Business Context and Reporting Period
Company: Custom Truck One Source, Inc. (CTOS)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2026
Business Overview: CTOS provides specialty equipment rentals, sales, and services to infrastructure industries including electric utilities, telecommunications, rail, and forestry. Effective January 1, 2026, the company reorganized its reporting into two segments: Specialty Equipment Rentals (SER) and Specialty Truck Equipment & Manufacturing (STEM).
Key Financial Metrics
| Metric (in $000s) | Q2 2026 | Q2 2025 | YTD 2026 | YTD 2025 |
|---|---|---|---|---|
| Total Revenue | $563,446 | $511,483 | $1,025,068 | $933,715 |
| Gross Profit | $123,974 | $102,542 | $227,037 | $188,078 |
| Operating Income | $46,615 | $27,931 | $78,084 | $40,336 |
| Net Income (Loss) | $10,399 | $(28,380) | $6,297 | $(46,171) |
| Diluted EPS | $0.05 | $(0.13) | $0.03 | $(0.20) |
| Operating Cash Flow (YTD) | $68,186 (vs. $181,353 YTD 2025) | |||
| Cash & Equivalents | $10,287 (as of June 30, 2026) | |||
| Total Debt (Net) | $1,659,861 (as of June 30, 2026) | |||
| Net Leverage Ratio | 3.85x (LTM) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 10.2% in Q2 2026 and 9.8% YTD compared to 2025. This was driven by a 20.1% increase in rental revenue and a 7.7% increase in equipment sales.
- Profitability Turnaround: The company returned to profitability, reporting Net Income of $10.4 million in Q2 2026 compared to a Net Loss of $28.4 million in Q2 2025. Operating income surged 66.9% in Q2.
- Segment Performance:
- SER Segment: Adjusted EBITDA increased 26.2% to $117.2 million in Q2, driven by higher fleet utilization (81.6%) and increased Average OEC on rent.
- STEM Segment: Adjusted EBITDA increased 54.7% to $37.2 million in Q2, supported by higher equipment sales volume and lower floor plan interest expense.
- Cash Flow: Operating cash flow decreased significantly YTD ($68.2M vs. $181.4M in 2025) primarily due to a $112.6 million increase in inventory levels.
- Tax Impact: The company recorded an income tax benefit of $1.4 million in Q2 2026, compared to an expense of $17.5 million in Q2 2025, largely due to changes in valuation allowances on deferred tax assets.
Guidance, Outlook, and Risks
- Outlook: Management cites strong demand in utility and forestry sectors. Fleet utilization and OEC on rent yield have improved, indicating efficient asset deployment.
- Liquidity: The company maintains $229.4 million in availability under its ABL Facility. A non-trade floor plan facility with PNC Equipment Finance ($397.0 million outstanding) matures August 25, 2026, and is expected to be renewed on consistent terms.
- Key Risks:
- Interest Rate Sensitivity: $1.48 billion of variable-rate debt exposes the company to rising rates; a 0.125% rate increase would add ~$1.9 million annually to interest expense.
- Inventory Management: Significant cash was used to build inventory, impacting operating cash flow.
- Regulatory & Tax: Ongoing IRS audit regarding federal excise taxes from 2015 (assessment of $2.4 million), though management does not believe a loss is probable.
- Supply Chain & Labor: Risks related to raw material availability, labor costs, and supply chain disruptions.
Investor Verification Checklist
- Inventory Build: Verify the strategic necessity of the $112.6 million increase in inventory and its impact on future working capital needs.
- Debt Renewal: Confirm the successful renewal of the PNC Equipment Finance facility maturing in August 2026.
- Segment Reclassification: Review the impact of the new SER/STEM segment structure on future comparability and intersegment sales accounting.
- Tax Valuation Allowance: Monitor the sustainability of the tax benefit derived from the reduction of valuation allowances against deferred tax assets.
- Backlog Trends: Note that sales order backlog decreased 3.7% to $322.5 million; assess if this signals a softening in future equipment sales demand.