Q4 2025 Custom Truck One Source Inc Earnings Call

March 10, 2026

Speaker #2: Please note this conference call is being recorded. I would now like to hand the conference call over to your host today, Brian Perman, Vice President of Investor Relations for Custom Truck One Source.

Speaker #2: 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.

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 this morning. That press release and our Q4 investor presentation are posted on the Investor Relations section of our website. This morning, we also filed our 2025 10-K with the SEC.

Speaker #2: Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For 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.

Speaker #2: 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 this morning.

Speaker #2: That press release and our fourth quarter investor presentation are posted on the Investor Relations section of our website. This morning, we also filed our 2025 10-K with the SEC.

Speaker #2: Today's discussion of our results of operations for Custom Truck One Source, Inc., or Custom Truck, is presented on a historical basis as of or for the three months and year ended December 31, 2025, and in prior periods.

Brian Perman: Today's discussion of our results of operations for Custom Truck One Source, Inc., or Custom Truck, is presented on a historical basis as of and for the three months and year ended December 31, 2025, and prior periods. Joining me today are Ryan McMonagle, CEO, and Chris Eperjesy, CFO. I will now turn the call over to Ryan.

Speaker #2: Joining me today are Ryan McMonagle, CEO, and Chris Eperjesy, CFO. I will now turn the call over to Ryan.

Speaker #3: Thanks, Brian, and good morning, everyone. We delivered a strong finish to 2025 with record quarterly revenue driven by continued momentum in our core in markets, and strong execution by our team.

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 Q4, we generated revenue of $528 million. Adjusted EBITDA was $121 million, up more than 18% year-over-year. For the full year 2025, we saw record revenue of $1.944 billion, up 8%, and adjusted EBITDA was $384 million, 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 Q3 in the transmission and distribution markets continued into Q4.

Speaker #3: In the fourth quarter, we generated revenue of $528 million. Adjusted EBITDA was $121 million, up more than 18% year over year. For the full year 2025, we saw record revenue of $1.944 billion, up 8%, and adjusted EBITDA was $384 million, up 13% compared to 2024, and ahead of the midpoint of our guidance.

Speaker #3: 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 and the transmission and distribution markets continued into Q4.

Speaker #3: 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.

Ryan McMonagle: Our rental fleet averaged just under 84% utilization during the quarter, the highest in almost 3 years, supported by continued growth in OEC on rents. Average OEC on rent in Q4 was just under $1.4 billion, 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 the year-end level. We ended the year with total OEC of $1.64 billion, 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 US and Canada.

Speaker #3: Average OEC on rent in Q4 was just under 1.4 billion. 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.

Speaker #3: So far in 2026, both have rebounded as expected, with utilization currently at approximately 82% in OEC on rent, well above the year-end level. We ended the year with total OEC of 1.64 billion.

Speaker #3: 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.

Speaker #3: 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.

Ryan McMonagle: 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. 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 Q4 was below our expectations, end market demand is healthy, and order activity remains strong.

Speaker #3: 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.

Speaker #3: While TES performance in the fourth quarter was below our expectations, in-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.

Ryan McMonagle: 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 in which some customers deferred deliveries into 2026. Additionally, we did not fully experience the anticipated 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 $1.1 billion, up 4% for the full year and our highest annual level ever. New sales order backlog ended the year at $335 million, up more than $55 million or 20% from Q3.

Speaker #3: 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 in which some customers deferred deliveries in the 2026.

Speaker #3: Additionally, we did not fully experience the anticipated lift in spending of our customers taking advantage of the accelerated depreciation provisions and last year's federal tax and spending bill.

Speaker #3: Despite those facts, TES finished the year with revenue of $1.1 billion, up 4% for the full year and our highest annual level ever. New sales order backlog ended the year at $335 million.

Speaker #3: Up more than 55 million dollars, or 20% from Q3. Our backlog has continued to grow so far in 2026, and as of yesterday, stands at around $370 million.

Ryan McMonagle: Our backlog has continued to grow so far in 2026 and as of yesterday stands at around $370 million. As we've 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 and 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 strategic partnership with HIAB, a manufacturer of truck-mounted cranes and forklifts.

Speaker #3: As we've 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.

Speaker #3: 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.

Speaker #3: Despite slower growth in the infrastructure in market, the continued strength in order growth and our ongoing conversations with our customers provide us with the confidence to expect another year of growth in TES.

Speaker #3: This confidence is increased by our recently announced strategic partnership with Hyab, a manufacturer of truck-mounted cranes and forklifts. This partnership strengthens our ability to serve customers across multiple in-markets while supporting our long-term growth strategy.

Ryan McMonagle: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: Both the Hyab 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 in market share and to strengthen our connection with our customers.

Ryan McMonagle: Both the HIAB 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 31 March 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.

Speaker #3: Before I turn it over to Chris, I want to highlight a few items related to 2026. First, beginning with the quarter-ending March 31st, 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.

Speaker #3: 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.

Speaker #3: 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.

Ryan McMonagle: 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 to $2.12 billion and Adjusted EBITDA in the range of $410 to $435 million. 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.

Speaker #3: Second, we are providing our full year 2026 outlook. We expect revenue in the range of 2.005 to 2.12 billion dollars and adjusted EBITDA in the range of 410 to 435 million dollars.

Speaker #3: Chris will provide additional details in a few minutes. Our 2026 guidance reflects our continued optimism about our business as long-term sustained in-market demand buoyed by secular megatrends and our ability to provide exceptional execution on behalf of our customers set us apart from our competition.

Speaker #3: 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 team and want to thank everyone for their hard work and dedication that helped achieve our strong results in 2025.

Ryan McMonagle: 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 achieve our strong results in 2025. We look forward to updating everyone soon. With that, I'll turn it over to Chris to walk through the numbers in more detail.

Speaker #3: We look forward to updating everyone soon. With that, I'll turn it over to Chris to walk through the numbers in more detail.

Speaker #2: Thanks, Ryan. And good morning, everyone. I'll 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.

