Custom Truck One Source: 3 Key Takeaways for Long-Term Investors

On its third-quarter 2026 earnings call, held on Oct. 27, 2026, Custom Truck One Source (NYSE:CTOS) announced that it raised its full-year earnings guidance for the third time this year as electrical grid investments drove record equipment demand. For long-term investors, management's decision to shift capital into high-yield rental assets over immediate cash flow signals strong confidence in multiyear utility spending.

Three key takeaways from the call explain how management is positioning the business for long-term growth.

1. Capital Allocation Shifts Cash Flow into Fleet Growth

Management raised its 2026 net rental fleet investment guidance to $210-$230 million, roughly $35 million above its prior range. That decision pulled levered free cash flow down to roughly zero for 2026, but management expects the new equipment to generate $15 million in annual earnings before interest, taxes, depreciation, and amortization (EBITDA) starting in 2027.

We chose to meet that demand. We are raising our 2026 net rental fleet investment to $210 to $230 million, with the incremental dollars going into long term transmission rentals and high return specialty products.
-- Ryan McMonagle, Chief Executive Officer

2. Strategic Production Prioritization Drives High-Margin Rental Expansion

To meet demand from utility customers, management diverted assembly line capacity in its Equipment Manufacturing and Sales (STEM) segment toward its internal fleet instead of external buyers. That choice pulled third-party STEM segment revenue down 5% to $283 million in the third quarter, trading immediate sales revenue for recurring rental cash flow.

As Ryan mentioned, sales to third parties were down year over year, as we chose to strategically prioritize our production for additional investment in the rental fleet to take advantage of current and anticipated rental demand.
-- Christopher J. Eperjesy, Chief Financial Officer

3. Transmission Demand Powers Rental Utilization and Profitability

Heavy utility spending on transmission lines pushed average fleet utilization up past 81% and sent original equipment cost (OEC) -- the initial asset value of hardware on rent -- up to $1.76 billion at quarter end. That operational scale generated 79% rental gross margins in the Specialized Equipment Rental (SER) segment, proving that price increases continue to hold.

Adjusted rental gross margin was approximately 79% in the quarter, above the mid seventies range we discussed last quarter reflecting high utilization, the continued flow through from our December price increase, and our focus on controlling costs.
-- Christopher J. Eperjesy, Chief Financial Officer

Looking Ahead

Electric grid upgrades and long-duration transmission projects are driving sustained equipment demand across North America. Custom Truck One Source maintains fleet age under three years while watching chassis availability and debt reduction toward its target leverage ratio of under 3 times net debt to EBITDA.

As I said last quarter, we believe that we are in the early stages of what could be a once in a generation transmission demand super cycle.
-- Ryan McMonagle, Chief Executive Officer

With an order backlog reaching nearly $400 million early in the fourth quarter, management expects higher rental yields and expanding production capacity to deliver compounding earnings growth.

We expect to finish 2026 with net leverage well below 4x, we continue to target below 3x in 2027.
-- Christopher J. Eperjesy, Chief Financial Officer

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