Custom Truck One Source (CTOS) Q1 2026 earnings review
Record Q1 Driven by Utility Spend; EBITDA Guidance Raised
Custom Truck One Source (CTOS) delivered a robust start to 2026, overcoming seasonal patterns to post 9.3% YoY revenue growth. Adjusted EBITDA was the real standout, accelerating 33.4% YoY to $98.0M as the newly structured Specialty Equipment Rentals (SER) segment capitalized on surging grid infrastructure and data center demand. Fleet utilization jumped to 81.4%, allowing management to raise the lower end of their full-year EBITDA guidance. While the company still posted a $4.1M GAAP net loss—largely due to a $35.0M interest expense—debt paydown is finally materializing. Net leverage ticked down to 4.02x, setting the stage for significant free cash flow generation as fleet investments are scaled back.
🐂 Bull Case
SER segment fleet utilization reached 81.4%, a massive 370 bps YoY improvement. Secular trends in utility Transmission & Distribution (T&D) indicate this demand is durable.
Gross profit outpaced revenue growth, jumping 20.5% YoY. The commitment to slash net rental fleet investment from >$250M to $150-$170M will pivot the business to strong cash generation, actively chipping away at the 4.02x leverage.
🐻 Bear Case
Despite $31.4M in operating income, a $35.0M net interest expense dragged the company into a $4.1M net loss. High variable-rate floor plan liabilities remain a significant drag on profitability.
Although rebounding sequentially, the STEM segment backlog of $411.3M remains 2% lower than Q1 2025, indicating potential lumpiness in equipment sales delivery schedules.
⚖️ Verdict: 🟢
Bullish. Operations are executing flawlessly in the rental division, driving significant EBITDA acceleration. The combination of raised guidance, improving utilization, and a concrete path to deleveraging makes the underlying equity story compelling despite the headline GAAP loss.
Key Themes
Secular T&D Demand Drives Exceptional Utilization
The electrification mega-trend, propelled by AI and data center buildouts, continues to provide an massive tailwind for CTOS. Utilization in the rental fleet averaged an accelerating 81.4%, up from 77.7% in 25Q1. This drove the Specialty Equipment Rentals (SER) segment to an Adjusted EBITDA of $105.5M, accounting for the vast majority of the company's profit profile.
STEM Backlog Shows Reversing Momentum
After experiencing sequential declines throughout mid-2025 due to shorter lead times and normalized supply chains, the Specialty Truck Equipment & Manufacturing (STEM) backlog is reversing course. Backlog grew by $76M sequentially to $411.3M. This sequential acceleration secures near-term visibility for the sales division, which posted $254.8M in equipment sales (+4.4% YoY).
Debt Burden Constrains Net Income
A structurally high debt load remains CTOS's Achilles' heel. Total debt outstanding sits at $1.64B. In 26Q1, the company generated $31.4M in operating income but paid $35.0M in net interest expense. While net leverage is showing a stable declining trend (from a peak of 4.8x in early 2025 to 4.02x today), getting below the 4.0x threshold is critical to alleviating this margin pressure.
New Segmentation Adds Clarity
Beginning in 2026, CTOS re-segmented its business into SER (rentals) and STEM (sales/manufacturing). This is a positive move that clarifies the margin profiles of its distinct business models. In 26Q1, SER generated massive margins (Adj EBITDA of $105.5M on $193.7M in external revenue), while STEM proved to be lower-margin but cash-generative ($32.7M EBITDA on $267.8M in external revenue).
Other KPIs
Accelerating significantly (+11.8% YoY from $1.20B). Original Equipment Cost (OEC) on rent is the pure volume driver for the SER segment. With ending total OEC at $1.66 billion, roughly 81% of the total asset base was earning cash throughout the quarter.
Accelerating. Gross profit increased 20.5% YoY, completely outpacing the 9.3% revenue growth. This demonstrates tremendous operating leverage, stemming directly from the 370 bps YoY increase in fleet utilization, which absorbs fixed depreciation expenses over a larger revenue base.
Guidance
Accelerating. The guidance was raised from the previous $410 - $435M range. The $427.5M midpoint implies 11.5% YoY growth over 2025. Given the $98M print in a seasonally slower Q1, management has set an achievable, highly confident trajectory for the remainder of the year.
Stable. The reaffirmed guidance implies 3% to 9% YoY growth, relying on the core SER segment ($835-$870M) and steady sales throughput in the STEM segment ($1.58B-$1.65B).
Decelerating sharply. This is the pivotal cash flow driver. After investing over $250M in 2025, management is harvesting the fleet. By capping net investment, CTOS structurally unlocks free cash flow to execute its deleveraging mandate.
Reversing. After burning cash in early 2025 due to tactical inventory buildup, restricting capital expenditures and lowering total inventory months on hand below 6 months shifts the business into a sustained positive cash generation profile.
Key Questions
Utilization Ceiling
With SER utilization currently exceeding 81%, what is the realistic maximum ceiling before equipment availability issues begin to negatively impact customer relationships and project timelines?
Backlog Composition
The STEM backlog grew $76M sequentially this quarter. Can you break down how much of this growth was driven by core T&D utility markets versus a recovery in vocational or refuse truck demand?
Fleet Aging Dynamics
As net rental fleet investment steps down to $150-$170M, average fleet age will naturally increase from its current 3-year mark. How are you managing the maintenance expense profile to protect SER segment margins as the fleet ages?