Custom Truck One Source (CTOS) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Oct. 27, 2026

CALL PARTICIPANTS

• Vice President of Investor Relations - Brian Perman
• Chief Executive Officer - Ryan McMonagle
• Chief Financial Officer - Christopher J. Eperjesy

TAKEAWAYS

• Revenue -- $495.2 million, representing 2.7% growth compared to the third quarter of 2025.
• Adjusted EBITDA -- $110.9 million, increasing 15.6% year over year driven by increased gross profit and lower floor plan interest.
• Rental Revenue -- $152.7 million, growing 20.1% year over year driven by increased rental volume.
• Average OEC on Rent -- $1.39 billion in the third quarter, a 10.5% increase reflecting strong utility end-market demand.
• Fleet Utilization -- 81.5%, an increase of 220 basis points versus the third quarter of 2025.
• SER Segment Adjusted EBITDA -- $121.9 million, a 22.5% increase with margins expanding to 54.6%.
• October OEC on Rent -- Over $1.5 billion, reflecting continued growth in the fourth quarter.
• October Fleet Utilization -- Surpassed 84%, compared to the average of 81.5% in the third quarter.
• STEM Total Revenue -- $442.2 million, up 8% primarily due to higher intersegment sales to support the rental fleet.
• STEM Third-Party Sales -- $283.2 million, a 5.5% decline as the company prioritized production for the rental fleet.
• Delayed Deliveries -- $20 million in revenue shifted to the fourth quarter due to a hailstorm and a vendor recall.
• Order Backlog -- $341.9 million at quarter end, representing 22% growth year over year.
• Net Leverage -- 3.7x, representing a reduction from 4.53x at the end of the third quarter of 2025.
• 2026 Adjusted EBITDA Guidance -- $447.5 million to $460 million, raised from the previous range of $437.5 million to $455 million.
• 2026 SER Revenue Guidance -- $870 million to $890 million, increased from the prior range of $850 million to $875 million.
• Net Rental Fleet Investment -- $210 million to $230 million for the full year, up from the prior forecast of $170 million to $200 million.
• Levered Free Cash Flow Guidance -- Expected to be slightly positive for 2026, revised from the previous target of more than $50 million.
• On-rent Yield -- 39.4%, representing a 120 basis point increase year over year.
• Adjusted Rental Gross Margin -- 78.7%, reflecting price discipline and cost control.
• Total OEC -- $1.76 billion at quarter end, an all-time record for the company.
• STEM Backlog (Oct) -- Approximately $400 million, indicating strong demand in the fourth quarter.
• Adjusted EBITDA Margin -- 22.4%, expanding approximately 250 basis points year over year.

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RISKS

• Eperjesy warned that the increased fleet investment "moderates our 2026 levered free cash flow expectations," leading to a revision from more than $50 million to slightly positive.
• Management noted that STEM third-party revenue was "adversely impacted by both a vendor recall, as well as unusual damage to some finished vehicle inventory caused by a hailstorm," resulting in more than $20 million in delayed sales.

SUMMARY

Custom Truck One Source, Inc. (NYSE:CTOS) reported record performance in its rental business driven by high demand in the transmission and distribution markets. Management stated that the company is experiencing the early stages of a significant transmission demand cycle, leading to record levels of equipment on rent and utilization. The company reported a strategic decision to reallocate capital by increasing fleet investment to meet project-driven demand, which impacted short-term free cash flow expectations while targeting long-term earnings growth.

• CEO McMonagle stated that the company is in the "early stages of what could be a once in a generation transmission demand super cycle" driven by grid modernization, electrification, and data center load growth.
• Management noted that the full-year net rental fleet investment was raised to $210 million to $230 million, with spending concentrated in long-term transmission rentals and specialty products.
• The company indicated that the incremental fleet additions are expected to contribute significantly to 2027 results while providing only a limited impact in 2026 due to delivery timing.
• CFO Eperjesy reported that net leverage improved to 3.7x and the company remains committed to reaching a target below 3x in 2027.
• Management indicated that bidding activity and customer conversations suggest strong demand conditions will persist through the fourth quarter and into 2027.
• The company is managing its inventory to prepare for the 2027 emissions regulation changes through a chassis prebuy program.

