10-Q: Custom Truck One Source Reports Strong Q3 Revenue Growth

Custom Truck One Source, Inc. reported a significant increase in total revenue and a reduced net loss for the third quarter and first nine months of 2025, driven by robust equipment sales and higher rental activity.

Summary

• Total revenue for the three months ended September 30, 2025, increased by 7.8% to $482.1 million, up from $447.2 million in the prior year period.
• Total revenue for the nine months ended September 30, 2025, rose by 10.5% to $1.42 billion, compared to $1.28 billion in the same period of 2024.
• Net loss for the three months ended September 30, 2025, significantly decreased to $5.8 million from $17.4 million in the prior year.
• Net loss for the nine months ended September 30, 2025, improved to $51.9 million from $56.2 million in the prior year.
• Operating income for the three months increased by 41.6% to $32.6 million, and for the nine months, it increased by 23.5% to $73.0 million.
• Net cash flow from operating activities for the nine months ended September 30, 2025, was $262.8 million, a substantial increase from $39.9 million in the prior year, primarily due to lower inventory production.
• Fleet utilization improved to 79.3% for the three months and 78.0% for the nine months ended September 30, 2025, up from 73.2% and 72.7% respectively in 2024.
• Sales order backlog decreased by 29.3% to $279.8 million as of September 30, 2025, from $395.6 million in the prior year.

Sentiment

Score: 7

Explanation: The company demonstrated strong revenue growth and a significant reduction in net losses, coupled with improved operating cash flow and fleet utilization. While sales order backlog decreased and long-term debt increased, the overall operational performance and liquidity position appear to be improving, indicating a positive trajectory despite ongoing challenges.

Positives

• Significant increase in total revenue for both the three-month (7.8%) and nine-month (10.5%) periods, driven by strong new equipment sales and higher rental revenue.
• Substantial reduction in net loss for the three months ended September 30, 2025, decreasing by 66.9% to $5.8 million.
• Improved net loss for the nine months ended September 30, 2025, decreasing by 7.7% to $51.9 million.
• Operating income saw strong growth, increasing by 41.6% for the three-month period and 23.5% for the nine-month period.
• Net cash flow from operating activities dramatically increased to $262.8 million for the nine months, up from $39.9 million in the prior year, mainly due to lower inventory production.
• Fleet utilization improved to 79.3% for the quarter and 78.0% year-to-date, indicating better efficiency in rental equipment deployment.
• Cash and cash equivalents increased to $13.1 million as of September 30, 2025, from $3.8 million at December 31, 2024.
• The company remains in compliance with all financial covenants under its ABL Facility and Indenture, with distribution conditions satisfied.
• The PNC Equipment Finance, LLC revolving credit facility was renewed for an additional year, providing continued financing capacity.

Negatives

• Sales order backlog decreased by 29.3% to $279.8 million as of September 30, 2025, compared to $395.6 million in the prior year, potentially indicating future revenue headwinds.
• OEC on rent yield slightly decreased for both the three-month (0.2 percentage points) and nine-month (1.0 percentage point) periods.
• Gross profit for the Truck and Equipment Sales (TES) segment decreased by 3.1% for the nine months ended September 30, 2025, due to pricing pressures and equipment mix.
• Total stockholders' equity decreased to $784.7 million as of September 30, 2025, from $861.3 million at December 31, 2024.
• Long-term debt, net increased to $1.63 billion as of September 30, 2025, from $1.52 billion at December 31, 2024.
• Net cash used in financing activities for the nine months ended September 30, 2025, was $19.7 million, a shift from $122.8 million generated in the prior year, primarily due to increased debt repayments and lower proceeds.
• Increased cash used in investing activities, primarily due to a $70.4 million increase in rental equipment purchases.

Risks

• Increases in labor costs, changes in U.S. trade policy including tariffs, and 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.
• 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 operations and manufacturing locations as a result of public health concerns, equipment failures, natural disasters, work stoppages, power outages, or other reasons.
• 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.
• 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 as required.
• Increases in the 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, which 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 service providers.
• Subject to complex laws and regulations, including environmental and safety regulations.
• Subject to a series of risks related to climate change.
• Increased attention to, and evolving expectations for, sustainability and environmental, social and governance initiatives.
• IRS audit for 2015 federal excise taxes, though management believes the likelihood of loss is not probable.

Future Outlook

The company believes its liquidity sources and operating cash flows are sufficient to address operating, debt service, and capital requirements, including investments in its rental fleet, over the next 12 months and beyond. It expects annual cash taxes to remain consistent with previous years. The company is currently assessing the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) and new accounting standards (ASU 2025-06 and ASU 2024-03/2025-01) on its financial statements and disclosures.

Management Comments

• We believe that our liquidity sources and operating cash flows are sufficient to address our operating, debt service and capital requirements, including investments in our rental fleet, over the next 12 months and beyond.
• We expect annual cash taxes to be paid to remain at a level consistent with previous years.
• The increase in new equipment sales is driven by robust demand for vocational vehicles across our end markets, particularly intra-quarter demand from local and regional customers.
• Rental revenue increased as a result of higher fleet utilization... driven by higher average OEC on rent.
• Rental equipment sales increased for the nine months ended due to steady performance and demand in the utility market for transmission and distribution jobs.
• The increase in gross profit for the three and nine months ended September 30, 2025, compared to the same periods in 2024, was due to the higher mix of rental revenue for the period.
• The increase in gross profit for the three and nine months ended September 30, 2025, compared to the same periods in 2024, was primarily driven by the increase in rental revenue which has lower costs associated with it.
• The change [in net cash flow from operating activities] year over year is driven by lower levels of inventory production in 2025 compared to 2024.