Christopher Eperjesy: Thanks, Ryan, and good morning, everyone. I'll 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 Q4 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 Q4, total revenue was $528 million, and Adjusted EBITDA was $121 million. For the full year, record revenue of $1.944 billion was 8% ahead of 2024, and Adjusted EBITDA was $384 million, a year-over-year increase of 13%. Before I move to the segments, a quick note on our GAAP results.

Chris Eperjesy: Thanks, Ryan, and good morning, everyone. I'll 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 Q4 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 Q4, total revenue was $528 million, and Adjusted EBITDA was $121 million. For the full year, record revenue of $1.944 billion was 8% ahead of 2024, and Adjusted EBITDA was $384 million, a year-over-year increase of 13%. Before I move to the segments, a quick note on our GAAP results.

Speaker #2: 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.

Speaker #2: For the fourth quarter, total revenue was $528 million, and adjusted EBITDA was $121 million. For the full year, record revenue of $1.944 billion was 8% ahead of 2024, and adjusted EBITDA was $384 million, a year-over-year increase of 13%.

Speaker #2: Before I move to the segments, a quick note on our GAAP results. For the fourth quarter, GAAP net income was approximately $21 million, and for the full year, GAAP net loss was approximately $31 million.

Christopher Eperjesy: For Q4, GAAP net income was approximately $21 million, and for the full year, GAAP net loss was approximately $31 million. Year-over-year comparability on net income was impacted by the $23.5 million gain on a sale-leaseback transaction in Q4 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, Q4 revenue was $207 million, 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.

Chris Eperjesy: For Q4, GAAP net income was approximately $21 million, and for the full year, GAAP net loss was approximately $31 million. Year-over-year comparability on net income was impacted by the $23.5 million gain on a sale-leaseback transaction in Q4 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, Q4 revenue was $207 million, 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.

Speaker #2: Year-over-year comparability on net income was impacted by the 23.5 million gain on a sale/leaseback transaction in the fourth quarter of 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.

Speaker #2: Turning to our segments, in ERS, fourth quarter revenue was $207 million, up 20% versus the same period last year, driven by strong double-digit growth in both rental revenue and rental sales activity.

Speaker #2: 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.

Christopher Eperjesy: 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 Q4 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 $1.38 billion, up $166 million 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.

Chris Eperjesy: 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 Q4 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 $1.38 billion, up $166 million 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.

Speaker #2: 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.

Speaker #2: In Q4, utilization averaged 83.6%, up approximately 470 basis points versus Q4 2024. Average OECN rent in the quarter was $1.38 billion, up $166 million, or 14%, versus the same period in 2024.

Speaker #2: For the year average utilization and OECN 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.

Christopher Eperjesy: On-rent yield in Q4 was 38.7%, reflecting both quarter-over-quarter and year-over-year increases. On-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 million, and our fleet age at year-end was just over 2.9 years. Our OEC in the rental fleet ended the year at almost $1.64 billion, up more than $120 million versus the end of 2024 and up $15 million in the quarter.

Chris Eperjesy: On-rent yield in Q4 was 38.7%, reflecting both quarter-over-quarter and year-over-year increases. On-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 million, and our fleet age at year-end was just over 2.9 years. Our OEC in the rental fleet ended the year at almost $1.64 billion, up more than $120 million versus the end of 2024 and up $15 million in the quarter.

Speaker #2: On-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.

Speaker #2: 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 million and our fleet age at year-end was just over 2.9 years.

Speaker #2: Our OEC and the rental fleet ended the year at almost 1.64 billion dollars, up more than 120 million dollars versus the end of 2024 and up 15 million dollars in the quarter.

Speaker #2: 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.

Christopher Eperjesy: 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, Q4 equipment sales were $284 million. 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 the Q4 of 2024, full year TES revenue was up 4% and set a new annual record.

Chris Eperjesy: 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, Q4 equipment sales were $284 million. 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 the Q4 of 2024, full year TES revenue was up 4% and set a new annual record.

Speaker #2: 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.

Speaker #2: In TES, fourth quarter equipment sales were $284 million. 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.

Speaker #2: While quarterly revenue was down versus the fourth quarter of 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% in Q3.

Christopher Eperjesy: Gross margin in the segment was 15.6% in Q4, the highest quarter of the year, and up from 15% 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 million, up more than $55 million sequentially, and within our expected range of roughly 4 to 6 months. We've continued to see strong order growth so far in 2026, and our backlog currently stands at approximately $370 million, up more than 10% since year-end. In APS, Q4 revenue was $37 million. Gross margin remained stable at 27%.

Chris Eperjesy: Gross margin in the segment was 15.6% in Q4, the highest quarter of the year, and up from 15% 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 million, up more than $55 million sequentially, and within our expected range of roughly 4 to 6 months. We've continued to see strong order growth so far in 2026, and our backlog currently stands at approximately $370 million, up more than 10% since year-end. In APS, Q4 revenue was $37 million. Gross margin remained stable at 27%.

Speaker #2: The improvement reflects our expectation that market pricing pressure would ease somewhat in the second half of the year, as inventory levels begin to come more into balance.

Speaker #2: Importantly, our new sales backlog ended Q4 at $335 million, up more than 55 million dollars sequentially, and within our expected range of roughly 4 to 6 months.

Speaker #2: We've continued to see strong order growth so far in 2026 and our backlog currently stands at approximately 370 million dollars, up more than 10% since year-end.

Speaker #2: In APS, the fourth quarter revenue was $37 million. 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.

Christopher Eperjesy: 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 EBIT of $384 million and net debt of $1.65 billion, we finished the year with net leverage of 4.3x. This represents an improvement of almost a quarter turn from the end of 2024 and a half turn from quarter end high of 4.8x at the end of Q1 2025. Availability under our ABL was $248 million as of December 31, and based on our borrowing base, we have more than $200 million of additional availability that we can potentially access by upsizing our existing facility.