INDUSTRY GLOSSARY

• ABL: Asset-Based Lending, a type of credit facility secured by company assets.
• OEC: Original Equipment Cost, the purchase price paid for equipment.
• OEC on Rent: The original equipment cost of the units currently on hire to customers.
• On-rent Yield: A measure of the return realized by the rental fleet, calculated as rental revenue divided by average OEC on rent.
• RPO: Rental Purchase Option, a contract allowing a customer to apply a portion of rental payments toward the purchase of the equipment.
• SER: Specialty Equipment Rentals, the company's rental solutions segment.
• STEM: Specialty Truck Equipment and Manufacturing, the company's equipment sales and manufacturing segment.
• T&D: Transmission and Distribution, referring to the infrastructure for moving electricity from power plants to consumers.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for standing by and welcome to Custom Truck 1 Source's Third Quarter 26 Earnings Conference Call. Please note this conference call is being recorded. I would now like to hand the conference over to your host today, Brian Perman, vice president of investor relations for Custom Truck 1 Source.

Brian Perman: Thank you, operator, and good morning. Before we begin, we would like to remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of the company's filings with the SEC. Additionally, please note that you can find reconciliations of the historical non GAAP financial measures discussed during the call in the press release we issued yesterday after the market close.

That press release and our third quarter investor presentation are posted on the Investor Relations section of our website. Yesterday afternoon, we also filed our third quarter 10-Q with the SEC. Today's discussion of our results of operations for Custom Truck OneSource, Inc. Or Custom Truck, is presented on a historical basis as of or for the 3 months ended 09/30/2026 and prior periods. Joining me today are Ryan McMonagle, CEO, and Christopher J. Eperjesy, CFO. I will now turn the call over to Ryan.

Ryan McMonagle: Thanks, Brian, and good morning, everyone. Custom truck delivered another strong quarter led by record performance in our rental business. Third quarter adjusted EBITDA was $111 million up 16% year over year, and adjusted EBITDA is up 24% through the first 9 months. SER segment revenue was up 18% and 8% year over year. Consolidated revenue finished at $495 million, up 3%. On the strength of these results, we are raising our full year adjusted EBITDA guidance for the third time this year. SER continues to deliver consistently strong performance, driven by record demand in the transmission and distribution or T&D markets. Our rental fleet averaged 81.5% utilization during the third quarter.

Up 22 basis points from Q3 of last year. This was supported by record levels of OEC on rent, which averaged just under $1.4 billion in Q3. Up more than 10% year over year. So far in Q4, both measures have remained quite strong. With OEC on rent currently greater than $1.5 billion and utilization surpassing 84%. 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. Which our SER third quarter results support. We ended the third quarter with total OEC of over $1.76 billion. Up almost $86 million in the quarter and the highest quarter end level in our history.

The continued investment in our rental fleet reflects sustained record level demand and supports our expected continued growth in SER for the remainder of the year and into 2027. Given the additional growth CapEx in our fleet year to date, our average fleet age is just under 3 years old. Which we continue to believe is 1 of the youngest fleets in the industry and positions us well to support our customers' needs across the country. I want to spend a minute on capital allocation because it was the most important decision we made this quarter. Demand from our transmission customers, much of it tied to long duration projects, has continued to build beyond what our original fleet plan assumed.

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. And we directed stem production capacity to our own fleet to get these units on rent faster. These are the highest return dollars we can deploy Rental gross margins were nearly 79% in the quarter. And on rent yield was over 39%. The trade off is timing. Leveraged free cash flow this year will now be slightly positive, rather than the more than $50 million we had expected. And most of the earnings from these units arrive in 2027.

To size that, at today's rental rates and utilization, roughly $60 million of fleet generates approximately $20 million of annualized revenue, and $15 million of annualized adjusted EBITDA. So the incremental units we are adding this year should be a meaningful contributor in 2027 with only a modest contribution in 2026. Given delivery timing. Even with that investment, net leverage fell to 3.7x this quarter, down sequentially from Q2 and we remain committed to getting below 3x in 2027. Our trucks and equipment continue to power the people who strengthen and build critical infrastructure in the U.S. and Canada.

The market has been focused on the durability of demand in T&D, and our ability to convert improving rental KPIs into earnings and deleveraging, and we believe our trending results over recent quarters speak directly to that. Bidding activity and ongoing conversations with our customers lead us to believe that these conditions will persist into the fourth quarter and beyond. Our STEM segment had a solid quarter, with strong order flow. Third quarter orders were up 22% year over year. Even as third party deliveries were affected by timing, For Q3, overall stem revenue was up more than 8% while third party revenue excluding sales were down 5% versus Q3 of 25.

Third party revenue in the quarter was impacted by our strategic decision to prioritize additional investment in the rental fleet to take advantage of current and anticipated rental demand. As we noted in August, certain third party new equipment sales were delivered in the second quarter rather than in the second half. Which also weighs on the third quarter comparison. Additionally, STEM saw more than $20 million of delayed new equipment sales in Q3, resulting from a chassis vendor recall as well as the need to repair damage to some of our vehicle inventory from a hailstorm at our Kansas City facility during the quarter.

