10-Q: Custom Truck One Source Reports Strong Revenue Growth Amid Increased Net Loss in Q2 2025

Custom Truck One Source, Inc. announced a significant increase in total revenue and improved operating income for the second quarter and first half of 2025, despite a larger net loss primarily driven by higher income tax expense.

Summary

• Total revenue for the three months ended June 30, 2025, increased by 20.9% to $511.5 million, up from $423.0 million in the same period of 2024.
• For the six months ended June 30, 2025, total revenue grew by 11.9% to $933.7 million, compared to $834.3 million in 2024.
• Rental revenue rose by 17.3% to $120.8 million for the three-month period and by 13.3% to $237.1 million for the six-month period.
• Equipment sales increased by 24.7% to $356.1 million for the quarter and by 12.9% to $630.0 million for the six months.
• Net loss for the three months ended June 30, 2025, widened to $28.4 million from $24.5 million in the prior year, a 15.9% increase.
• Net loss for the six months ended June 30, 2025, increased by 19.0% to $46.2 million, compared to $38.8 million in 2024.
• The increase in net loss was primarily attributed to a substantial rise in income tax expense, which was $17.5 million for the quarter (up 469.3%) and $9.8 million for the six months (up 771.4%).
• Operating income improved significantly, increasing by 58.0% to $27.9 million for the quarter and by 11.9% to $40.3 million for the six months.
• Cash and cash equivalents increased to $5.3 million as of June 30, 2025, from $3.8 million at December 31, 2024.
• Net cash flow from operating activities saw a substantial increase to $181.4 million for the six months ended June 30, 2025, up from $23.4 million in the same period of 2024, driven by lower inventory production.
• Sales order backlog decreased by 30.0% to $334.8 million as of June 30, 2025, from $478.2 million in the prior year.
• Fleet utilization improved to 77.6% for the quarter and 77.3% for the six months, up from 71.7% and 72.4% respectively in 2024.
• The Net Leverage Ratio improved to 4.66 as of June 30, 2025, from 4.80 as of March 31, 2025.

Sentiment

Score: 5

Explanation: While revenue growth and operating performance are strong, the significant increase in net loss due to higher tax expense and the substantial decline in sales order backlog present notable concerns. The improved cash flow from operations is a positive, but increased debt and a slight decrease in rental yield temper overall sentiment. The results are mixed, leaning towards neutral to slightly negative due to the net loss and backlog.

Positives

• Total revenue increased by 20.9% for the quarter and 11.9% for the six months, indicating strong top-line growth.
• Operating income showed significant improvement, rising by 58.0% for the quarter and 11.9% for the six months.
• Net cash flow from operating activities dramatically increased to $181.4 million for the six-month period, up from $23.4 million in the prior year, reflecting improved operational efficiency and lower inventory production.
• Fleet utilization improved to 77.6% for the quarter and 77.3% for the six months, demonstrating better efficiency in the Equipment Rental Solutions (ERS) segment.
• The Net Leverage Ratio improved to 4.66 from 4.80, indicating a slight reduction in leverage.
• The Equipment Rental Solutions (ERS) segment reported a 23.2% increase in total revenue and a 16.8% increase in gross profit for the quarter, driven by higher fleet utilization and rental equipment sales.
• The Truck and Equipment Sales (TES) segment saw equipment sales increase by 22.4% for the quarter due to robust demand for vocational vehicles.
• The Aftermarket Parts and Services (APS) segment achieved a 26.6% increase in gross profit for the quarter, primarily due to higher-margin rental revenue.

Negatives

• Net loss increased by 15.9% for the quarter and 19.0% for the six months, primarily due to a significant rise in income tax expense.
• Income tax expense surged by 469.3% for the quarter and 771.4% for the six months, impacting net profitability.
• Sales order backlog decreased substantially by 30.0% to $334.8 million, which may indicate softening future demand.
• OEC on rent yield decreased by 1.4% points for the quarter and 2.0% points for the six months, suggesting lower returns from the rental fleet.
• Gross profit for the Truck and Equipment Sales (TES) segment decreased by 4.0% for the six months, attributed to pricing pressures on truck sales and equipment mix.
• Total stockholders' equity decreased by $71.2 million from December 31, 2024, to June 30, 2025.
• Long-term debt, net, increased by $70.0 million from December 31, 2024, to June 30, 2025.

