Custom Truck (CTOS) Earnings Call Transcript

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Date

March 10, 2026, 9 a.m. ET

Call participants

• Chief Executive Officer — Ryan McMonagle
• Chief Financial Officer — Christopher Eperjesy

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Takeaways

• Record quarterly revenue -- $528 million in Q4 2025, driven by continued strength in the core rental business according to management.
• Adjusted EBITDA -- $121 million in Q4, up more than 18% year over year.
• Full-year revenue -- $1.944 billion, up 8% from 2024 and a company record.
• Full-year adjusted EBITDA -- $384 million, up 13% compared to 2024 and above the midpoint of prior guidance.
• Rental fleet utilization -- Averaged just under 84% in Q4, the highest level in almost three years.
• OEC on rent -- Averaged just under $1.4 billion in Q4, up 14% year over year.
• Total OEC -- Ended the year at $1.64 billion, the highest quarter-end level in the company’s history.
• ERS segment revenue -- $207 million in Q4, up 20% year over year.
• ERS utilization -- Averaged 83.6% in Q4, up approximately 470 basis points versus Q4 2024.
• ERS on-rent yield -- 38.7% in Q4, showing both sequential and year-over-year increases.
• ERS rental adjusted gross margin -- Highest quarterly level of 2025 and ended the year higher despite a less favorable mix.
• TES segment Q4 revenue -- $284 million, down 8% year over year; full-year TES revenue was $1.1 billion, up 4% and a new annual record.
• TES segment gross margin -- 15.6% in Q4, up from 15.0% in Q3 and returning to the top end of the annual range.
• TES sales order backlog -- Ended Q4 at $335 million, up more than $55 million (20%) from Q3; stood at approximately $370 million as of March 2026.
• TES net order growth -- 21% year over year in Q4, with orders won up 12% versus Q4 2024.
• APS segment Q4 revenue -- $37 million with gross margin stable at 27%.
• APS full-year gross margin -- Just under 24%, a year-over-year increase of almost 120 basis points.
• Net debt -- $1.65 billion at year-end; net leverage ratio was 4.3x, an improvement from the prior year and down from a quarter-end high of 4.8x in 2025.
• Inventory reduction -- Inventory declined by more than $100 million in Q4.
• Available liquidity -- Availability under the ABL was $248 million at year-end, with more than $200 million of potential additional capacity.
• 2026 revenue guidance -- $2.005 billion to $2.12 billion, implying 3%-9% growth.
• 2026 adjusted EBITDA guidance -- $410 million to $435 million, representing 7%-13% growth.
• 2026 segment revenue guidance -- ERS: $725 million-$760 million; TES: $1.125 billion-$1.2 billion; APS: $155 million-$160 million.
• Net rental CapEx -- $150 million-$170 million planned for 2026, a decrease from over $250 million in 2025.
• Free cash flow target -- Management expects to generate more than $50 million of levered free cash flow in 2026.
• Net leverage target -- Aims to reduce net leverage below 4x at the end of 2026, progressing toward 3x in 2027.
• Segment realignment -- Company will shift to two reporting segments, SER and STEM, beginning Q1 2026, with full recast of historic and guidance numbers to follow.
• HyAV partnership -- New partnership expands product portfolio and service capabilities in key end markets, supporting long-term growth strategy.
• Aftermarket service initiative -- Focused effort undertaken to expand parts and service capacity and revenue.

Summary

Custom Truck One Source (NYSE:CTOS) delivered record revenue and adjusted EBITDA for both the quarter and full year, with rental fleet utilization reaching the highest level in nearly three years. Management highlighted substantial year-over-year growth in rental KPIs, notably OEC on rent and on-rent yield, and emphasized the sequential and annual improvement in segment margins. The company detailed a major re-segmentation to two reporting units starting next quarter, intended to enhance transparency and peer comparability. Order backlog in TES rose 20% sequentially, and the HyAV partnership was cited as a diversification and product expansion lever. Full-year 2026 guidance points to continued revenue and EBITDA increases, moderated CapEx, and further progress in deleveraging.