Excluding these delayed deliveries, stem third party revenue would have been up year over year We believe these are short term timing issues and that these sales will be recognized in the fourth quarter. We continue to have a high degree of confidence in our stem business, and are affirming our STEM revenue guidance for 2026. New sales order backlog ended the third quarter at $342 million, up $19 million from the end of Q2. And up 22% year over year. Intra quarter order flow remained strong in Q3, and our backlog has grown so far in Q4. We continue to see strong sales demand in the utility end market, focused on both transmission and distribution equipment.

In the infrastructure end market, we have seen less growth, However, third quarter orders grew strongly in several categories, And together with our ongoing conversations with our customers, and the pace of bidding activity, this gives us the confidence to expect another year of growth in third party customer revenue for STEM. With respect to the EPA 27 NOx emission regulations, little has changed since the EPA introduced its proposed changes to the rules in early July Given our current inventory position, the chassis prebuy actions we have already taken, and our strong relationships with our chassis OEM partners, we continue to believe that CTAS is well positioned to navigate the impact of the upcoming emission standards changes.

Given our strong year to date performance, robust conditions in the T&D end markets and our outlook for the rest the year, we are raising our full year 2026 consolidated adjusted EBITDA guidance for the third time this year. And now expect a range of $447.5 to $460 million. We are also raising our SER segment revenue guidance to $870 to $890 million and are affirming our previous consolidated revenue guidance in the range of $2.1 billion to $2.2 billion Long term sustained end market demand buoyed by secular megatrends combined with our ability to provide exceptional execution, on behalf of our customers sets us apart from our competition.

Our long standing relationships with our strategic suppliers, and customers continue to be the keys to our success. I continue to have the highest degree of confidence in the custom truck team and want to thank everyone for their hard work and dedication that helped deliver our strong results in the third quarter. We look forward to updating everyone soon. With that, I will turn it over to Christopher to walk through the numbers in more detail.

Christopher J. Eperjesy: Thanks, Ryan, and good morning, everyone. Start with consolidated results for the quarter, then discuss segment performance, our balance sheet, liquidity, and leverage, and finally, updated 2026 outlook. Our third quarter 2026 results reflect strong operating performance across the business and record rental fundamentals particularly in our T&D end markets. For the third quarter, total revenue was $495 million and adjusted EBITDA was $111 million representing 3% and 16% growth, respectively, versus Q3 2025. Adjusted EBITDA margin was 22.4%, up roughly 250 basis points year over year and our fourth consecutive quarter above 20%.

On a GAAP basis, third quarter net income was over $2 million or $0.01 per diluted share compared with a net loss of just under $6 million a year ago. Year to date, net income is almost $9 million versus a net loss just under $52 million in the same period last year. About $11 million of that year over year improvement reflects a favorable income tax swing a $2 million benefit this year, which includes a discrete benefit from a reduction in our valuation allowance, versus roughly $9 million of tax expense in the prior year period. The balance was driven by higher operating income and lower interest expense.

Turning to our segments, SER delivered record results in Q3 with total revenue of $223 million up 18% versus Q3 2025, driven by strong double digit growth in both rental revenue and rental equipment sales activity. Rental revenue of $153 million grew 20% year over year and rental equipment sales grew 14%. RPO activity in Q3 remained strong, highlighting the continued robust demand for our equipment. Third party revenue, excluding intersegment sales, was $112 million in the quarter, up 16% year over year. Segment adjusted EBITDA of $122 million was up approximately 23% year over year with segment adjusted EBITDA margin of 54.6% up almost 220 basis points versus Q3 2025.

Our key rental KPIs in SER remained very strong and ahead of expectations in Q3, continuing the momentum we have experienced in recent quarters. In Q3, utilization averaged 81.5%, up 220 basis points versus Q3 of last year. Average OEC on rent in the quarter was over $1.39 billion up more than a $132 million or more than 10% versus the same period in 2025. On rent yield in the third quarter was 39.4%, flat sequentially up 120 basis points year over year. On rent yield remains within our targeted upper-30s to low-40s percent range. We continue to see opportunities for rate improvement as transmission mix grows and pricing discipline holds.

Our historically strong rental KPIs reflect both increased rental activity and the continued scaling of our fleet to meet demand. 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. Net rental CapEx in Q3 was $114 million and our fleet age at quarter end was just under 3 years. A modest decrease from the end of last quarter driven by our increased growth CapEx.

Our OEC in the rental fleet ended the quarter at over $1.76 billion up more than a $140 million versus the end of Q3 2025, and by almost $86 million sequentially. The increase reflects strategic and disciplined fleet investment in the face of strong demand particularly in T and D. In STEM, quarter total revenue was $442 million up 8% year over year. Third party revenue, excluding sales to our SER segment, was $283 million down 5% versus Q3 of 2025. 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.