Chris Eperjesy: 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 EBIT of $384 million and net debt of $1.65 billion, we finished the year with net leverage of 4.3x. This represents an improvement of almost a quarter turn from the end of 2024 and a half turn from quarter end high of 4.8x at the end of Q1 2025. Availability under our ABL was $248 million as of December 31, and based on our borrowing base, we have more than $200 million of additional availability that we can potentially access by upsizing our existing facility.

Speaker #2: Turning to the balance sheet and liquidity, with 2025 adjusted EBITDA of $384 million and net debt of $1.65 billion, we finished the year with net leverage of 4.3 times.

Speaker #2: This represents an improvement of almost a quarter turn from the end of 2024, and a half turn from the quarter-end high of 4.8 times at the end of Q1 2025.

Speaker #2: Availability under our ABL was 248 million dollars as of December 31st, and based on our borrowing base, we have more than 200 million dollars of additional availability that we can potentially access by upsizing our existing facility.

Speaker #2: Free cash flow generation and de-leveraging remain key focus areas for us. We made tangible progress in the fourth quarter—inventory declined by more than $100 million during Q4, which supports lower working capital needs and lower interest expense on our variable rate floor plan liabilities over time.

Christopher Eperjesy: Free cash flow generation and deleveraging remain key focus areas for us. We made tangible progress in Q4. Inventory declined by more than $100 million 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, chassis, and attachment suppliers. Our strong order backlog supports this.

Chris Eperjesy: Free cash flow generation and deleveraging remain key focus areas for us. We made tangible progress in Q4. Inventory declined by more than $100 million 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, chassis, and attachment suppliers. Our strong order backlog supports this.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Our strong order backlog supports this. In our ERS segment, OECN rent and utilization reached historically high levels in the second half of fiscal 2025, and we expect this trend to continue in 2026.

Christopher Eperjesy: In our SER segment, OEC on rent and utilization reached historically high levels in the second half of fiscal 2025, and we expect this trend to continue in 2026. Demand for our equipment that serves the T&D utility 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.

Chris Eperjesy: In our SER segment, OEC on rent and utilization reached historically high levels in the second half of fiscal 2025, and we expect this trend to continue in 2026. Demand for our equipment that serves the T&D utility 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.

Speaker #2: Demand for our equipment that serves the T&D utility markets continues at record levels, and we expect the vocational rental market to provide incremental growth as we further penetrate this expanding end market.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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 million dollars to 170 million dollars, a meaningful reduction from over 250 million dollars in 2025.

Christopher Eperjesy: 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 million to $170 million, a meaningful reduction from over $250 million 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 6 months. As a result, we expect to generate more than $50 million 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.

Chris Eperjesy: 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 million to $170 million, a meaningful reduction from over $250 million 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 6 months. As a result, we expect to generate more than $50 million 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.

Speaker #2: After prior years' investments in inventory, driven by the strong demand environment, we expect to continue to make progress on further networking capital improvements in 2026 as we continue on our path of reducing inventory months on hand to our targeted range of below six months.

Speaker #2: As a result, we expect to generate more than 50 million dollars of levered free cash flow and reduce our net leverage ratio to meaningfully below four times by the end of fiscal 2026, while progressing toward our three times net leverage target in 2027.

Speaker #2: Our initial 2026 guidance reflects total revenue in the range of 2.005 billion to 2.12 billion dollars and adjusted EBITDA in the range of 410 to 435 million dollars, resulting in year-over-year revenue growth of 3% to 9% and adjusted EBITDA growth of 7% to 13%.

Christopher Eperjesy: Our initial 2026 guidance reflects total revenue in the range of $2.005 billion to $2.12 billion and adjusted EBITDA in the range of $410 to $435 million, 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 to $50 million. Our segment guidance for 2026 is as follows. We are projecting ERS revenue of $725 to $760 million, TES revenue of $1.125 to $1.2 billion, and APS revenue of $155 to $160 million.

Chris Eperjesy: Our initial 2026 guidance reflects total revenue in the range of $2.005 billion to $2.12 billion and adjusted EBITDA in the range of $410 to $435 million, 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 to $50 million. Our segment guidance for 2026 is as follows. We are projecting ERS revenue of $725 to $760 million, TES revenue of $1.125 to $1.2 billion, and APS revenue of $155 to $160 million.

Speaker #2: We expect non-rental CapEx of $40 to $50 million. Our segment guidance for 2026 is as follows: We are projecting ERS revenue of $725 to $760 million, TES revenue of $1.125 to $1.2 billion, and APS revenue of $155 to $160 million.

Speaker #2: 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.

Christopher Eperjesy: 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 portion 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's strategies and operations portfolio.

Chris Eperjesy: 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 portion 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's strategies and operations portfolio.

Speaker #2: Upon implementation, the new SER segment will consist of our historical ERS segment and a portion 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.

Speaker #2: We will also begin reflecting intercompany activity between the two segments, which will ultimately be eliminated and 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 strategies and operations portfolio.

Speaker #2: 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.

Christopher Eperjesy: 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 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.

Chris Eperjesy: 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 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.

Speaker #2: We also will recast our guidance based on 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.

Speaker #2: 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.

Speaker #2: 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.

Christopher Eperjesy: 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.

Chris Eperjesy: 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.

Speaker #2: With that, Operator, we can open up the lines for questions.

Speaker #1: Thank you. If you would like to ask a question, please press star one in your telephone keypad. If you would like to withdraw your question, simply press star one again.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Your first question today comes from the line of Scott Schneeberger from Oppenheimer. Your line is open.

Speaker #1: Your first question today comes from a line of Scott Schneeberger from Oppenheimer. Your line is open.

Speaker #3: Hey, good morning, guys. It's Daniel. I'm from 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?

Daniel: Hey, good morning, guys. It's 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? What could be, you know, potential upside drivers? Thanks.

[Analyst] (Oppenheimer): Hey, good morning, guys. It's 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? What could be, you know, potential upside drivers? Thanks.

Speaker #3: And what could be potential upside drivers? Thanks.

Speaker #4: 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.