• Management stated, "we expect maintenance CapEx to be lower in 2026 compared to 2025, which should contribute to increased free cash flow generation this year."
• The company reported lowering the average age of its rental fleet to 2.9 years at year-end, supporting quality and high utilization.
• Net investment in inventory stood at $275 million, with a targeted reduction of gross inventory by approximately $100 million as part of working capital initiatives in 2026.
• Management described consistent cost discipline in SG&A and articulated expectations for only "modest growth, so low single-digit type of growth" in 2026 SG&A expenses.
• Gross margin for ERS in Q4 reached 78%, attributed to both high utilization and reduced repair and maintenance costs.
• No incremental costs or structural changes are expected from segment realignment, which management emphasized reflects current operational practices.
• Management explained historic revenue and EBITDA seasonality, saying, “… historically we have talked about the first half/second half split being, on the revenue side, mid- to high-40% first half, and then low-50s to mid-50s second half of the year. Similar on EBITDA. EBITDA is a little more, I would say, broader spread, so mid-40s in the first half to mid-50s in the second half of the year on the EBITDA side.”

Industry glossary

• OEC (Original Equipment Cost): The initial acquisition cost of rental fleet equipment, tracked to measure capital investment and fleet scale.
• On-rent yield: Annualized rental revenue as a percentage of OEC on rent, indicating asset income productivity.
• TES (Truck and Equipment Sales): Business segment focused on sales of new and used trucks, specialty equipment, and related services to end customers.
• ERS (Equipment Rental Solutions): Segment providing rental solutions for specialty equipment, tracked separately from sales activities.
• APS (Aftermarket Parts and Services): Business line selling replacement parts and providing maintenance for equipment sold or rented by the company.
• SER (Specialty Equipment Rentals): New reporting segment, comprising former ERS and relevant APS activities under the re-segmentation.
• STEM (Specialty Truck Equipment and Manufacturing): New segment to include prior TES results and applicable APS operations, post realignment.
• Chassis OEM: Original equipment manufacturer providing vehicle frames for customization and upfitting.
• ABL (Asset-Based Lending Facility): Revolving credit line collateralized by company assets, providing flexible liquidity.

Full Conference Call Transcript

Ryan McMonagle: Thanks, Brian, and good morning, everyone. We delivered a strong finish to 2025 with record quarterly revenue driven by continued momentum in our core end markets, and strong execution by our team. In the fourth quarter, we generated revenue of $528,000,000. Adjusted EBITDA was $121,000,000. Up more than 18% year over year. For the full year 2025, we saw record revenue of $1,944,000,000, up 8%, and adjusted EBITDA was $384,000,000, up 13% compared to 2024 and ahead of the midpoint of our guidance. The key driver of our performance in the quarter was continued strength in our rental business, as the improvements we saw in the third quarter in the transmission and distribution markets continued into Q4.

Our rental fleet averaged just under 84% utilization during the quarter, the highest in almost three years, supported by continued growth in OEC on rent. Average OEC on rent in Q4 was just under $1,400,000,000, up 14% year over year. During Q4, both utilization and OEC on rent reached historically high levels, while we saw the anticipated seasonal slowdown in both measures in December. So far in 2026, both have rebounded as expected with utilization currently at approximately 82% and OEC on rent well above year-end level. We ended the year with total OEC of $1,640,000,000, the highest quarter-end level in our history, supporting our expectation for continued growth in our rental business.

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 cash flow, and we believe our Q4 results speak directly to that. Bidding activity and ongoing conversations with our customers lead us to believe that these conditions will persist through 2026 and beyond. While TES performance in the fourth quarter was below our expectations, end market demand is healthy and order activity remains strong.

While TES saw sequential revenue growth in the quarter, revenue was down 8% year over year, primarily due to our customers pulling forward capital spending to earlier in the year in anticipation of potential tariffs and price increases and an atypical year-end dynamic, with some customers deferring deliveries into 2026. Additionally, we did not fully experience the lift in spending of our customers taking advantage of the accelerated depreciation provisions in last year's federal tax and spending bill. Despite those facts, TES finished the year with revenue of $1,100,000,000, up 4% for the full year and our highest annual level ever. New sales order backlog ended the year at $335,000,000, up more than $55,000,000, or 20%, from Q3.