As we noted last quarter, certain third party new equipment sales were delivered in the second quarter rather than in the second half, which also weighs on the third quarter comparison. In addition, sales were negatively impacted by more than $20 million of sales delayed by a chassis vendor recall as well as the need to repair damage. To some of our vehicle inventory from a hailstorm that occurred during the quarter. We believe these events represent temporary timing issues that the delayed sales will be completed in the fourth quarter. STEM segment adjusted EBITDA was $37 million and segment adjusted EBITDA margin was 8.3% in the quarter.

Recall that our 2025 segment adjusted EBITDA does not include any margin on intersegment sales, while 2026 segment adjusted EBITDA does. STEM gross margin in the quarter was slightly lower largely as a result of mix. Our new sales backlog ended Q3 at $342 million up $19 million sequentially, and at 3.8 months, just below our targeted range of 4 to 6 months of new equipment sales. We have seen strong order growth so far in Q4, and our backlog currently stands at almost $400 million. Turning to the balance sheet and liquidity. With LTM adjusted EBITDA of $446 million, and net debt of $1.65 billion, we finished Q3 with net leverage of 3.7 times.

This represents a sequential quarterly improvement of 0.15 turns and more than a 0.8-turn improvement versus the end of Q3 2025. Notably, net debt is essentially flat year over year even as we have grown our rental fleet by more than $140 million. We see Availability under our ABL was $234 million as of September 30, and based on our borrowing base, we have just under $290 million of additional availability we could potentially access via our existing facility. Inventory ended the third quarter at $1.016 billion down $26 million from the end of the second quarter.

The increase in our inventory during the first half of this year was largely planned reflecting chassis and whole goods positioning ahead of scheduled second half deliveries. As we prepare for our expected growth in 2027, and chassis receipts under our previously discussed prebuy program, ahead of 2027 emissions regulations We now expect year end 2026 inventory months on hand to be approximately flat with year end 2025. With respect to our 2026 guidance, the demand environment across our key end markets remains very strong. For our SER segment, demand for equipment serving the T&D markets remains at record levels, led by transmission demand.

Total average OEC on rent was up more than a $132 million year over year in the third quarter driven by transmission. Further penetration of the vocational rental market where OEC on rent increased approximately $45 million year over year is expected to provide incremental growth. We expect our key rental KPIs to remain strong in Q4 with the typical seasonal reduction around the holidays. For STEM, we expect fourth quarter third party new sales to increase at a mid to high teens rate year over year as the deliveries that were delayed in the third quarter are completed.

STEM sales expectations are supported by continued strong customer demand improving product availability and lead times, and relationships with key customers chassis and attachment suppliers. Our order backlog trends support this. Turning to the cash flow and capital allocation. Through the first 9 months, levered free cash flow was approximately $4 million, an improvement of about $79 million versus the prior year period. Given the demand trends in our T&D end markets, we are increasing our 2026 net rental fleet investment to $210 to $230 million about $35 million above the midpoint of our prior range, which corresponds to gross fleet investment of approximately $400 million to $430 million.

The incremental spending is concentrated in long-term transmission rentals high return specialty products, supports high single digit ending OEC growth this year. Even with this increase, net fleet investment remains below the more than $250 million we invested in 2025. Rental equipment we add today earns an on rent yield near 40% at rental gross margins in the high-70s. As a result of the additional fleet investment, together with year end inventory months on hand that we now expect to be roughly flat with last year, we now expect 2026 levered free cash flow to be slightly positive compared to our prior expectation of more than $50 million. Both are investments in 2027 earnings.

As Ryan noted, the incremental fleet alone represents roughly $15 million of annualized adjusted EBITDA once fully on rent. We expect to finish 2026 with net leverage well below 4x, we continue to target below 3x in 2027. Driven by adjusted EBITDA growth and improved levered free cash flow resulting from lower net fleet investment reduced inventory levels in 2027. We are affirming our 2026 consolidated revenue guidance of $2.1 billion to $2.2 billion or year over year growth of 8% to 13%.

Given the strong environment in the T&D end markets, overall strength across both of our segments, we are raising both the bottom and top ends of our adjusted EBITDA guidance and now project a range $447.5 to $460 million resulting in year over year growth of 17 to 20%. We still expect non-rental CapEx of $40 to $50 million, We are increasing our SER revenue guidance for 2026 as well, projecting a range of $870 to $890 million. We continue to project STEM revenue of $1.63 billion to $1.7 billion, with STEM third party new sales revenue growth of 3% to 10%.