Industry Context

The company operates in infrastructure-related industries, including electric utility, telecommunications, rail, forestry, and waste management. The reported increase in rental revenue and rental equipment sales, particularly in the Equipment Rental Solutions (ERS) segment, is attributed to higher fleet utilization and steady demand in the utility market for transmission and distribution jobs. The Aftermarket Parts and Services (APS) segment also benefited from increased T&D infrastructure end-user demand. The Truck and Equipment Sales (TES) segment experienced robust demand for vocational vehicles across end markets, especially from local and regional customers. This suggests a healthy demand environment within critical infrastructure sectors, aligning with broader trends of investment in utility upgrades and telecommunications expansion.

Comparison to Industry Standards

• The filing does not provide specific comparable companies or projects. However, it mentions that "OEC is a widely used industry metric to compare fleet dollar value independent of depreciation."
• "Fleet utilization is defined as the total number of days the rental equipment was rented during a specified period of time divided by the total number of days available during the same period and weighted based on OEC. Utilization is a measure of fleet efficiency expressed as a percentage of time the fleet is on rent and is considered to be an important indicator of the revenue generating capacity of the fleet."
• The company's fleet utilization improved to 79.3% (Q3 2025) and 78.0% (YTD Q3 2025). While no direct industry benchmarks are provided in the filing, these figures indicate strong operational efficiency within its rental fleet, which is a key performance indicator for equipment rental companies.

Corporate Governance

Legal Proceedings

• Various claims, matters in litigation, and other contingencies in the normal course of business, none of which are expected to have a material effect on the Company.
• Sellers of Custom Truck L.P. agreed to indemnify the Company for losses from pre-closing covenant breaches (recourse limited to $10.0 million escrow) and certain indemnified tax matters (recourse limited to $5.0 million escrow).
• IRS audit for 2015 federal excise taxes, with an assessment of $2.4 million, alleging certain sold equipment is not eligible for the Mobile Machinery Exemption. An appeal was filed on January 28, 2021. Management does not believe the likelihood of a loss is probable.

Related Party Transactions

• Rented and sold equipment and provided services to R&M Equipment Rental, a business partially owned by company management.
• Rented equipment and purchased inventory from R&M Equipment Rental.
• Purchased products and aircraft charter services from entities owned by company management and their immediate families (immaterial payments).
• Purchased 8,143,635 shares of common stock from affiliates of Energy Capital Partners (ECP) on January 30, 2025, at $4.00 per share, a 23% discount from the market price, for an aggregate of $32.6 million.

Stakeholder Impact

• Shareholders: Reduced net loss and improved operating income could be positive. Stock repurchase program provides some support. However, decreasing sales order backlog and increased long-term debt could be concerns. The ECP stock repurchase at a discount could be seen as favorable for remaining shareholders.
• Employees: Increased general and administrative expenses due to increased compensation suggests positive impact. No mention of layoffs or significant hiring.
• Customers: Robust demand for vocational vehicles and increased rental activity indicate strong customer engagement and satisfaction. The company's ability to provide tailored solutions with short lead times is a competitive advantage.
• Creditors: The company is in compliance with all loan covenants, and its liquidity position is deemed sufficient, which is positive for creditors. Increased long-term debt and cash used in financing activities warrant monitoring.
• Suppliers: Increased purchases of rental equipment and inventory indicate continued business with suppliers, though lower inventory production in 2025 compared to 2024 might affect some.

Next Steps

• Include newly required disclosures related to income tax in the Annual Report on Form 10-K for the fiscal year ending December 31, 2025, following ASU 2023-09 adoption.
• Assess the impact of ASU 2025-06 (Intangibles – Goodwill and Other – Internal-Use Software) on condensed consolidated financial statements and disclosures.
• Assess the impact of ASU 2024-03 (Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures) on condensed consolidated financial statements and disclosures.
• Evaluate the potential impact of the One Big Beautiful Bill Act (OBBBA) on financial statements.
• Continue to manage the stock repurchase program, with $1.9 million remaining available.
• Address the IRS audit for 2015 federal excise taxes, with an appeal filed.

Key Dates

Recommendation

The company shows strong operational improvements with increased revenue, reduced net losses, and improved cash flow from operations. Fleet utilization is up, indicating efficient asset management. However, the significant decrease in sales order backlog and the increase in long-term debt, coupled with a slight decline in OEC on rent yield and gross profit in the TES segment, present mixed signals. While the operational performance is positive, the declining backlog could signal future revenue challenges, and the debt load remains substantial. A "hold" recommendation reflects the positive operational momentum balanced against these potential headwinds and the need for further clarity on future demand and debt management.

Keywords

specialty equipment, equipment rental, truck sales, aftermarket parts, infrastructure, utility, telecommunications, rail, forestry, waste management, rental fleet, vocational trucks, heavy-duty trucks, cranes, digger derricks, fleet utilization, OEC, SEC filing, 10-Q, financial results