Our backlog has continued to grow so far in 2026, and as of yesterday, stands at around $370,000,000. As we have noted in prior periods, backlog can move quarter to quarter with delivery timing and production schedules, so we also focus on order activity and conversion. We saw strong year-over-year net order growth of 21% in Q4 driven by year-over-year growth of 12% in orders won during the quarter, with particular strength coming from local and regional customers. Despite slower growth in the infrastructure end market, the continued strength in order growth in our ongoing conversations with our customers provide us with the confidence to expect another year of growth in TES.

This confidence is increased by our recently announced partnership with HyAV, a manufacturer of truck-mounted cranes and forklifts. This partnership strengthens our ability to serve customers across multiple end markets while supporting our long-term growth strategy. It broadens our product portfolio, enhances our service capabilities, and allows us to deliver more complete solutions in key markets we already serve, such as building supply, forestry, and rail. In addition, this year, to better support our TES customers post-sale and grow our parts and service revenue, we are investing in a focused initiative to expand our aftermarket service capacity.

This effort, which will impact multiple locations in our existing branch network, will ensure that our TES customers continue to get the high level of post-sale service that they have come to expect from Custom Truck One Source, Inc. Both the HyAV partnership and our expanded parts and service offering highlight our commitment to continuing to invest in TES and position our sales business to grow its presence and market share and to strengthen our connection with our customers. Before I turn it over to Chris, I want to highlight a few items related to 2026.

First, beginning with the quarter ending 03/31/2026, we will move from our current three-segment reporting and will report results under two segments: Specialty Equipment Rentals, or SER, and Specialty Truck Equipment and Manufacturing, or STEM. This change aligns our segment reporting with how we currently evaluate the business and provides enhanced transparency to investors, with a clear basis of comparison to the industry peers of each of our primary businesses. We plan to provide additional details prior to reporting Q1 2026 earnings, including recasting historical financials and our 2026 guidance to align with the new reporting structure. Second, we are providing our full-year 2026 outlook.

We expect revenue in the range of $2,005,000,000 to $2,120,000,000 and adjusted EBITDA in the range of $410,000,000 to $435,000,000. Chris will provide additional details in a few minutes. Our 2026 guidance reflects our continued optimism about our business, as long-term sustained end market demand buoyed by secular megatrends and our ability to provide exceptional execution on behalf of our customers set us apart from our competition. Our long-standing relationships with our strategic suppliers and customers continue to be keys to our success. I continue to have the highest degree of confidence in the Custom Truck One Source, Inc. team and want to thank everyone for their hard work and dedication that helped achieve our strong results in 2025.

We look forward to updating everyone soon. With that, I will turn it over to Chris to walk through the numbers in more detail.

Christopher Eperjesy: Thanks, Ryan, and good morning, everyone. I will start with consolidated results for the quarter and full year, then discuss segment performance, our balance sheet, liquidity, and leverage, and finally, our 2026 outlook. Our fourth quarter and full year 2025 results reflect stronger operating performance across the business and improved rental fundamentals, particularly in our T&D end markets. For the fourth quarter, total revenue was $528,000,000 and adjusted EBITDA was $121,000,000. For the full year, record revenue of $1,944,000,000 was 8% ahead of 2024, and adjusted EBITDA was $384,000,000, a year-over-year increase of 13%. Before I move to the segments, a quick note on our GAAP results.

For the fourth quarter, GAAP net income was approximately $21,000,000, and for the full year, GAAP net loss was approximately $31,000,000. Year-over-year comparability on net income was impacted by the $23,500,000 gain on a sale-leaseback transaction in 2024. Excluding that prior-year sale-leaseback gain, underlying net income improved meaningfully year over year, reflecting higher gross profit, disciplined SG&A management, and lower interest expense. Turning to our segments. In ERS, fourth quarter revenue was $207,000,000, up 20% versus the same period last year, driven by strong double-digit growth in both rental revenue and rental sales activity. For the full year, ERS saw 17% year-over-year revenue growth.