Overall, STEM sales are expected to be down marginally to up 3% with results now expected toward the upper end of that range as higher than planned intersegment sales to support our rental fleet growth supplement third party growth. For the fourth quarter, we expect consolidated revenue and adjusted EBITDA to be up both sequentially and year over year. So far in the fourth quarter, our OEC on rent is significantly above prior year levels. We expect both OEC on rent and utilization to grow sequentially. On a consolidated basis, the fourth quarter remains our historically strongest quarter In closing, I want to echo Ryan's comments regarding our continued strong business outlook.

Despite broader macroeconomic uncertainty, recent results and end market fundamentals support our confidence in the long term demand drivers and our ability to deliver 17% to 20% adjusted EBITDA growth this year. With LTM adjusted EBITDA now above $446 million, we currently expect another year of double digit adjusted EBITDA growth in 2027. We will provide full 2027 guidance when we report fourth quarter results early next year. With that, operator, we can open the line for questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. You are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Michael Shlisky with DA Davidson. Your line is open. Please go ahead.

Michael Shlisky: Good morning, and thanks for taking my questions.

Ryan McMonagle: Hey, Mike.

Michael Shlisky: Can we hey there, guys. Can we start with your comments, Ryan, on the utilization in the current quarter? I think you mentioned it exceeded 84%. At this point of the year. But do you expect that to come down and kinda be more normalized in that low eighties that you have seen by the end of the quarter? As the as the assets that you are trying to roll out I would assume still have some ways to go for the rest of the quarter here. Or do you think that 84 is actually okay and maybe at the high end of that of that sweet spot range?

Ryan McMonagle: Yeah. it is a it is a good question, Mike, and it. there is 2 things I think that are really worth highlighting. 1, we are seeing. It generally it generally increases this time of year. So, really, late October, end of November really is 1 that will continue to build, and that is what we are seeing. Currently. So that is that is trending. But the demand for transmission, Mike, right now is so strong. That certainly as we are talking internally, I think there will be some customers decide to keep equipment. Rather than returning it, which is what normally happens during the holidays. Just because it may not be available for them after the holidays.

And so I think it will. And I think Christopher made the comment that it will slow down a little bit into December, but we think it will not be as significant into the end of the year just because demand environment right there, Mike, is so good. You know, that I think people do not wanna lose some of that transmission gear. In particular. Got it.

Michael Shlisky: Great. And then your comments that you have made all along here about a really good demand sounds like in both transmission and distribution. Is a lot of that really still pinned on know, data centers and AI in various communities, or is it really the old the older drivers that you have, which are just ongoing grid hardening and maintenance and expansion for everyday activities not related to a data center. I guess I am kinda curious Are you getting any pushback or anyone saying, we are gonna be holding off a little bit on that data center activity late 26 into 2027 as you know, community speak out, election day passage, etcetera.

Are you still seeing strong demand from the older drivers?

Ryan McMonagle: Yeah. We are still seeing good. it is a great question, and we are. We are still seeing good growth, Mike. And so I think you are right. As we have talked about in the past, it is. We are not data center that when a new data center is announced, somehow that drives incremental demand for specific CTAS equipment. it is much more that is just a big consumer power. And so, you know, I think a lot of what we are seeing right now we would be talking about even if it was just the grid upgrade and some of the modernization. Happening. Certainly, data centers are a consumer of power, so that is a very good thing.

For us. But, you know, we are seeing a lot we have our own construction trackers that we are tracking on the transmission side. As we talk to our customers, they are all talking about new projects that are going into there is obviously a lot of line upgrades that are happening right now. And then you are correct. Distribution is also in a very good spot right now, and we are seeing rate cases continue to be approved. And so we are seeing. You know, when we look forward with our own forecasting, it feels like 2027 and really into 2028.

Will continue to be a very strong demand environment, which, you know, which should benefit custom truck And, certainly, with some of the other macro dynamics going on, benefit the rental fleet. In particular. Got it.

Michael Shlisky: Maybe the last 1 for me. The impacts from the hailstorm, I was curious whether that was covered by any kind of kind of insurance or it is going to be in the fourth quarter. And then even the product recall, you have to actually send trucks back, and did they have your text take care of the recall you are gonna be paid for that as well.

Christopher J. Eperjesy: Yeah. Mike, this is Christopher. In terms of the hailstorm, know, in the big picture, it was relatively immaterial, and, yes, it is covered by insurance. We had a $1 million deductible on our policy, and it did go above that, but not much above that. And on the second 1, we are working with the dealers to get the repairs done in the OEM is covering those costs. And, we think both of those will kind of unwind here in the fourth quarter.

