Executive Summary / Key Takeaways

• Infrastructure Tailwinds Drive Growth: Custom Truck One Source (CTOS) is strategically positioned to capitalize on unprecedented secular growth in North American electricity demand, grid modernization, and broader infrastructure development, fueled by trends like AI-driven data centers and electrification.
• Integrated Model Delivers Strong Performance: The company's unique three-segment approach—Equipment Rental Solutions (ERS), Truck and Equipment Sales (TES), and Aftermarket Parts and Services (APS)—demonstrated robust Q2 2025 results, with consolidated revenue up 20.9% and Adjusted EBITDA up 17% year-over-year, driven by strong rental demand and equipment sales.
• Strategic Fleet Investment & Operational Edge: CTOS's continuous investment in its rental fleet, which reached a record OEC of over $1.56 billion in Q2 2025, coupled with high utilization rates (nearly 78%), highlights its ability to meet surging customer demand and leverage its integrated production capabilities for tailored solutions.
• Deleveraging a Core Priority: Despite tactical inventory adjustments and capital expenditures, CTOS is committed to reducing its net leverage from 4.66x in Q2 2025 to below 4x by year-end 2025 and under 3x by the end of fiscal 2026, supported by projected levered free cash flow generation of over $50 million in 2025.
• Resilient Outlook Amidst Headwinds: Reaffirming its 2025 guidance, CTOS anticipates double-digit Adjusted EBITDA growth, confident in its robust order flow and proactive mitigation strategies against macroeconomic uncertainties, tariff impacts, and evolving emission standards.

Powering North America's Infrastructure Renaissance

Custom Truck One Source, Inc. (CTOS) stands as a pivotal enabler of North America's ongoing infrastructure transformation. Founded in 1988, the company has evolved into an integrated provider of specialty equipment, offering a comprehensive suite of rental, sales, and aftermarket services. This full-service model caters to critical sectors including electric utility transmission and distribution (T&D), telecommunications, rail, forestry, and waste management.

The company's strategic evolution, notably through the April 2021 merger with Nesco Holdings, Inc., significantly expanded its operational footprint and enhanced its fleet capabilities, resulting in a larger and younger rental fleet with higher OEC on rent and stronger on-rent yield. This foundational strength positions CTOS to capitalize on powerful secular megatrends. Industry reports project a staggering 24% to 29% increase in U.S. electricity demand by 2035, nearly double previous forecasts, driven by the proliferation of AI-driven data centers, grid upgrades, and widespread electrification efforts. These trends create a sustained, robust demand environment for CTOS's specialized equipment and services.

Competitive Landscape and Operational Moats

In the competitive landscape, CTOS operates alongside major players like MYR Group Inc. (MYRG), Quanta Services, Inc. (PWR), MasTec, Inc. (MTZ), and EMCOR Group, Inc. (EME). While these competitors often provide comprehensive, end-to-end contracting and engineering services, CTOS carves out its niche through a differentiated operational model centered on equipment access and customization. CTOS's extensive rental fleet and integrated production capabilities allow for tailored equipment solutions, enabling faster deployment for rentals, estimated at 20-25% quicker than some alternatives. This operational agility is a key competitive advantage, particularly for customers seeking flexible, cost-effective equipment access without significant upfront capital investment.

CTOS's multi-decade relationships with strategic suppliers, particularly for chassis and key attachments, further solidify its competitive standing. This network helps mitigate supply chain risks and ensures a steady flow of equipment, a critical factor in a market with fluctuating demand and evolving regulatory requirements. While competitors like PWR and MYRG may boast higher gross margins (e.g., PWR at ~25% vs. CTOS's consolidated 20.1% in 6M 2025) due to their broader, higher-value service portfolios, CTOS's focus on equipment-centric solutions allows for cost leadership in equipment access and efficient cash flow generation relative to its scale. The company's nationwide branch network and 24/7 call center for aftermarket parts and services further enhance customer stickiness and provide recurring revenue streams, distinguishing it from pure-play contractors.

Financial Performance: A Trajectory of Growth and Resilience

CTOS delivered a strong financial performance in the second quarter of 2025, building on momentum from the end of 2024. Consolidated total revenue for Q2 2025 reached $511.5 million, marking a significant 20.9% increase compared to Q2 2024. This robust growth translated into a gross profit of $102.5 million, up 14.9% year-over-year, and Adjusted EBITDA of $93 million, a 17% increase from the prior year's quarter. For the six months ended June 30, 2025, total revenue grew 11.9% to $933.7 million, with Adjusted EBITDA reaching $166.85 million.