We finished 2025 with rental adjusted gross margin and rental sales gross margin at the highest quarterly levels of the year, allowing ERS to grow its adjusted gross margin for the year despite a less favorable mix of rental and rental sales. The strong performance in ERS in the fourth quarter and for the full year was driven by significant improvement in our key rental KPIs throughout the year. In Q4, utilization averaged 83.6%, up approximately 470 basis points versus Q4 2024. Average OEC on rent in the quarter was $1,380,000,000, up $166,000,000, or 14%, versus the same period in 2024. For the year, average utilization and OEC on rent were up more than 500 basis points and 14%, respectively.

On-rent yield in the fourth quarter was 38.7%, reflecting both sequential quarterly and year-over-year increases. Non-rent yield remained within our targeted upper-30s to low-40s range, and we continue to see opportunities for rate improvement as transmission mix grows and pricing discipline holds. Our improved metrics throughout 2025 reflect both increased rental activity and the continued scaling of our fleet to meet demand. Net rental CapEx in Q4 was more than $40,000,000, and our fleet age at year-end was just over 2.9 years. Our OEC in the rental fleet ended the year at almost $1,640,000,000, up more than $120,000,000 versus the end of 2024, and up $15,000,000 in the quarter.

The growth in OEC reflects our strategic investment given the strong demand environment we continue to experience across our primary end markets, particularly in T&D. While we expect to continue to invest in the fleet in 2026, we expect maintenance CapEx to be lower in 2026 compared to 2025, which should contribute to increased free cash flow generation this year. In TES, fourth quarter equipment sales were $284,000,000. As Ryan noted, the year-over-year decline primarily reflects purchase timing, including equipment purchases pulled forward earlier in the year and continued pricing pressure on certain truck sales. While quarterly revenue was down versus 2024, full-year TES revenue was up 4% and set a new annual record.

Gross margin in the segment was 15.6% in Q4, the highest quarter of the year and up from 15.0% in Q3. The improvement reflects our expectation that market pricing pressure would ease somewhat in the second half of the year as inventory levels began to come more into balance. Importantly, our new sales backlog ended Q4 at $335,000,000, up more than $55,000,000 sequentially and within our expected range of roughly four to six months. We have continued to see strong order growth so far in 2026, and our backlog currently stands at approximately $370,000,000, up more than 10% since year-end. In APS, fourth quarter revenue was $37,000,000. Gross margin remained stable at 27%.

Full-year APS gross margin was just under 24%, a year-over-year improvement of almost 120 basis points. Turning to the balance sheet and liquidity. With 2025 adjusted EBITDA of $384,000,000 and net debt of $1,650,000,000, we finished the year with net leverage of 4.3x. This represents an improvement of almost a quarter turn from 2024 and a half turn from the quarter-end high of 4.8x at the end of 2025. Availability under our ABL was $248,000,000 as of December 31, and based on our borrowing base, we have more than $200,000,000 of additional availability that we can potentially access by upsizing our existing facility. Free cash flow generation and deleveraging remain key focus areas for us.

We made tangible progress in the fourth quarter. Inventory declined by more than $100,000,000 during Q4, which supports lower working capital needs and lower interest expense on our variable-rate floor plan liabilities over time. We expect to continue to reduce inventory and floor plan balances in 2026, which will contribute to free cash flow generation. With respect to our 2026 guidance, the macro demand environment across our key end markets remains very strong. We expect the TES segment to continue to benefit from a favorable macro demand environment as well as our strong relationships with our key customers and chassis and attachment suppliers. Our strong order backlog supports this.

In our ERS segment, we had strong momentum in 2025, and we expect this trend to continue in 2026. Demand for our equipment that serves the T&D end markets continues at record levels, and we expect the vocational rental market to provide incremental growth as we further penetrate this expanding end market. We finished 2025 with an average age of our fleet at just over 2.9 years, down more than a year since the beginning of fiscal 2022. As a result, we expect to be able to significantly reduce our overall investment in our rental fleet in 2026 while continuing to generate growth.