Michael Shlisky: Great. I appreciate the answers. I will pass it along.

Ryan McMonagle: Thanks, Mike.

Operator: Your next question comes from the line of Manish with Cantor Fitzgerald. Your line is open. Please go ahead.

Analyst: Thank you. Good morning, Ryan, Christopher. Brian, and the team. My first question is on SER margins. Which were quite impressive this quarter at 54.6%. How should we think about those margins as we move ahead? Is the mid-50s the right normalized range or is this sort of a temporary blip? Maybe if we can start there.

Christopher J. Eperjesy: Yeah, Mike. it is. Or sorry, Manish. it is Christopher. If you look back, you know, I think we have been living kind of in that low- to mid-50s, you know, for the past few quarters. I would expect that we can continue to live there. You know, there may be some, you know, upside, a little bit of upside there, but you know, I. Yep. The answer is yes. I think modeling kind of the low- to mid-50s is a reasonable number. You know, a lot of that minis would just be a function of mix too between core rental revenue and then what assets are sold out of the rental fleet.

Ryan McMonagle: And so that would. that is really the only Okay.

Analyst: And then I think on the pricing front, sorry, Ryan. I do not know if I interrupted on something. The line just kinda cut off a little bit. Okay. Sorry. On the pricing, that we had, at 39.4%, You know, again, despite all the growth that you had on the fleet side, Maybe if you can just give us a sense on what you are seeing what the opportunity is for higher pricing as we go into 2027. I think you guys have alluded to the fact that the transmission markets are quite strong as we move into 2027 and into 2028 as well.

But you know, again, just trying to understand, you know, what the flexibility might be on the pricing front. With the strong demand?

Christopher J. Eperjesy: I think there should. I think it should be a good demand environment, and so that means that there should be a pricing opportunity. I think we are seeing the price increase that we actually took last December continue to roll through. We are seeing some of the benefit of transmission as typically a higher rate or higher on rate yield. So we are seeing some positive mix that way. And then, yes, I would expect as we know, start to think about guidance in the 2027 that there would be the opportunity to increase price. Some of that will be to take care of some of the cost increases, right, that we are seeing.

From our suppliers heading into 2027. But it should be an opportunity to increase price, as well.

Analyst: And just on the infrastructure markets, the transport bill, I guess, is still out there pending. Some permanency. And then on the telecom side, I think you did kind of mention bead that could potentially help you know, that market. So perhaps if you can just give us your sense as to how you are thinking about, you know, the transportation bill, you know, those markets, plus potentially the positive impact from bead, you know, as we kinda look ahead Yeah.

Ryan McMonagle: it is. Look. Infrastructure transmission and distribution has been incredibly strong. Right? And I think that is certainly what we are seeing, you know, and that shows up more in our rental fleet as we talked about. On the infrastructure side, specifically, we are seeing some pockets of growth. Some things like our dump truck and water truck and some of our hep heavy haul tractor and trailer product categories are really beginning to pick up. Some of that is related to more data center construction. Right? So there is some positive from data center construction. We have not seen a big lift yet from Bead. As you know, telecom is a small part of our business.

But we have not seen that materialize yet in any significant lift. Right.

Analyst: And then just lastly, on the leverage metrics that you laid out for 2027, below 3 times, in 2027. How should we think about the deleveraging as far as the mix between EBITDA growth and debt pay down? You know, for modeling purposes, is it safe to assume sort of like a 50 type scenario?

Christopher J. Eperjesy: This is Christopher again. We have not really given specific guidance for next year yet, and we will come in out of Q4. So we have given a little bit of guidance indicating that we are gonna have double digit EBITDA growth next year. But the answer to your question is it will be a combination of both. Certainly, there is gonna be part of the deleveraging that comes from that double digit EBITDA growth, but we are also gonna continue to focus on know, generating, you know, free cash flow and paying down debt. So it. It will be a combination of both.

And coming out of Q4, we will give a lot more granularity on kind of the path to get there.

Analyst: Okay. Well, thank you so much, guys. Congrats. Thank you.

Operator: Your next question comes from the line of Scott Schneeberger with Oppenheimer and Co. Your line is open. Please go ahead.

Analyst: Hey, guys. Good morning. it is Daniel on for Scott. I am curious, you please provide some color on the drivers of the backlog for STEM and how we should think about STEM generally as it as it pertains to that as we look into next year as pertains to the double digit adjusted EBITDA growth. So a little bit more color on the outlook for STEM, please.

Ryan McMonagle: Thank you. Yeah. Look. We. As we talked about, we saw backlog and order conversion both increase in the quarter, which to us is a positive indicator heading in Q4, which is typically the biggest quarter generally for stem. So I think you will see good growth there. And then I think year to date year to date stem third party revenue is up. I think it is, like, 1.5 percent, if I am not if I am not mistaken. And if you think about overall revenue year to date, it is up 5%, which includes adding the assets into the rental fleet.