Christopher Eperjesy: Yeah. No, Daniel, good to talk to you. Look, I think our guidance is really an indication of what we see happening in the market right now. We're seeing really strong T&D demand, Daniel. I think, you know, the high end would be that continuing or improving kind of throughout the year. I think it would be some of the vocational market or the infrastructure market, seeing a pickup. We're starting to see some positive trends so far this year. You know, I think that would be picking up even further.

Ryan McMonagle: Yeah. No, Daniel, good to talk to you. Look, I think our guidance is really an indication of what we see happening in the market right now. We're seeing really strong T&D demand, Daniel. I think, you know, the high end would be that continuing or improving kind of throughout the year. I think it would be some of the vocational market or the infrastructure market, seeing a pickup. We're starting to see some positive trends so far this year. You know, I think that would be picking up even further.

Speaker #4: So we're seeing really strong T&D demand, Daniel. So I think the high-end would be that continuing or improving kind of throughout the year. And then I think it would be some of the vocational market or the infrastructure market seeing a pickup.

Speaker #4: So we're 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 kind of political or economic uncertainty that's out there right now—obviously, if that calms or there's less of that, that would, I think, be a positive tailwind for us as well.

Christopher Eperjesy: Obviously, you know, any of the kind of political or economic uncertainty that's out there right now, obviously if that calms or there's less of that, you know, that would, you know, I think be a positive tailwind for us as well.

Ryan McMonagle: Obviously, you know, any of the kind of political or economic uncertainty that's out there right now, obviously if that calms or there's less of that, you know, that would, you know, I think be a positive tailwind for us as well.

Speaker #3: Got it. Thank you. 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?

[Analyst] (Oppenheimer & Co. Inc.): Got it. Thank you. OEC on-rent yield inflected to year-over-year expansion in Q4. How do you view the pricing environment and pricing as a contributor on a go-forward basis? Thanks.

[Analyst] (Oppenheimer): Got it. Thank you. OEC on-rent yield inflected to year-over-year expansion in Q4. How do you view the pricing environment and pricing as a contributor on a go-forward basis? Thanks.

Speaker #3: Thanks.

Speaker #4: Yeah. We're seeing good demand there, Daniel. So you're right. It did inflect to the positive. I think OEC on rent was up meaningfully versus where it was this time last 2024.

Christopher Eperjesy: Yeah, we're seeing good demand there, Daniel. You're right, it did inflect to the positive. I think OEC on-rent was up meaningfully versus where it was this time last year, last Q4 of 2024. We're seeing the opportunity to increase price. Obviously, there's some inflation coming through there in terms of the cost of adding new assets into the rental fleet. You know, we did pass some price increases through at the beginning of the year, at the end of last year, beginning of this year. Starting to see some of that. Some of that you see in the numbers that Chris reported in terms of on-rent yield as well. Got it. Thank you. I'll turn it over.

Ryan McMonagle: Yeah, we're seeing good demand there, Daniel. You're right, it did inflect to the positive. I think OEC on-rent was up meaningfully versus where it was this time last year, last Q4 of 2024. We're seeing the opportunity to increase price. Obviously, there's some inflation coming through there in terms of the cost of adding new assets into the rental fleet. You know, we did pass some price increases through at the beginning of the year, at the end of last year, beginning of this year. Starting to see some of that. Some of that you see in the numbers that Chris reported in terms of on-rent yield as well.

Speaker #4: And so we're seeing the opportunity to increase price. Obviously, there's some inflation coming through there in terms of the cost of adding new assets into the rental fleet.

Speaker #4: But we did pass some price increases through at the beginning of the year, 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 that Chris reported in terms of on-rent yield as well.

[Analyst] (Oppenheimer): Got it. Thank you. I'll turn it over.

Speaker #3: Got it. Thank you. I'll turn it over.

Speaker #4: Thanks, Daniel.

Ryan McMonagle: Thanks, Daniel.

Speaker #1: Your next question comes from a line of Mike Schlitzky from DA Davidson. Your line is open.

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 almost 84% you saw in Q4 utilization, multiyear high, but you've always said it sounds like it's 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're not going to be investing much in as much in 2026 into new assets, just give us a sense as to how you're gonna balance the availability of assets and what looks like to be a little bit higher, you know, utilization going forward.

Mike Shlisky: Hi, good morning. Thanks for taking my questions. The almost 84% you saw in Q4 utilization, multiyear high, but you've always said it sounds like it's 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're not going to be investing much in as much in 2026 into new assets, just give us a sense as to how you're gonna balance the availability of assets and what looks like to be a little bit higher, you know, utilization going forward.

Speaker #5: Hi. Good morning. Thanks for taking my questions. The 84% utilization you saw in Q4 was a multi-year high, but you've always said it sounds like it's a little bit above what you used to call your sweet spot, which was around 80%.

Speaker #5: Operationally, have you gotten to a point where you can sustainably keep it at 84 and be able to serve customers properly? And given that you're not going to be investing as much in '26 in some new assets, just give us a sense as to how you're going to balance the availability of assets and what looks like to be a little bit higher utilization going forward.

Speaker #4: Yeah, Mike, good to talk to you. And thanks for the question. I'd say this: I think the team has done a great job of executing on the execution side of keeping the fleet up and running.

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

Speaker #4: And so I think we're 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.

Speaker #4: As you know, kind of that Q4 is generally when utilization peaks, just because of all of the transmission equipment that's going out after the summer.

Speaker #4: And so that's what we saw really at the beginning of Q4. And so I think the team's done a good job. I think execution is important.

Speaker #4: I think, as you know, we have de-aged the fleet, so the fleet is now under three years. I think we said 2.9 years is the age of the fleet.

Ryan McMonagle: I think, as you know, we have de-aged the fleet, so 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, standpoint. I think we're in a good position heading into Q1. I mentioned in my comments that we're back at about 82% is where we are now from a utilization perspective. Again, that's a very strong level from an overall utilization perspective.

Speaker #4: And so, obviously, that helps with keeping utilization high from a standpoint. And so I think we're in a good position heading into Q1. I mentioned in my comments that we're back at about 82%; that's where we are now from a utilization perspective.

Speaker #4: And again, that's a very strong level from an overall utilization perspective.