We expect to grow our rental fleet based on net OEC by mid-single digits in 2026, with a net investment in our rental fleet of approximately $150,000,000 to $170,000,000, a meaningful reduction from over $250,000,000 in 2025. After prior years' investments in inventory driven by the strong demand environment, we expect to continue to make progress on further net working capital improvements in 2026 as we continue on our path of reducing inventory months on hand to our targeted range of below six months.

As a result, we expect to generate more than $50,000,000 of levered free cash flow and reduce our net leverage ratio to meaningfully below 4x by the end of fiscal 2026, while progressing toward a 3x net leverage target in 2027. Our initial 2026 guidance reflects total revenue in the range of $2,005,000,000 to $2,120,000,000 and adjusted EBITDA in the range of $410,000,000 to $435,000,000, resulting in year-over-year revenue growth of 3% to 9%, and adjusted EBITDA growth of 7% to 13%. We expect non-rental CapEx of $40,000,000 to $50,000,000. Our segment guidance for 2026 is as follows. We are projecting ERS revenue of $725,000,000 to $760,000,000, TES revenue of $1,125,000,000 to $1,200,000,000, and APS revenue of $155,000,000 to $160,000,000.

Finally, as Ryan mentioned, beginning in Q1 2026, we will report our results under two reportable segments, Specialty Equipment Rentals, or SER, and Specialty Truck Equipment and Manufacturing, or STEM. Upon implementation, the new SER segment will consist of our historical ERS segment and a proportion of our historical APS segment, and the new STEM segment will consist of our historical TES segment and a portion of our historical APS segment. We will also begin reflecting intercompany activity between the two segments, which will ultimately be eliminated in consolidation.

This new segment reporting reflects how we currently manage the business and how we allocate resources, and we believe this new presentation better reflects the positioning of Custom Truck One Source, Inc.'s strategies and operations portfolio. In early April, we will provide more information, including a recasting of certain historical financial information to align with and provide comparability to the new two-segment reporting going forward. We also will recast our guidance based on the new two-segment reporting at that time. We believe our new segment realignment will better reflect key economic drivers, capital intensity, and margin profiles of the respective new segments, as well as align our external reporting with how management allocates capital and evaluates performance.

In addition, we believe this change will allow us to provide a clearer picture of the true earnings potential of each segment. In closing, I want to echo Ryan's comments regarding our continued strong business outlook. Despite significant macroeconomic uncertainty last year, our 2025 results and the continued strong fundamentals of our end markets allow us to be optimistic about the long-term demand drivers in our industry and our ability to produce significant adjusted EBITDA growth this year. With that, Operator, we can open up the lines for questions.

Operator: Thank you. Your first question today comes from the line of Scott Schneeberger from Oppenheimer. Your line is open.

Daniel Hultberg: Hey, good morning, guys. This is Daniel on for Scott. Thank you for taking our question. Regarding the guidance, what do you expect to see in the market to achieve the high end of that range? And what could be potential upside drivers? Thanks. OEC on rent yield inflected to year-over-year expansion in the fourth quarter. How do you view the pricing environment and pricing as a contributor on a go-forward basis? Thanks.

Ryan McMonagle: Yeah. No. Daniel, good to talk to you. And look, I think our guidance is really an indication of what we see happening in the market right now. So we are seeing really strong T&D demand, Daniel. So I think the high end would be that continuing or improving throughout the year. And then I think it would be some of the vocational market or the infrastructure market seeing a pickup. So we are starting to see some positive trends so far this year, but I think that would be picking up even further.

And, obviously, any of the political or economic uncertainty that is out there right now, if that calms or there is less of that, that would be a positive tailwind for us as well. Yes. So we are seeing good demand there, Daniel. You are right. It did inflect to the positive. I think OEC on rent was up meaningfully versus where it was this time last year, last 2024. And so we are seeing the opportunity to increase price.