And so I think it will look similar as you are starting to think about what next year can look like. We see opportunities to grow. We will obviously be thoughtful on how we invest in the rental fleet. You know? But I think that, you know, kinda mid single digit growth is why we have continued to hold the guide. From a from a stem revenue perspective. As well. Got it. Thank you. And, also, as you think about the pull forward effect here from the fleet I mean, it makes sense given the growth environment you are seeing. But as we think about the pull forward impact on CapEx, and free cash flow, into the.

This year that could catch up next year? How should we think about the magnitude of that? Please? Thank you. I. I will start, and Christopher can add some color. Yeah, I mentioned in my in my comments that it was about $60 million is what we were talking about in terms of sizing. That. And so you can think about that as, you know, a meaningful portion of the levered fee cash flow we would have generated otherwise. Then, you know, we have tried to quantify that for you too. I think I think I said about $15 million of annualized EBITDA.

And so to me, that is a pretty easy payback scenario as you start to think about 2027 and think about a 3 times leverage target on that incremental EBITDA. And then, obviously, the cash flow that generates next year too. You know? But I think that is probably the right way to think about sizing. It should be additional growth for the SER and for the rental fleet heading into 2027, and that would help quantify some of the some of the cash impact as well.

Christopher J. Eperjesy: Yeah. Probably the only other things I would add is, you know, if you think about it year over year, the rental fleet is up about $150 million. Leverage is down about 0.8x. We have been able to do that with slightly positive levered free cash So I think we feel like it was a really good investment to set us up for next year as Ryan just kinda laid out the impact in 2027.

Analyst: Got it. Thank you. Final 1 for me. I know that Deck mentioned disciplined SG&A management in the SER segment. Could you guys please elaborate on that if there is any nuances we should think about? Thank you.

Ryan McMonagle: No. I think it is just an area that we have continued to stay focused on. it is be efficient with how we are how we are spending SG and A. The teams have done a great job, you know, from a footprint perspective, and then, obviously, from a managing kind of the overall cost perspective as well. I think we feel we feel like we are well positioned heading into last quarter and heading into 2027 as well.

Analyst: Got it. Thanks, guys. Congrats.

Christopher J. Eperjesy: Daniel.

Operator: Your next question comes from the line of Brian Brophy with Stifel. Your line is open. Please go ahead.

Brian Brophy: Yes, thanks. Good morning, everybody. Appreciate you taking the question. Curious how far out some of the large transmission projects are that you are talking with customers currently? And what you would typically see in a more normalized demand environment. Thanks.

Ryan McMonagle: Yeah. it is. And I think that is why we say it is such a great demand environment, Brian, is it. The dynamic has certainly changed. So we are talking about projects, obviously, now that are starting in 2027 and some that are even starting in 2028. And that is just a new dynamic for us. Generally, you know, it is it is about projects that are starting in the next few weeks or maybe it is months in advance. And so that is that is, I think, why we made the decision to invest additional capital into the rental fleet too is that.

When we are making that investment, it is for projects that are imminent, right, that we are we are we are deploying that capital right away. And so I feel really good about that, and then the visibility forward is continued to stay very strong, which is why I think we are as optimistic about the growth we are seeing in 2027 and even into 2028. As well.

Brian Brophy: that is. Yeah. Appreciate it. that is very helpful. And then I guess just on the $20 million that was deferred in the quarter in STEM, how much of that has already been delivered here in October versus how much are you expecting kind of later in the quarter? Thanks.

Ryan McMonagle: Yeah. I think it is I think it is a majority has already been delivered and so I. it is obviously as we are working through some of the recall issues, as Christopher mentioned, the OEM and the dealer are both helping us kind of you know, daily with that to work through those issues. We are able to deliver that you know, those trucks. So I think it is the majority of it has been delivered, and the rest will finish kinda over the rest of the quarter.

Brian Brophy: Appreciate it. I will pass it on. Thanks, guys.

Ryan McMonagle: Thanks, Brian.

Christopher J. Eperjesy: Thanks, Brian.

Operator: Your next question comes from the line of Nam Kaplan with Deutsche Bank. Your line is open. Please go ahead.

Naim Kaplan: Hi. Good morning. Thanks for taking my question. I am on the line for Nicole DeBlase. So yes, first 1, you described the current transmission market as potentially a once in a generation cycle. So just wondering maybe if we can get a view into, like, the customer conversations, maybe, like, what is changed most meaningfully and with respect to the. Those customer conversations in the. Let's say the past 6 months or so.