Michael Shlisky: Being where you are now and maybe just through most of the Q1 here, have you seen any, you know, 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, et cetera? Was it a very much a T&D-focused, you know, everyday business?

Speaker #3: And being where you are now, and maybe just through most of the first quarter here, have you seen any kind of one-time storm impacts in the Northeast and parts of the country that saw some big-time snow and some of the cloud drains and downed power lines, etc.?

Mike Shlisky: Being where you are now and maybe just through most of the Q1 here, have you seen any, you know, 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, et cetera? Was it a very much a T&D-focused, you know, everyday business?

Speaker #3: Or was it very much a T&D-focused everyday business?

Speaker #4: Yeah. I'd say it's the latter. It's T&D-focused everyday business. We're seeing strong demand and transmission right now. And then I'd say good continued demand on the distribution side of things.

Ryan McMonagle: Yeah, I'd say it's the latter. It's T&D-focused everyday business. We're seeing strong demand in transmission right now, and then I'd say good continued demand on the distribution side of things.

Michael Shlisky: Lastly from my end, some quarters you give us a sense of first half versus second half, how you might be earning, if there's any unusual seasonality in any given quarter of the year. Anything you can comment on 2026, first half, second half, anything being pulled forward to the Q1, et cetera?

Speaker #3: And then lastly from my end, some quarters you give us a sense of the first half or second half, how you might be earning, if there’s any unusual seasonality in any given quarter of the year.

Mike Shlisky: Lastly from my end, some quarters you give us a sense of first half versus second half, how you might be earning, if there's any unusual seasonality in any given quarter of the year. Anything you can comment on 2026, first half, second half, anything being pulled forward to the Q1, et cetera?

Speaker #3: Anything you can comment on—2026 first half, second half, anything being pulled forward to the first quarter, etc.?

Speaker #4: Yeah, Mike, this is Chris. I think historically we've talked about the first half, second half split being on the revenue side—mid to, let's say, high 40% in the first half, and then low 50s, kind of mid-50s, in the second half of the year.

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

Chris Eperjesy: Yeah, Mike, this is Chris. You know, I think historically we've talked about, you know, kind of the first half, second half split being, you know, on the revenue side, you know, mid- to high 40% first half and then, you know, mid- to low 50s, kind of mid-50s second half of the year. Similar on EBITDA. EBITDA is a little more, you know, I would say a broader spread, so mid-40s to kind of mid-50s in the second half of the year on the EBITDA side. You know, just to give a little bit of color for Q1, we do expect it to be a strong quarter. You know, I think, you know, directionally, we think top line revenue will be up kind of mid- to high single digits, and EBITDA we think will be, you know, up double digits year-over-year.

Speaker #4: Similar on EBITDA. EBITDA is a little more, I would say, a broader spread. So, mid-40s to kind of mid-50s in the second half of the year on the EBITDA side.

Speaker #4: Just to give a little bit of color for Q1, we do expect it to be a strong quarter. I think directionally, we think top-line revenue will be up.

Speaker #4: Kind of mid to high single digits. And EBITDA, we think, will be up double digits year over year. And based on Ryan's comments, it's going to be a big driver of that clearly is going to be our rental business.

Christopher Eperjesy: Based on Ryan's comments, you know, it's gonna be a big driver of that clearly is gonna be our rental business. I would, you know, index higher on rental versus new sales. You know, we think it's gonna be a strong Q1.

Chris Eperjesy: Based on Ryan's comments, you know, it's gonna be a big driver of that clearly is gonna be our rental business. I would, you know, index higher on rental versus new sales. You know, we think it's gonna be a strong Q1.

Speaker #4: So I would index higher on rental versus new sales. But we think it's going to be a strong first quarter.

Michael Shlisky: Outstanding. Thank you. I'll pass it along.

Mike Shlisky: Outstanding. Thank you. I'll pass it along.

Speaker #3: Outstanding. Thank you. I'll pass it along.

Speaker #4: Thanks, Mike.

Ryan McMonagle: Thanks, Mike.

Speaker #1: Your next question comes from the line of Justin Hawk from Robert W. Baird. Your line is open.

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

Speaker #5: 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.

Justin Hauke: Oh, great. Thanks for taking my question here this morning. I guess I just wanted to, and I appreciate as always, you know, the commentary about, you know, the orders being the driver of the TES segment. But I guess if I just, you know, look at, I guess, the backlog where you were a year ago, you know, you had $370 million of backlog, you did $1.1 billion. Backlog's a little bit lower. I guess in February it's probably about flattish, but, you know, you're looking for pretty good growth there.

Speaker #5: But I guess if I just look at, I guess, the backlog where you were a year ago, you had 370 million of backlog. You did 1.1 billion.

Speaker #5: Backlog's a little bit lower. I guess in February it's probably about flattish. But you're 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 '25, maybe just talk about the cadence of how you expect the TES segment to perform throughout the year and just the confidence behind it.

Justin Hauke: I was just thinking about the order trends and given the pull forward and 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.

Speaker #5: Thank you.

Ryan McMonagle: Yeah. Justin, good to talk to you, and thanks for the question. You know, look, I think 4% growth for the year. I think we feel good kind of with that number for last year, for 2025. You're right. The leading number that we're watching. There's two numbers that we're watching. One is backlog. So it was up sequentially from Q3 to Q4, up 20%. Then the number that I watch closely is orders won. So orders won in the quarter were up 12% versus last Q4. I think that's a positive indicator. Then as we've talked about, sitting here as of yesterday, I think we gave guidance that backlog was up to $370 million.

Speaker #4: Yeah. Justin, good to talk to you. And thanks for the question. Look, I think 4% growth for the year. I think we feel good kind of with that number for last year, for 2025.

Speaker #4: You're right. The leading number that we're watching—there's two numbers that we're watching. One is backlog. So, it was up sequentially. It was up sequentially from Q3 to Q4, up 20%.

Speaker #4: And then the number that I watch closely is orders one. So, orders one in the quarter were up 12% versus last fourth quarter. And so, I think that's a positive indicator.

