CTOS

Business Context and Reporting Period

Company: Custom Truck One Source, Inc. (CTOS)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: CTOS is a specialty equipment provider serving electric utility transmission and distribution (T&D), telecommunications, rail, forestry, waste management, and infrastructure industries in North America. The company operates a "one-stop-shop" model offering equipment rentals, sales, and aftermarket parts/services through over 40 locations. As of December 31, 2025, the company managed operations through three segments: Equipment Rental Solutions (ERS), Truck and Equipment Sales (TES), and Aftermarket Parts and Services (APS). Management announced a restructuring effective Q1 2026 to consolidate these into two segments: Specialty Equipment Rentals (SER) and Specialty Truck Equipment and Manufacturing (STEM).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 7.9% year-over-year, driven by a 14.3% increase in rental revenue and a 6.7% increase in equipment sales. Parts and services revenue declined 2.2%.
• Profitability: While gross profit increased 5.5% to $411.9 million, operating income decreased slightly by 1.1% due to higher depreciation expenses ($215.6 million vs. $183.5 million) and the absence of a $23.5 million gain on a sale-leaseback transaction recorded in 2024.
• Net Loss: Net loss widened to $31.1 million from $28.7 million, primarily attributable to the lack of the 2024 sale-leaseback gain, partially offset by improved gross profit.
• Operating Metrics: Fleet utilization improved to 79.4% from 74.3%. Average Original Equipment Cost (OEC) on rent increased 14.1% to $1.26 billion. Sales order backlog decreased 9.1% to $335.3 million.
• Cash Flow: Operating cash flow surged 153% to $310.1 million, driven by lower inventory production levels compared to 2024.

Guidance, Outlook, and Risks

Outlook and Strategy: Management expects to benefit from secular growth trends in infrastructure spending, driven by the U.S. Infrastructure Investment and Jobs Act, AI-driven data center power demand, and grid modernization. The company plans to invest in its rental fleet to meet growing demand and expand aftermarket services. The segment realignment in 2026 aims to better reflect capital intensity and margin profiles.

Key Risks:

• Indebtedness: Significant debt levels ($1.66 billion) limit financial flexibility and expose the company to interest rate risk on variable-rate borrowings ($1.36 billion).
• Supply Chain: Disruptions in the supply of chassis, parts, and raw materials could impact production and sales.
• Market Conditions: Dependence on government spending and capital expenditures in utility and infrastructure sectors; potential for reduced customer spending due to macroeconomic uncertainty.
• Asset Management: Risks related to the aging of the rental fleet, residual value fluctuations, and the ability to manage equipment utilization effectively.
• Cybersecurity: Potential disruptions to IT systems could adversely affect operations and financial reporting.

Investor Verification Checklist

• Debt Covenants: Verify compliance with the Asset Based Lending (ABL) Facility and 2029 Secured Notes covenants, specifically the Net Leverage Ratio (4.31x) and Fixed Charge Coverage Ratio.
• Segment Realignment: Monitor the Q1 2026 reporting transition to the new SER and STEM segments to ensure comparability of future results.
• Inventory Levels: Review the reduction in inventory ($930.9 million vs. $1.05 billion in 2024) and its impact on future sales capacity and working capital.
• Interest Rate Exposure: Assess the impact of rising interest rates on the $1.36 billion of variable-rate debt, noting a $1.7 million annual expense increase per 0.125% rate hike.
• Backlog Trends: Investigate the 9.1% decline in sales order backlog and its implications for future equipment sales revenue.