Ryan McMonagle: Yeah. it is, I think it is 2 things. it is a great question, and I think it is why we are we are, you know, we are as optimistic as we are and, obviously, why we made the investment that we did. But there is an increase in both new projects. Right? So we are seeing new projects that are that are going into construction, right, which I think a lot of that is some of the regulatory changes or starting to see the benefits of, and that will continue to accelerate. And then we are seeing, some of the maintenance work on those lines also happening, too.

So I think it is a combination of both, and I think we listen to our customers, you know, they are saying the same thing that their backlogs are increasing, that their expectations for 2027 and 2028 are increasing. As well. And then when we track the data ourselves, you know, from the publicly available sources, that is what you are seeing. Right? The forecast continue to increase, every time we do a data pull, so I think it is why we are as optimistic as we are, you know, that this will continue for the foreseeable future.

Naim Kaplan: Alright. that is very helpful. And then I am kind of looking at Q4. So to do the bridge for. You know, full year guidance implies 60 to 85 revenue. Like 21 or so, 31 to the 35 adjusted EBITDA in 4Q. So just trying to maybe get a better understanding of, like, the key assumptions behind, you know, the range, particularly around maybe, like, stem delivery timing and the SER utilization.

Christopher J. Eperjesy: Yeah. This is Christopher. You know, that is 1 of the challenges we always have in Q4 is, you know, what is gonna ship in the fourth quarter on the stem side. You know, things can pull forward from January. Things can push out to Q1. And then on the SER side, you know, we have pretty good visibility as Ryan walked through on the rental side. Which a little which a little bit more challenging as the rental asset sales were know, either the customer has a right to buy a unit or comes to us and wants to buy a unit.

And that is why we have left, you know, a little bit of a range in our guidance as because those variables are difficult to predict. You know, sitting here today, I think you know, our commentary on the rental side is, you know, we are we are seeing good utilization, good. What we see on rent, know, it is it is now over a $1.5 billion. Q3, I think, on average was a billion $1.395 billion. So we have continued to see growth. You know? But I think, overall, I think we feel very good, you know, overall about the business certainly on the rental side.

And that is why, you know, we have kept a narrower range, but still a reasonable range to kinda take into account some of those variables that could either pull in or push out. Know, certainly on the stem side.

Naim Kaplan: Okay. Great. That is helpful. I will pass it on. Thanks.

Operator: Your next question comes from the line of Justin Hauke with Baird. Line is open. Please go ahead.

Justin Hauke: Oh, great. Yeah. I guess I just wanted to ask 1 on the free cash flow as we look into next year. Mean, obviously, I think it makes sense, the pull forward on the CapEx and the returns you outlined. I mean, that is obvious. But you did reiterate the 3x levered by the end of 27. And I guess, you know, I do not know what double digit EBITDA growth means necessarily, but it would imply that there still is, like, a. I think a pretty meaningful free cash flow to you know, kinda drive that.

And so I guess the question is, you know, I think part of the opportunity for you guys has been that you have a lot of excess weight that you can deploy and I just am curious about your thinking for year. If you continue to see this strong growth you know, what keeps the CapEx from you know, kinda having to continue to be a factor there to support that? Thanks.

Ryan McMonagle: Yeah. it is it is a great question. I will start. I will let, Christopher chime in. But, Justin, you know, think you got 3 things that we like to talk about there. 1, you are going to have increase even though, right, in the cash flow that generates. So I think you will see the benefit of that. Heading into 2027. We will continue to work on networking capital here. We talked about Christopher some of the strategic investments we made to get in front on chassis heading into 2027. I think some of that we should benefit from. Heading into 2027. And then you are right. We just.

You know, as the fleet grows, know, as we think about CapEx, into next year, I think there is just the opportunity to continue to use the fleet to generate cash. As well. So it. As Chris mentioned, it will be a mix of EBITDA growth. Even we said double digit, we gotta you know, we will we will give more firm guidance on what we are in double digit, obviously. That growth will come from. And then you are right. That implies some amount of free cash flow. Which would be, you know, more consistent with what we originally said for 26. Obviously, with some of the growth that we are seeing from you then.

I think you get kinda right Okay.

Justin Hauke: that is that is helpful. that is all for me for right now. Thank you.

Ryan McMonagle: Great. Thanks, Justin.

Operator: There are no further questions at this time. I will now turn the call back to CEO Ryan McMonagle for closing remarks.

Ryan McMonagle: Thanks everyone for your time today and your interest in Custom Truck. We appreciate the continued engagement and look forward to updating you next quarter. In the meantime, please do not hesitate to reach out with any questions. Thank you again, and have a great day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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