Speaker #4: And then as we've talked about, sitting here as of yesterday, I think we gave guidance that backlog was up to 370 million. So it's back right to that four months on hand number, which is broad guidance that I think we've given in the past.

Ryan McMonagle: It's back right to that 4 months on hand number, which is.

Christopher Eperjesy: Yeah.

Chris Eperjesy: Yeah.

Ryan McMonagle: You know, broad guidance that I think we've given in the past. I think that's, 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. 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. I would think about smoothing it out a little bit, but I don't know, Chris, if you want to give any more color on quarters and TES in particular.

Speaker #4: 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 percent growth of for the segment.

Speaker #4: 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.

Speaker #4: So I would think about smoothing it out a little bit, but I don't know, Chris, if you want to give any more color on quarters and TES in particular.

Speaker #3: No, I think Ryan nailed it. We did have—I think we mentioned in Q2—that we had two months that were above $100 million, which were the first non-December months that were. 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 kind of laid out.

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

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

Speaker #5: Okay. Yeah. So yeah, so 2Q, a little bit of a headwind, probably 3Q and 4Q maybe a little bit of a benefit just from smoothing that out, I guess, would be the summary.

Justin Hauke: Yeah. Q2, a little bit of a headwind, probably Q3 and Q4, maybe a little bit of a benefit just from smoothing that out, I guess, would be the summary.

Christopher Eperjesy: Yeah. Yes.

Chris Eperjesy: Yeah. Yes.

Speaker #4: Yeah. Yes.

Justin Hauke: I guess my next question, you know, I think one of the other factors you were kinda thinking about in the past for demand in 2026 on the sales side was some of the emission standards that we're gonna be hitting in 2027 that looked like, you know, those have kind of been pushed back. I'm just curious, you know, if that's something that you're seeing as any deferrals on that side or anything from the emission standards. Thank you.

Speaker #5: I guess my next question—I think one of the other factors you were thinking about in the past for demand in ’26 on the sales side was some of the emission standards that were going to be hitting in ’27. It looked like those have kind of been pushed back.

Speaker #5: And just curious, if that's something that you're seeing—any deferrals on that side, or anything from the emission standards? Thank you.

Speaker #4: Yeah. It's a great question. And we're still watching it. The EPA mandate 2027 is still in play. I think we're still waiting on more clarity around the warranty component of that in particular, still.

Ryan McMonagle: Yeah. It's a great question, and we're still watching it. The EPA mandate 2027 is still in play. I think we're still waiting on more clarity around the warranty component of that in particular. You know, I think 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're seeing some pre-buy activity from some of the over-the-road customers. I would say we haven't 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're in a great position with our chassis OEM suppliers.

Speaker #4: So I think if you look at the order boards from some of the OEMs, especially around Class A chassis, at the beginning of this year, I think they would say that they're seeing some pre-buy activity from some of the over-the-road customers.

Speaker #4: I would say we haven't 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're in a great position with our chassis OEM suppliers.

Speaker #4: We've got good inventory on the ground. And then we just have such good relationships with those OEMs that we feel like we'll be able to continue to get the chassis that we need to meet demand from our customers.

Ryan McMonagle: Got good inventory on the ground, and then we just have such good relationships with those OEMs that we feel like we'll be able to continue to get the chassis that we need to meet demand from our customers.

Speaker #5: Okay. All right. Great. Perfect. Thank you, guys.

Justin Hauke: Okay. All right. Great. Perfect. Thank you, guys.

Speaker #4: Thanks, Justin.

Ryan McMonagle: Thanks, Justin.

Speaker #1: Your next question comes from Nicole DeBlaise from Stifel. Your line is open.

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

Maheep Mandloi: Hi. Good morning from Deutsche Bank. This is Maheep Mandloi for Nicole DeBlase. I don't know what happened there. Thanks for taking my question. You continue to speak about the strength of vocational. Kind of just like wondering what gives you confidence in that sustainability and any part of vocational in particular that's standing out?

[Analyst] (Deutsche Bank): Hi. Good morning from Deutsche Bank. This is Maheep Mandloi for Nicole DeBlase. I don't know what happened there. Thanks for taking my question. You continue to speak about the strength of vocational. Kind of just like wondering what gives you confidence in that sustainability and any part of vocational in particular that's standing out?

Speaker #6: Hi. Good morning from Deutsche Bank. Yeah, this is Nayan Kaplan offering Nicole DeBlaise. I don't know what happened there. So yeah, thanks for taking my question.

Speaker #6: 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's standing out?

Speaker #4: Yeah. I would say we're seeing good strength in transmission and distribution in particular. So I think that's where we're seeing good demand. Which obviously is into our forestry business as well.

Ryan McMonagle: Yeah. I would say we're seeing good strength in transmission and distribution in particular. I think that's where we're seeing good demand, which obviously is into our forestry business as well right now. I think we're seeing really good demand there. I think we did make the mention that we didn't see as big of a year-end buy, excuse me, in some of the vocational categories. You know, 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.

Speaker #4: Right now, so I think we're seeing really good demand there. I think we did make the mention that we didn't see as big of a pre-buy we didn't see as big of a year-end buy, excuse me, in some of the vocational categories.

Speaker #4: 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.

Speaker #4: Last year, we were seeing decent order uptick in those categories. And so, I think that's where we have some level of confidence that that will improve.

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

Speaker #4: Heading into 2026. But I think the broad theme of transmission and distribution, which is 55 to 60 percent of our overall revenue, is certainly where we're seeing the strongest demand right now.

Speaker #6: Okay, that's helpful. And then on gross margins, they were up year-over-year on ERS, but down in TRS relative to the prior year.

Brian Perman: Okay. That's helpful. Then on gross margins, 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 growth, gross margins?

Speaker #6: So do you have any color on that, and maybe the outlook for those segments in 2026 in terms of growth margins?

Speaker #4: Yeah. This is Chris. I'll start. We've kind of given an indication. I think I heard you ask about TES, so I just want to make sure.