Obviously, there is some inflation coming through there in terms of the cost of adding new assets into the rental fleet, but we did pass some price increases through at the end of last year, beginning of this year, so starting to see some of that. Some of that you see in the numbers as we reported in terms of on-rent yield as well.

Operator: Your next question comes from the line of Michael Shlisky from D.A. Davidson. Your line is open.

Michael Shlisky: Hi, good morning. Thanks for taking my questions. The 84% almost you saw in 4Q for utilization, multi-year high, but you have always said it sounds like a little bit above what you used to call your sweet spot at around 80%. Operationally, have you gotten to a point where you can sustainably keep it at 84% and be able to serve customers properly, given that you are not going to be investing as much in 2026 in some new assets? Just give us a sense as to how you are going to balance the availability of assets and what looks like to be a little bit higher utilization going forward.

And being where you are now and maybe just through most of the first quarter here, have you seen any one-time storm impacts in the Northeast and parts of the country that saw some big-time snow and some of the clogged drains and downed power lines, etcetera? Or was it very much a T&D-focused, everyday business? And then lastly, from my end, some quarters you give us a sense of first half or second half, how you might be earning. Are there any unusual seasonality items in any given quarter of the year? Anything you can comment on 2026 first half, second half, anything being pulled forward in the first quarter, etcetera?

Ryan McMonagle: Yeah. Michael, good to talk to you, and thanks for the question. I would say this. I think the team has done a great job of executing on keeping the fleet up and running. And so I think we are really proud of how the team is performing there. I would still say the right way to think about normalized levels is that high-70s to low-80s. As you know, Q4 is generally when utilization peaks just because of all of the transmission equipment that is going out after the summer, and so that is what we saw really at the beginning of Q4. And so I think the team has done a good job. I think execution is important.

I think, as you know, we have de-aged the fleet, the fleet is now under three years. I think we said 2.9 years is the age of the fleet, and so, obviously, that helps from keeping utilization high. And so I think we are in a good position heading into Q1. I mentioned in my comments that we are back at about 82% from a utilization perspective, and that is a very strong level from an overall utilization perspective. I would say it is the latter. It is T&D-focused everyday business. We are seeing strong demand in transmission right now, and then I would say good continued demand on the distribution side of things.

Christopher Eperjesy: Yes, Michael, this is Chris. I think historically we have talked about the first half/second half split being, on the revenue side, mid- to high-40% first half, and then low-50s to mid-50s second half of the year. Similar on EBITDA. EBITDA is a little more, I would say, broader spread, so mid-40s in the first half to mid-50s in the second half of the year on the EBITDA side. Just to give a little bit of color for Q1, we do expect it to be a strong quarter. Directionally, we think top-line revenue will be up mid- to high-single digits, and EBITDA, we think, will be up double digits year over year.

And based on Ryan's comments, a big driver of that is going to be our rental business. So I would index higher on rental versus new sales, but we think it is going to be a strong first quarter.

Operator: Your next question comes from the line of Justin Hauke from Robert W. Baird. Your line is open.

Justin Hauke: Oh, great, thanks for taking my question here this morning. I guess I just wanted to, and I appreciate, as always, the commentary about the orders being the driver of the TES segment. But I guess if I just look at the backlog where you were a year ago, you had $370,000,000 of backlog, you did $1,100,000,000. Backlog is a little bit lower, I guess in February it is probably about flattish, but you are looking for pretty good growth there.

So I was just thinking about the order trends and, given the pull-forward in demand that you saw in 2025, maybe just talk about the cadence of how you expect the TES segment to perform throughout the year and just the confidence behind it. Thank you. I guess my next question, I think one of the other factors you were thinking about in the past for demand in 2026 on the sales side was some of the emission standards that were going to be hitting in 2027 that looks like have been pushed back. I am just curious if that is something where you are seeing any deferrals on that side or anything from the emission standards? Thank you.

Ryan McMonagle: Justin, good to talk to you, and thanks for the question. Look, I think 4% growth for the year, we feel good with that number for last year for 2025. You are right. The leading number that we are watching—there are two numbers that we are watching. One, backlog—so it was up sequentially from Q3 to Q4, up 20%. And then the number that I watch closely is orders won. So orders won in the quarter were up 12% versus last fourth quarter, and so I think that is a positive indicator. And then, as we have talked about, sitting here as of yesterday, I think we gave guidance that backlog was up to $370,000,000.

