Custom Truck One Source (CTOS) Q2 2026: Rental Utilization Climbs to 81.6% as Transmission Super Cycle Accelerates
Custom Truck One Source’s Q2 results confirm a durable surge in utility infrastructure demand, with rental utilization reaching historic highs and STEM backlog showing resilience despite record deliveries. The company’s raised guidance and operational discipline point to sustained growth, while evolving regulatory and inventory dynamics will test execution through year end.
Summary
- Transmission Demand Super Cycle: Utility end market strength is driving record rental utilization and order activity.
- Disciplined Fleet and Inventory Management: Capex moderation and young fleet age support margin and cash flow goals.
- Guidance Raised on Visibility: Upward revision to full-year outlook signals confidence in multi-year demand tailwinds.
Business Overview
Custom Truck One Source is a specialty equipment provider, operating through two segments: Specialty Equipment Rentals (SER), which rents and sells utility and infrastructure-focused trucks and equipment, and Specialty Truck Equipment and Manufacturing (STEM), which manufactures and sells new and used equipment to third parties and internally to SER. The company earns revenue from equipment rentals, new and used equipment sales, and related services, serving customers in transmission and distribution (T&D), utilities, and infrastructure end markets across the U.S. and Canada.
Performance Analysis
CTOS delivered record Q2 revenue and adjusted EBITDA, driven by robust demand in its core T&D markets and strong execution across both segments. The SER segment saw third-party revenue jump 20% year over year, fueled by a 400-basis-point increase in rental fleet utilization to 81.6% and a 13% rise in average original equipment cost (OEC) on rent. This utilization rate is at the upper end of the company’s historical range and reflects both a young fleet (just over three years average age) and strong project pipeline visibility.
STEM segment revenue, excluding intercompany sales, climbed 5% over last year’s record Q2, despite a sequential drop in backlog due to record quarterly deliveries. Notably, backlog rebounded early in Q3, and quoting activity surged 26% year over year in June, indicating continued momentum. The company’s margin performance was mixed: SER posted a 700-basis-point EBITDA margin expansion, while STEM margins softened slightly due to increased sales to national accounts with lower average margins. Cash flow and leverage improved, with net leverage dropping below 4x and free cash flow guidance reaffirmed above $50 million for the year.
- Rental Utilization Surges: Fleet utilization hit 81.6%, well above prior-year levels, reflecting sustained T&D project activity.
- STEM Backlog Management: Backlog dipped on record deliveries but rebounded to over $340 million early in Q3, supported by double-digit quoting growth.
- Margin and Cash Flow Discipline: SER margin expansion and reduced maintenance capex underpin improved free cash flow and deleveraging trajectory.
Inventory and working capital remain carefully managed as the company pre-buys chassis ahead of 2027 emissions regulations, with a focus on maintaining liquidity and supporting growth without overextending balance sheet risk.
Executive Commentary
"We believe that we are in the early stages of what could be a once-in-a-generation transmission demand super cycle... Bidding activity and ongoing conversations with our customers lead us to believe that these conditions will persist through the remainder of 2026 and beyond."
Ryan McMonagle, Chief Executive Officer
"Net rental capex in Q2 was $36 million, and our fleet age at quarter end was just over three years... our planned decrease in maintenance capex in 2026 compared to 2025 should contribute to increased free cash flow generation this year versus last year."
Chris Eperjesy, Chief Financial Officer
Strategic Positioning
1. Transmission and Distribution (T&D) End Market Tailwind
CTOS is capitalizing on a secular uptrend in T&D infrastructure investment, positioning its rental fleet and manufacturing capacity to serve multi-year project pipelines. Management points to both customer feedback and industry data as evidence of a durable super cycle, with projects extending into 2027 and beyond.
2. Fleet Age and Capex Optimization
Maintaining a young fleet (just over three years average age) enables CTOS to meet customer uptime requirements while reducing maintenance capex, freeing up cash flow for deleveraging and selective growth investments. The company is targeting a meaningful reduction in net fleet capex compared to 2025, even as it modestly increases investment to support strong demand.
3. STEM Segment Order Flow and Margin Management
Record STEM segment deliveries in Q2 demonstrate operational execution, while the rebound in backlog and quoting activity underscores healthy demand. However, increased sales to national accounts are diluting margins, requiring ongoing focus on mix and pricing discipline to sustain profitability as scale increases.