Christopher Eperjesy: Yeah. This is Chris. I'll start. You know, we've kind of given an indication. I think I heard you ask about TES, so I just wanna make sure. You know, we've given kind of guidance that our range is to be within a 15 to 18% gross margin range over a kind of a cycle. You know, throughout the year, we talked about the pricing pressure, that there was more product available out there, so we were seeing some of that. We were at the lower end of that range. You know, 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.

Chris Eperjesy: Yeah. This is Chris. I'll start. You know, we've kind of given an indication. I think I heard you ask about TES, so I just wanna make sure. You know, we've given kind of guidance that our range is to be within a 15 to 18% gross margin range over a kind of a cycle. You know, throughout the year, we talked about the pricing pressure, that there was more product available out there, so we were seeing some of that. We were at the lower end of that range. You know, 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.

Speaker #4: We've given kind of guidance that our range is to be within a 15 to 18 percent gross margin range over kind of a cycle.

Speaker #4: We had, throughout the year, we talked about the pricing pressure, that there was more product available out there. So we were seeing some of that.

Speaker #4: 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.

Speaker #4: But I think the way to continue to think about it is we're going to target to stay within that range and do everything we can on the cost side.

Christopher Eperjesy: I think the way to continue to think about it is, you know, we're gonna, you know, target to stay within that range and, you know, do everything we can on the cost side. Where opportunistically we can take pricing, we will. You know, no specific guidance to give other than the guidance we've given, you know, to stay within that narrow range. I'm sure

Chris Eperjesy: I think the way to continue to think about it is, you know, we're gonna, you know, target to stay within that range and, you know, do everything we can on the cost side. Where opportunistically we can take pricing, we will. You know, no specific guidance to give other than the guidance we've given, you know, to stay within that narrow range. I'm sure

Speaker #4: And where opportunistically, we can take pricing, we will. But no specific guidance to give other than the guidance we've given to stay within that narrow range.

Speaker #6: And on the same question on ERS as well.

Brian Perman: Yeah. I have the same question on ERS as well.

[Analyst] (Deutsche Bank): Yeah. I have the same question on ERS as well.

Speaker #4: So ERS, just focusing on rental, we've talked about low to mid kind of 70% adjusted gross profit range. We are much stronger than that in Q4.

Christopher Eperjesy: ERS, you know, just focusing on rental, you know, we've talked about low to mid kinda 70% adjusted gross profit range. You know, we are much stronger than that in Q4. I think it's the highest it's been in some time. Certainly, you know, the past couple of years at 78%. You know, that really was driven by high utilization, lower repair and maintenance relative to the size of the fleet. And so, you know, we would expect, you know, with this higher level of utilization that we should be able to continue to stay in that mid-70%+ range. You know, and then on the used equipment side, you know, we've been in that, roughly, you know, mid-20s to high 20s range and, you know, don't expect it to be any different than that on a go-forward basis.

Chris Eperjesy: ERS, you know, just focusing on rental, you know, we've talked about low to mid kinda 70% adjusted gross profit range. You know, we are much stronger than that in Q4. I think it's the highest it's been in some time. Certainly, you know, the past couple of years at 78%. You know, that really was driven by high utilization, lower repair and maintenance relative to the size of the fleet. And so, you know, we would expect, you know, with this higher level of utilization that we should be able to continue to stay in that mid-70%+ range. You know, and then on the used equipment side, you know, we've been in that, roughly, you know, mid-20s to high 20s range and, you know, don't expect it to be any different than that on a go-forward basis.

Speaker #4: I think it's the highest it's been in 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.

Speaker #4: And so we would expect with this higher level of utilization that we should be able to continue to stay in that mid to 70% plus range.

Speaker #4: And then on the used equipment side, we've been in that roughly mid-20s to high 20s range in don't expect it to be any different than that on a go-forward basis.

Speaker #6: Okay. Perfect. Thank you for your time, and I will pass it on.

Brian Perman: Okay. Perfect. Thank you for your time, and I will pass it on.

[Analyst] (Deutsche Bank): Okay. Perfect. Thank you for your time, and I will pass it on.

Speaker #1: Your next question comes from a line of Brian Brophy from Stifel. Your line is open.

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

Speaker #7: Yeah. Thanks. Good morning, everybody. Appreciate you taking the question. I guess with net capex coming down this year, curious how much you expect to age the fleet by as a result.

Brian Brophy: Yeah. Thanks. Good morning, everybody. Appreciate you taking the question. I guess with net CapEx coming down this year, curious how much you expect to age the fleet by as a result, and how much runway is there to continue to age the fleet after this year? Thanks.

Speaker #7: And how much runway is there to continue to age the fleet after this year? Thanks.

Speaker #4: Yeah. Great question and good to talk to you. Look, I

Ryan McMonagle: Yeah. Great question and good to talk to you. You know, look, I think the fleet is young, right now at 2.9 years. We think there is the ability to age the fleet, you know, if you know, months, I think would be the right guidance, not years, with kind of the activity of this year. The fleet being so young at 2.9 years, I mean, I think there's plenty of room, to be able to age it. I think it's in a good spot. We've talked about, you know, as Chris's guidance was, lowering the maintenance CapEx component, still being able to grow the fleet overall, in 2026. You're right that there will be some aging.

Speaker #1: Think the fleet is young , right ? Right now , at 2.9 years . And so we think there is the ability to age the fleet .

Speaker #1: You know , if you , you know , months I think would be the right guidance . Not not years with , with the activity of this year and the fleet being so young at 2.9 years .

Speaker #1: I mean , I think there's plenty of room to be able to age it . So I think it's in a good spot .

Speaker #1: And we've talked about , you know , as Chris , guy , Chris's guidance was lowering the maintenance CapEx component , still being able to grow the fleet overall in 2026 .

Speaker #1: And so you're right that there will be some aging . I don't we don't expect it to have a meaningful impact on gross margin or utilization performance in the fleet .

Ryan McMonagle: We don't expect it to have a meaningful impact in gross margin or utilization performance of the fleet. We think it's a good time to do that, with the demand environment as strong as it is right now.