So it is back right to that four months on hand number, which is broad guidance that I think we have given in the past. And so I think that plus, obviously, how the first two months are shaping up are where we have some comfort in the growth range that we provided, which I think is 3% to 9% growth for the segment, and I think that feels pretty good. Do remember last year, we saw Q2 was a very big quarter for us last year because we felt it was that real big pull-forward from some of the tariff activity. So I would think about smoothing it out a little bit. Yeah.

It is a great question, and we are still watching it. The EPA mandate 2027 is still in play. I think we are still waiting on more clarity around the warranty component of that in particular, still. So, if you look at the order boards from some of the OEMs, especially around Class 8 chassis, at the beginning of this year, I think they would say that they are seeing some pre-buy activity from some of the over-the-road customers. I would say we have not seen a lot of it yet.

There could be a little bit of an uptick this year from pre-buy, but we feel like we are in a great position with our chassis OEM suppliers, have good inventory on the ground, and then we just have such good relationships with those OEMs that we feel like we will be able to continue to get the chassis that we need to meet demand from our customers.

Christopher Eperjesy: No, I think Ryan nailed it. We did have—I think we mentioned in Q2 that we had two months that were above $100,000,000, which were the first non-December months that were above $100,000,000. So as you are looking at how this year is going to play out, certainly, Q2 of this past year was much stronger than what would typically happen for the reasons Ryan just laid out.

Operator: Your next question comes from the line of Nicole DeBlase from Stifel. Your line is open.

Naim Kaplan: Hi, good morning from Deutsche Bank. Yeah, this is Naim Kaplan; I do not know what happened there. So, yeah, thanks for taking my question. You continue to speak about the strength of vocational. So kind of just wondering what gives you confidence in that sustainability and any part of vocational in particular that is standing out. Okay. That is helpful. And then on gross margins, so they were up year over year in ERS, but down in TES relative to prior year. Do you have any color on that and maybe the outlook for those segments in 2026 in terms of gross margins? And I have the same question on ERS as well. Okay. Perfect.

Thank you for your time, and I will pass it on.

Ryan McMonagle: Yeah. I would say we are seeing good strength in transmission and distribution in particular. So I think that is where we are seeing good demand, which obviously is into our forestry business as well right now. So I think we are seeing really, really good demand there. I think we did make the mention that we did not see as big of a year-end buy in some of the vocational categories. So, dump trucks, water trucks, service trucks, roll-offs—a lot of those are where we normally see a big year-end buy where we did not see that happen last year.

We are seeing decent order uptick in those categories, and so I think that is where we have some level of confidence that will improve heading into 2026. But I think the broad theme of transmission and distribution, which is 55% to 60% of our overall revenue, is certainly where we are seeing the strongest demand right now.

Christopher Eperjesy: Yes. This is Chris. I will start. We have kind of given an indication—I think I heard you ask about TES, so I just want to make sure. We have given guidance that our range is to be within a 15% to 18% gross margin range over a cycle. Throughout the year, we talked about pricing pressure, that there was more product available out there, so we were seeing some of that, and so we were at the lower end of that range. We started out the year at just over 15%, and Q3 was 15%, but then we did see about a 60 basis point increase here in Q4 to 15.6%.

But I think the way to continue to think about it is we are going to target to stay within that range and do everything we can on the cost side, and where opportunistically we can take pricing, we will. But no specific guidance to give other than the guidance we have given to stay within that narrow range. So ERS—just focusing on rental—you know, we have talked about low- to mid-70% adjusted gross profit range. We were much stronger than that in Q4. I think it is the highest it has been for some time, certainly the past couple of years, at 78%.

That really was driven by high utilization and lower repair and maintenance relative to the size of the fleet. And so we would expect, with this higher level of utilization, that we should be able to continue to stay in that mid-70% plus range. And then on the used equipment side, we have been in that roughly mid-20s to high-20s range, and do not expect to be any different than that on a go-forward basis.

