, Electrification, Infrastructure, Rental Fleet, Adjusted EBITDA, Transmission and Distribution