Speaker #1: And so we think it's it's a good time to do that with the demand environment . As strong as it is right now .

Speaker #1: Yeah . And I think another way to characterize it is if you look out over the last four years , on average , it's been about a quarter of a year to three years , kind of aging of the fleet each year .

Christopher Eperjesy: Yeah. I think another way to characterize it is if you look out over the last 4 years, on average, it's been about a quarter of a year to 0.3 years kind of de-aging of the fleet each year. I think the important point is it won't de-age. You know, we won't be continuing to de-age. They'll, you know, that's really where we're picking up the bulk of the kind of net investment this year.

Chris Eperjesy: Yeah. I think another way to characterize it is if you look out over the last 4 years, on average, it's been about a quarter of a year to 0.3 years kind of de-aging of the fleet each year. I think the important point is it won't de-age. You know, we won't be continuing to de-age. They'll, you know, that's really where we're picking up the bulk of the kind of net investment this year.

Speaker #1: I think the important point is it wont de-age , you know , we won't be continuing to de-age so they'll , you know , that's really where we're picking up the bulk of the kind of net investment this year

David Brown: Understood. That's helpful. Any color on what drove SG&A lower relative to a year ago in Q4? How are you guys thinking about SG&A this year? Thanks.

Brian Brophy: Understood. That's helpful. Any color on what drove SG&A lower relative to a year ago in Q4? How are you guys thinking about SG&A this year? Thanks.

Christopher Eperjesy: Yeah. You know, we have been taking a closer look at SG&A, and you know, where possible, you know, I'm trying to think of the best way to describe it. We certainly have made in certain places some cuts. We're 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. You know, I wouldn't expect there to be any material increase year-over-year.

Chris Eperjesy: Yeah. You know, we have been taking a closer look at SG&A, and you know, where possible, you know, I'm trying to think of the best way to describe it. We certainly have made in certain places some cuts. We're 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. You know, I wouldn't expect there to be any material increase year-over-year.

David Brown: Appreciate it. I'll pass it on.

Brian Brophy: Appreciate it. I'll pass it on.

Operator: Again, if you'd like to ask a question, press star one in your telephone keypad. Your next question comes from a line of Abraham Landa from Bank of America. Your line is open.

Abraham Landa: Good morning. Thank you for taking my questions. Maybe just first on the inventory levels have been kind of moving lower. How much lower do you kind of expect it to be this year? What's the potential impact on the floor plan? Then maybe how much current months on hand do you have?

Christopher Eperjesy: I'll start. We finished the year at $930 million. 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 million. You know, we've given guidance that on our whole goods inventory side, which is the bulk, vast majority of our inventory, our target is to get below 6 times, which we think we can get close to that by the end of this year, which would be roughly another $100 million, maybe a little bit more than that, but roughly a $100 million of gross inventory.

Chris Eperjesy: I'll start. We finished the year at $930 million. 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 million. You know, we've given guidance that on our whole goods inventory side, which is the bulk, vast majority of our inventory, our target is to get below 6 times, which we think we can get close to that by the end of this year, which would be roughly another $100 million, maybe a little bit more than that, but roughly a $100 million of gross inventory.

Christopher Eperjesy: Typically the way we think about that is 50 to 30 percent of that would flow through to the net inventory number as we, you know, pay down the floor plan of, call it 70 to 85 percent of the value of the inventory. You know, it would probably provide between $25 and 50 million of net working capital pickup in 2026.

Chris Eperjesy: Typically the way we think about that is 50 to 30 percent of that would flow through to the net inventory number as we, you know, pay down the floor plan of, call it 70 to 85 percent of the value of the inventory. You know, it would probably provide between $25 and 50 million of net working capital pickup in 2026.

Abraham Landa: That's very helpful. Maybe a question on the resegmentation. I guess why today? Is there any sort of like structure or any cost actions that are associated with it? I guess lastly, like is there anything we should read into the resegmentation about maybe like the future of Custom Truck One Source, whether it's one or two entities?

Christopher Eperjesy: I wouldn't read anything into it. You know, currently this year, this is the way we're managing the business. We think it'll provide a little bit better clarity, you know, to investors, in terms of how they look at the business, because they are two very unique businesses with, you know, different investment profiles. One is a little more asset intensive, one is a little bit asset light. Margin profiles are different. The APS segment really is supportive of those two different segments. You know, if you look on the ERS side, it really is, you know, supporting keeping the rental fleet up and running. We just felt like we're, you know, today we're running the business really as these two segments, and we think it makes more sense to report that way.

Chris Eperjesy: I wouldn't read anything into it. You know, currently this year, this is the way we're managing the business. We think it'll provide a little bit better clarity, you know, to investors, in terms of how they look at the business, because they are two very unique businesses with, you know, different investment profiles. One is a little more asset intensive, one is a little bit asset light. Margin profiles are different. The APS segment really is supportive of those two different segments. You know, if you look on the ERS side, it really is, you know, supporting keeping the rental fleet up and running. We just felt like we're, you know, today we're running the business really as these two segments, and we think it makes more sense to report that way.

Abraham Landa: There's no associated costs with the.

Christopher Eperjesy: Certainly nothing to do with the resegmentation. We certainly are always looking at our cost structure in any given year. You know, we have continuous improvement in other initiatives that we do. But I wouldn't say there's, you know, anything specifically related to the resegmentation. We always look at our sites, we rationalize sites, we add sites. You know, that, I would say is, you know, is not directly correlated with the resegmentation.

Chris Eperjesy: Certainly nothing to do with the resegmentation. We certainly are always looking at our cost structure in any given year. You know, we have continuous improvement in other initiatives that we do. But I wouldn't say there's, you know, anything specifically related to the resegmentation. We always look at our sites, we rationalize sites, we add sites. You know, that, I would say is, you know, is not directly correlated with the resegmentation.

Abraham Landa: Great. Thank you for answering my question.

Operator: 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. We appreciate the continued engagement and look forward to updating you next quarter. In the meantime, please don't 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.

Q4 2025 Custom Truck One Source Inc Earnings Call

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