Risks

• Increases in labor costs could impact profitability.
• Changes in U.S. trade policy, including tariffs, may affect operational costs.
• Inability to obtain raw materials, component parts, and/or finished goods in a timely and cost-effective manner could disrupt operations.
• Ineffective management of the rental equipment fleet could impact revenue generation.
• Intense competition in the equipment dealership and rental industries poses a threat to market share and pricing.
• Sales order backlog may not accurately predict future revenues, leading to potential overestimation of demand.
• Increased unionization rates in the workforce could lead to higher labor costs and operational complexities.
• Inability to attract and retain key personnel, including management and skilled technicians, could hinder operations.
• Material disruptions to operations from public health concerns, equipment failures, natural disasters, work stoppages, or power outages.
• Any further increase in the cost of new equipment for the rental fleet or inventory could impact margins.
• Aging or obsolescence of existing equipment and fluctuations in its market value could lead to asset write-downs.
• Disruptions in the supply chain could affect inventory availability and costs.
• Business may be impacted by changes in government spending.
• Potential for losses in excess of recorded reserves for receivables.
• Uncertainty relating to macroeconomic conditions, unfavorable capital and credit markets, and customers' inability to obtain additional capital.
• Increases in the price of fuel or freight could raise operating expenses.
• Regulatory, technological advancements, or other changes in core end-markets may affect customer spending.
• Strategic initiatives, including acquisitions and divestitures, may not be successful and could divert management's attention or create customer uncertainty.
• The interests of the majority stockholder may not align with those of 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 sufficient cash could lead to a default on debt obligations.
• Significant operating and financial restrictions imposed by debt agreements.
• Changes in interest rates could increase debt service obligations on variable rate indebtedness and decrease net income and cash flows.
• Disruptions or security compromises affecting information technology systems could lead to liability and operational inefficiencies.
• Subject to complex environmental and safety regulations that can adversely affect costs and business feasibility.
• Risks related to climate change.
• Increased attention to, and evolving expectations for, sustainability and environmental, social, and governance (ESG) initiatives.

Future Outlook

The company is evaluating the potential impact of the recently signed 'One Big Beautiful Bill Act' (OBBBA) on its financial position, results of operations, and cash flows for future periods, specifically assessing effects on future tax expense, cash flows from operations due to new deductions, or potential impacts on investment decisions related to certain credits. The company expects annual cash taxes to remain at a level consistent with previous years despite the change in estimated annual effective tax rate.

Management Comments

• The increase in total revenue for the three and six months ended June 30, 2025, compared to the same periods in 2024, is a result of strong new equipment sales during the second quarter of 2025 as well as higher rental revenue driven by higher average OEC on rent.
• The increase in cost of revenue, excluding rental equipment depreciation, was driven primarily by the increase in equipment sales volume during the quarter.
• Depreciation of rental equipment increased as a result of higher rental equipment levels.
• Operating expenses increased primarily as a result of an increase in general and administrative expenses due to increased compensation.
• Other expense remained flat for the three months ended June 30, 2025, and increased for the six months ended June 30, 2025, primarily due to a decrease in interest income from financing receivables.
• Income tax expense for the three months ended June 30, 2025, reflects an adjustment to the estimated annual effective tax rate resulting from changes in expected taxable income in different tax jurisdictions.
• Net loss increased primarily due to higher income tax expense.
• Rental revenue increased as a result of higher fleet utilization of 5.9% and 4.9% for the three and six months ended June 30, 2025, respectively; driven by higher average OEC on rent.
• Rental equipment sales increased due to steady performance and demand in the utility market for transmission and distribution jobs.
• The increase in new equipment sales is driven by robust demand for vocational vehicles across end markets, particularly intra-quarter demand from local and regional customers.
• Gross profit for the Truck and Equipment Sales segment increased for the three months ended June 30, 2025, due to the mix of equipment sold, but decreased for the six months due to pricing pressures on truck sales and equipment mix.
• The increase in gross profit for the Aftermarket Parts and Services segment was primarily driven by the increase in rental revenue which has lower costs associated with it.
• The change in net cash from operating activities year over year is driven by lower levels of inventory production in 2025 compared to 2024.
• The increase in cash used in investing activities was primarily due to an increase in purchases of rental equipment.
• The increase in cash used for financing activities was primarily due to an increase in repayments on floorplan liabilities and long term debt and lower proceeds from floorplan liabilities and long term debt.

Industry Context

The company operates as a specialty equipment provider to critical infrastructure-related industries in North America, including electric utility transmission and distribution, telecommunications, rail, forestry, and waste management. The strong performance in rental revenue and equipment sales, particularly in the utility market for transmission and distribution jobs, aligns with ongoing infrastructure development and improvement work. The robust demand for vocational vehicles across end markets suggests a healthy underlying demand environment for the company's core products and services. However, pricing pressures in truck sales and a significant decrease in sales order backlog could indicate potential shifts or increased competition within the industry.