4. Regulatory and Supply Chain Navigation
Anticipated 2027 EPA NOx emission regulations are driving chassis pre-buy activity, with management leveraging OEM relationships to mitigate cost inflation and ensure supply continuity. The company expects to pass through non-conformance penalties to customers, but acknowledges some uncertainty around timing and customer response.
5. Geographic Expansion and Market Penetration
CTOS is targeting underpenetrated markets (e.g., New York/New Jersey, Carolinas, Northwest) for future footprint expansion, though no major new openings are expected in 2026. This measured approach allows the company to scale with demand while preserving capital discipline.
Key Considerations
CTOS enters the back half of 2026 with strong operational momentum, but faces a dynamic mix of opportunities and execution risks as it navigates a complex regulatory and demand environment.
Key Considerations:
- Transmission Project Visibility: Multi-year T&D projects provide revenue visibility, but require ongoing investment in fleet and personnel to capture share.
- Margin Sustainability: STEM margin pressure from mix shift to national accounts must be managed to preserve consolidated profitability.
- Inventory and Working Capital: Chassis pre-buying and inventory build ahead of emissions changes elevate working capital risk, demanding careful balance sheet management.
- Federal Funding Timing: Infrastructure stimulus tailwinds (IJA, IRA, CHIPS Act) have yet to fully materialize in order flow, representing a potential upside lever for 2027 and beyond.
- Customer Pricing Acceptance: Ability to pass through regulatory-driven cost increases will be tested as new emissions standards take effect.
Risks
CTOS remains exposed to regulatory, supply chain, and end market timing risks. Uncertainty around the pace and impact of EPA 2027 emissions standards could disrupt chassis availability or inflate costs beyond what can be recouped through pricing. A sudden reversal in T&D project momentum or delays in federal stimulus disbursement would pressure backlog and utilization. Margin compression in STEM, if not offset by pricing or mix, could weigh on consolidated profitability.
Forward Outlook
For Q3 2026, CTOS guided to:
- Consolidated revenue and adjusted EBITDA up year-over-year, but modestly below Q2 levels due to timing shifts in equipment deliveries.
For full-year 2026, management raised guidance:
- Revenue: $2.1 to $2.2 billion (8% to 13% YoY growth)
- Adjusted EBITDA: $437.5 to $455 million (14% to 19% YoY growth)
- Levered free cash flow: >$50 million
- Net leverage: Meaningfully below 4x by year end, progressing towards 3x in 2027
Management highlighted continued strength in T&D demand, a robust order pipeline in STEM, and plans to modestly increase net rental fleet investment to support growth. Q4 remains the company’s seasonally strongest quarter.
- Backlog and quoting activity support sustained order flow into 2027
- Inventory reduction and working capital improvements targeted for H2
Takeaways
CTOS’s Q2 results reinforce a multi-year growth runway anchored by T&D infrastructure investment, with operational discipline and capital allocation supporting improved financial health.
- Transmission Cycle Drives Utilization: Record rental utilization and order flow signal strong demand visibility, but require continued fleet and pricing discipline to capitalize on the super cycle.
- Margin and Cash Flow Execution: Young fleet and capex moderation underpin margin expansion and deleveraging, though STEM mix shift warrants close monitoring.
- Regulatory and Funding Watchpoints: EPA emissions changes and delayed infrastructure stimulus remain wildcards for 2027, with customer pricing acceptance and supply chain agility as key future drivers.
Conclusion
Custom Truck One Source enters the second half of 2026 with strong market positioning and operational momentum, underpinned by secular T&D demand and prudent capital management. The company’s ability to sustain margin gains, manage regulatory transitions, and capture upside from future federal funding will define its long-term value creation.
Industry Read-Through
CTOS’s results provide a clear signal that the North American utility and infrastructure equipment cycle is in a robust phase, with rental utilization and backlog metrics pointing to sustained demand. Peers in specialty rental, manufacturing, and industrial distribution should anticipate increased competition for chassis supply and heightened customer sensitivity to regulatory-driven price increases as the 2027 EPA standards approach. The lag in infrastructure stimulus impact suggests that upside from federal funding is still in the pipeline, potentially benefiting broader construction and utility supply chains into 2027. Margin management and pricing power will be critical differentiators as project mix and regulatory costs evolve.