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

Brian Brophy: Yeah. Thanks. Good morning, everybody. Appreciate you taking the question. With net CapEx coming down this year, curious how much you expect to age the fleet by as a result and how much runway there is to continue to age the fleet after this year? Thanks. Understood. That is helpful. And then any color on what drove SG&A lower relative to a year ago in the fourth quarter? And how are you guys thinking about SG&A this year? Thanks. Appreciate it. I will pass it on.

Ryan McMonagle: Yeah. Great question and good to talk to you. Look, the fleet is young right now at 2.9 years, and so we think there is the ability to age the fleet months, I think, would be the right guidance, not years, with the activity of this year. And the fleet being so young at 2.9 years, I think there is plenty of room to be able to age it. So I think it is in a good spot, and as Chris' guidance was lowering the maintenance CapEx components while still being able to grow the fleet overall in 2026, you are right that there will be some aging.

We do not expect it to have a meaningful impact on gross margin or utilization performance in the fleet, and so we think it is a good time to do that with the demand environment as strong as it is right now.

Christopher Eperjesy: And I think another way to characterize it is if you look out over the last four years, on average, it has been about a quarter of a year to 0.3 years of de-aging of the fleet each year. I think the important point is it will not de-age. We will not be continuing to de-age, so that is really where we are picking up the bulk of the net investment this year. Yeah. We have been taking a closer look at SG&A and, where possible, being disciplined. We certainly have made, in certain places, some cuts. We are certainly looking at controlling our spending everywhere we can.

The way I would look at 2026 is modest growth, so low single-digit type of growth, and I would not expect there to be any material increase year over year.

Operator: Again, if you would like to ask a question, press. Your next question comes from the line of Abe Landa from Bank of America. Your line is open.

Abe Landa: Maybe just first on the inventory levels, which have been moving lower. How much lower do you expect it to be this year? What is the potential impact on the floor plan? And then maybe how much current months on hand do you have? That is very helpful. And then maybe a question on the re-segmentation. Why today? Is there any sort of structure or any cost actions that need to be taken that are associated with it? And I guess, lastly, is there anything we should read into the recent implementation about maybe the future of Custom Truck One Source, Inc., whether it is one or two entities. Great. Thanks for answering my question.

Christopher Eperjesy: I will start. So we finished the year at $930,000,000. I think our net investment in inventory, which is the way we look at it—so we look at inventory less the floor plan payables—was about $275,000,000. We have given guidance that on our whole goods inventory side, which is the vast majority of our inventory, our target is to get below six months, which we think we can get close to by the end of this year, which would be roughly another $100,000,000, maybe a little bit more than that, but roughly $100,000,000 of gross inventory.

And then, typically, the way we think about that is 30% to 50% of that would flow through to the net inventory number as we pay down the floor plan of, call it, 70% to 85% of the value of the inventory. And so it would probably provide between $25,000,000 and $50,000,000 of net working capital pickup in 2026. I would not read anything into it. Currently, this year, this is the way we are managing the business. We think it will provide a little bit better clarity to investors in terms of how they look at the business because they are two very unique businesses with different investment profiles. One is a little more asset intensive.

One is a little bit asset light. Margin profiles are different. And the APS segment really is supportive of those two different segments. If you look on the ERS side, it really is supporting keeping the rental fleet up and running. And so we just felt like today we are running the business as these two segments, and we think it makes more sense to report that way. And there is no associated cost with the re-segmentation. Certainly nothing to do with the re-segmentation. We certainly are always looking at our cost structure in any given year. We have continuous improvement and other initiatives that we do. But I would not say there is anything specifically related to the re-segmentation.

We always look at our sites. We rationalize sites. We add sites. That I would say is not directly correlated with the re-segmentation.

Operator: And that concludes our question and answer session. I will now turn the call back over to Ryan McMonagle for closing remarks.

Ryan McMonagle: Thanks, everyone, for your time today and your interest in Custom Truck One Source, Inc. 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.

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

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