Comparison to Industry Standards

• The company's fleet utilization of 77.6% (Q2 2025) and 77.3% (YTD Q2 2025) is a key operational metric consistent with those defined by the American Rental Association, indicating strong fleet efficiency.
• The OEC on rent yield of 38.6% (Q2 2025) and 38.3% (YTD Q2 2025) is a measure of return realized by the rental fleet, which can be compared to other equipment rental companies in the North American market, though specific comparable company data is not provided in the filing.
• The Net Leverage Ratio of 4.66 is a common metric used by creditors to assess financial health and can be benchmarked against industry peers in the heavy equipment rental and sales sector, but no specific comparable companies or projects are listed in the filing for direct comparison.

Corporate Governance

Legal Proceedings

• The company is subject to various claims, matters in litigation, and other contingencies arising in the ordinary course of business, none of which are expected to have a material adverse effect.
• An IRS audit for Custom Truck L.P.'s federal excise taxes for 2015 resulted in a $2.4 million assessment on October 28, 2020. An appeal was filed on January 28, 2021. Management believes the likelihood of a loss is not probable based on facts, circumstances, and historical precedent.

Related Party Transactions

• The company rents and sells equipment and provides services to R&M Equipment Rental, a business partially owned by members of the company's management.
• The company rents equipment and purchases inventory from R&M Equipment Rental.
• The company has purchased products and aircraft charter services from entities owned by members of the company's management and their immediate families; payments for these were immaterial.
• Management fees are payable quarterly to Platinum under a Corporate Advisory Services Agreement, recorded in transaction expenses and other.
• On January 30, 2025, the company repurchased 8,143,635 shares of common stock from affiliates of Energy Capital Partners (ECP), a related party, at a 23% discount ($4.00 per share vs. $5.19 market price) for $32.6 million.

Stakeholder Impact

• Shareholders: Experience increased net loss and diluted EPS, but also benefit from revenue growth, improved operating income, and a stock repurchase program that reduces outstanding shares. The decline in sales order backlog could be a concern for future revenue visibility.
• Employees: Retention bonus agreements for key management indicate efforts to retain talent. The company's growth in revenue and operations could suggest job stability and potential for growth, but risks related to labor costs and attracting/retaining personnel remain.
• Customers: Benefit from the company's broad range of specialty equipment and services, with strong demand noted in utility and vocational vehicle markets. Pricing pressures in truck sales might offer some benefit to buyers.
• Suppliers: Increased equipment sales and rental fleet levels suggest continued demand for chassis, attachments, and other inventory, benefiting suppliers.
• Creditors: The company remains in compliance with loan covenants, and the Net Leverage Ratio improved, which is positive for creditors. However, increased long-term debt and variable interest rate exposure are factors to monitor.

Next Steps

• The company will include newly required income tax disclosures in the notes to its consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ending December 31, 2025, following the adoption of ASU 2023-09.
• The company is assessing the impact of ASU 2024-03 (Income Statement Expense Disaggregation) on its condensed consolidated financial statements and disclosures, effective for fiscal years beginning after December 15, 2026.
• The company is evaluating the potential impact of the 'One Big Beautiful Bill Act' (OBBBA) on its financial position, results of operations, and cash flows for future periods, including effects on future tax expense, cash flows from operations due to new deductions, or potential impacts on investment decisions related to certain credits.
• The PACCAR Financial Corp line of credit was increased to $225 million on July 11, 2025, which may support future inventory purchases.

Key Dates

Recommendation

The filing presents a mixed bag of results. Strong revenue growth and improved operating income are positive indicators of core business performance and market demand. The significant increase in cash flow from operations is also a strong positive, demonstrating improved liquidity. However, the widening net loss, primarily driven by a substantial increase in income tax expense, and the notable decline in sales order backlog are significant concerns. The decrease in OEC on rent yield and pricing pressures in the TES segment also warrant caution. While the company is managing its debt and remains covenant compliant, the overall picture suggests a period of transition with both strengths and weaknesses. A 'hold' recommendation is appropriate as the positive operational trends are offset by profitability challenges and a weakening backlog, requiring further observation to determine a clear trajectory.

Keywords

Specialty Equipment, Equipment Rental, Truck Sales, Aftermarket Services, Infrastructure, Utility, Telecommunications, Rail, Forestry, Waste Management, Heavy-Duty Trucks, Cranes, Digger Derricks, Bucket Trucks, Fleet Utilization, OEC, Sales Backlog, SEC Filing, 10-Q, Financial Results