The Equipment Rental Solutions (ERS) segment was a primary driver of this strength, with revenue surging 23.2% year-over-year to $170.47 million in Q2 2025. This was fueled by a 16% year-over-year increase in average OEC on rent, exceeding $1.2 billion, and a notable 600 basis point improvement in average utilization to nearly 78%. Management noted consistent mid-70% to mid-80% utilization rates across most of the fleet, underscoring resilient demand. The Truck and Equipment Sales (TES) segment also achieved outstanding results, with Q2 2025 sales of $303.37 million, up 22.4% year-over-year, marking the second-highest quarterly sales in company history and two consecutive months of sales over $100 million. While TES gross margin of 15.5% in Q2 2025 was down from Q2 2024, it improved sequentially from Q1 2025, with management anticipating further normalization in the second half of the year. The Aftermarket Parts and Services (APS) segment contributed $37.64 million in revenue, a modest 2.6% increase, but saw a significant 26.6% rise in gross profit, driven by a favorable mix of rental revenue within the segment.

Despite these operational successes, the company reported a net loss of $28.38 million in Q2 2025, compared to a loss of $24.48 million in Q2 2024. This was primarily attributed to higher income tax expense, which management expects will not significantly impact annual cash taxes. The company's strategic investments in its rental fleet, with net rental CapEx of $64 million in Q2 2025, reflect its commitment to meeting strong demand, with total OEC reaching a record $1.56 billion.

Capital Allocation and Deleveraging Pathway

CTOS is actively managing its capital structure to enhance financial flexibility and reduce leverage. As of June 30, 2025, the company held $5.3 million in cash and cash equivalents. Borrowing availability under its ABL Facility stood at $275.7 million, with an additional $231.1 million in suppressed availability, providing ample liquidity.

A key strategic focus is deleveraging. The net leverage ratio improved to 4.66x in Q2 2025 from 4.8x in Q1 2025. The company has set an ambitious target to reduce net leverage to below 4x by the end of fiscal year 2025 and below 3x by the end of fiscal year 2026. This will be supported by generating meaningful levered free cash flow, with a target of over $50 million in 2025. Strategic actions, such as the Q4 2024 sale-leaseback transaction of eight properties, which generated over $52 million in net proceeds used to reduce debt, and the January 2025 repurchase of 8.14 million shares from Energy Capital Partners at a 23% discount, underscore this commitment to capital efficiency and shareholder value. Furthermore, the company expects to reduce its inventory levels by year-end, which should contribute to lower balances on its floor plan lines and reduced ABL borrowings.

Outlook and Growth Catalysts

CTOS has reaffirmed its fiscal 2025 guidance, projecting total revenue in the range of $1.97 billion to $2.06 billion and Adjusted EBITDA between $370 million and $390 million. This outlook implies a return to double-digit Adjusted EBITDA growth, driven by continued robust demand in core end markets and strong order flow. Net rental CapEx is projected at approximately $200 million, reflecting strategic fleet investments to meet anticipated demand.

Management's confidence is rooted in several factors: the sustained activity levels from utility contractors, the strong intra-quarter order flow in TES (signed orders up nearly 35% year-over-year in Q2 2025), and the normalization of TES backlog to its historical 4-6 month range. While the company acknowledges ongoing macroeconomic uncertainty and customer hesitancy, particularly from smaller customers influenced by high interest rates, its diversified business model and extensive rental fleet act as a hedge, allowing customers to pivot to rentals when purchases are deferred.

Key Risks and Mitigation Strategies

Despite the positive outlook, CTOS faces several pertinent risks. Macroeconomic volatility and elevated interest rates continue to influence customer purchasing decisions, particularly in the TES segment. The company is also exposed to tariff policies, with approximately 30% of its 2024 purchases originating from Mexico and Canada, primarily for chassis and key attachments. To mitigate this, CTOS has tactically pulled forward some chassis inventory purchases and is collaborating closely with suppliers to manage potential cost increases.

Evolving emission standards from the EPA and CARB present another area of focus. While Congress recently revoked California's waivers for CARB standards (a decision currently challenged in court), and clarity on EPA's 2027 low NOx standards is pending, CTOS's 2025 guidance does not factor in any pre-buy activity from these regulations, indicating a conservative approach. The company also carries a significant amount of variable rate debt ($1.46 billion as of June 30, 2025), making it sensitive to interest rate fluctuations (a 0.125% rate change impacts annual interest expense by approximately $1.8 million), though it does not currently hedge this exposure. Foreign currency exposure from Canadian operations is also present but managed.

Conclusion

Custom Truck One Source is a compelling investment proposition, deeply embedded in the foundational infrastructure of North America. Its integrated business model, encompassing equipment rental, sales, and comprehensive aftermarket services, provides a resilient platform to capitalize on the accelerating demand for electricity and critical infrastructure development. The company's strategic investments in its rental fleet, coupled with its operational capabilities for customized solutions, establish a durable competitive moat.

While macroeconomic headwinds and specific market pressures persist, CTOS's strong Q2 2025 performance, reaffirmed 2025 guidance, and clear deleveraging pathway underscore its ability to execute amidst dynamic conditions. The commitment to reducing net leverage to below 3x by fiscal 2026, alongside projected double-digit Adjusted EBITDA growth, positions CTOS for enhanced profitability and long-term value creation. Investors looking for exposure to the secular growth in utility and infrastructure spending, supported by a disciplined and operationally astute management team, should find CTOS a compelling consideration.