Custom Truck One Source, Inc. Third Quarter 2026 Earnings Conference Call - CUSTOM TRUCK ONE SOURCE INC

Explicit Guidance:

• FY2026 Consolidated Adjusted EBITDA: Raised to $447.5–$460 million (vs. prior expectation of >$440M; up 17–20% YoY).
• FY2026 Consolidated Revenue: Affirmed at $2.1–$2.2 billion (up 8–13% YoY).
• FY2026 SER Revenue: Raised to $870–$890 million.
• FY2026 STEM Revenue: Maintained at $1.63–$1.70 billion; third-party new sales expected to grow 3–10% YoY.
• FY2026 Net Rental Fleet CapEx: Raised to $210–$230 million (incremental $35M above prior range midpoint; gross investment ~$400–$430 million).
• FY2026 Non-Rental CapEx: Maintained at $40–$50 million.
• FY2026 Levered Free Cash Flow: Revised from >$50 million expected to slightly positive due to incremental fleet investment timing.
• FY2027 Leverage: Target to reach <3.0x net leverage by year-end.
• FY2027 Growth Outlook: Expect another year of double-digit adjusted EBITDA growth; full 2027 guidance to be provided following Q4 2026 results.

Business-Segment Outlook:

• SER (Specialty Rental):
  • Demand: Anticipated to remain strong into Q4 2026 and 2027, driven by a "once-in-a-generation" transmission demand super cycle extending through 2028.
  • KPIs: Utilization expected to remain high (>84% early Q4) with On-Rent Yield targeting upper 30s to low 40s; average fleet age remains under 3 years.
  • Growth Drivers: Transmission demand and vocational rental market penetration (OEC on rent up ~$45M YoY in Q3).
• STEM (Sales/Equipment):
  • Q4 2026: Third-party new sales expected to grow mid-to-high teens YoY as delayed deliveries (chassis recall, hail damage) are recognized.
  • 2026 Full Year: Growth expected toward the upper end of the range ($1.63–$1.70B) due to intersegment sales supporting rental fleet growth.
  • Backlog: End-of-Q3 2026 backlog at $342M (up 22% YoY); Q4 backlog growing to ~$400M.
  • 2027 Expectation: Continued strong sales demand in utility market; growth expected in infrastructure categories (dump trucks, water trucks) and data center construction.

Market and Competitive Outlook:

• T&D Markets: Believed to be in early stages of a multi-year super cycle; new projects starting in 2027 and 2028 are already visible.
• Data Centers: Identified as significant power consumers driving grid hardening and transmission demand; not the sole driver but a material contributor to overall demand.
• Pricing: Pricing discipline holding; opportunity for rate increases in 2027 to offset supplier cost inflation and capitalize on transmission mix.
• Emissions Regulations (EPA 2027 NOx): Company well-positioned via chassis pre-buy program and OEM relationships; no material expected disruption to 2026 operations.
• Infrastructure Bill: Pending permanency; current growth in infrastructure (heavy haul, dump trucks) attributed to data center construction and general utility spending rather than the bill.
• Telecom (BEAD): Minimal current impact; not expected to materialize as a significant lift in the near term.

Macro / Industry Outlook:

• Economic Environment: Management expresses high confidence in long-term demand drivers despite broader macro uncertainty.
• Regulatory/Geopolitical: Grid modernization, maintenance, and expansion are the primary secular megatrends; new project approvals are increasing.
• Seasonality: Q4 expected to be historically the strongest quarter for revenue and EBITDA; utilization expected to grow sequentially into Q4.
• Inventory: Year-end 2026 inventory months on hand expected to be flat with 2025 levels; 2027 to see reduced inventory levels.

Strategic Initiatives:

• Fleet Investment: Prioritized capital allocation toward long-term transmission rentals and high-return specialty products in 2026 to meet demand surges.
• Production Allocation: STEM production capacity directed to internal fleet investment to accelerate unit availability.
• Deleveraging Strategy: Path to <3.0x leverage in 2027 driven by combination of double-digit EBITDA growth and debt paydown via improved free cash flow.
• Cost Management: Continued focus on SG&A efficiency and operational footprint optimization.

Risks and Headwinds to Outlook:

• Timing Risks: Q4 revenue recognition subject to pull-forward/push-out of STEM deliveries and rental equipment sales (customer purchase options).
• Execution Risks: Continued strong demand could delay deleveraging if fleet investment exceeds projections; however, management views incremental spend as high-return.
• External Events: Potential impact of ongoing chassis vendor recalls and weather events (hailstorm) on delivery timing (expected to unwind in Q4).
• Macro Sensitivity: Broader economic uncertainty remains a caveat, though end-market fundamentals currently support the bullish outlook.

Management Tone on the Future:

• Confidence Level: "Highest degree of confidence" in the team and business outlook; views current conditions as a "once-in-a-generation" opportunity.
• Guidance Changes: Raising full-year adjusted EBITDA guidance for the third time in 2026; raising SER revenue guidance; affirming consolidated revenue and STEM guidance.
• Long-Term View: Optimistic about growth visibility through 2028; confident in the ability to convert improving KPIs into earnings and deleveraging.

Miscellaneous:

• Hailstorm Impact: Inventory damage and repair costs covered by insurance with $1M deductible; impact deemed immaterial and expected to unwind in Q4.
• Chassis Recall: OEM covering repair costs; majority of delayed sales ($20M+) delivered in October, remainder expected in Q4.
• Utilization Trends: Q3 utilization averaged 81.5% (up 220 bps YoY); Q4 start utilization >84% with expectation of further growth through year-end due to strong transmission demand preventing typical seasonal roll-offs.