Custom Truck One Source, Inc. 2026 Q2 Earnings Call

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 factor section of the company's filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during the call in the press release we issued yesterday after the market closed. That press release and our second quarter investor presentation are posted on the investor relations section of our website. Yesterday afternoon, we also filed our second quarter 2026 10-Q with the SEC.

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 ended June 30th, 2026 and prior periods. A reminder that beginning last quarter, our financial reporting now reflects our two new reportable segments, Specialty Equipment Rentals or SER, and Specialty Truck Equipment and Manufacturing or STEM. While our 2026 results in our earnings press release and SEC filing reflect the application of inter-segment pricing and margins as per accounting requirements for inter-segment sales, the segment results for 2025 reflect the inter-segment sales with no margin as no inter-segment agreement was in place in the period.

For an illustrative comparison of what the 2025 results would've been had inter-segment sales been reflected with the appropriate gross margin and had other internal accounting policies been in place at the time, please see the appendix of the Q2 investor presentation posted on our investor relations website. Joining me today are Ryan McMonagle, CEO, and Chris Eperjesy, CFO. I will now turn the call over to Ryan.

Thanks Brian. Good morning everyone. We delivered record revenue in the second quarter, capping a strong first half, driven by continued strong momentum in our core end markets and outstanding execution by our team. In the second quarter, we generated revenue of $563 million in adjusted EBITDA of $117 million, up 10% and 25% year-over-year respectively. Our specialty equipment rental segment continues to deliver consistently strong performance, driven by sustained and growing demand in the Transmission and Distribution or T&D markets. Our rental fleet averaged 81.6% utilization during the quarter, up 400 basis points from Q2 of last year. This was supported by continued robust levels of OEC on rent, which averaged $1.37 billion in Q2, up 13% year-over-year. So far in Q3, both measures have continued to show year-over-year growth.

We believe that we are in the early stages of what could be a once-in-a-generation transmission demand super cycle. We ended the quarter with total OEC of $1.68 billion, the highest quarter end level in our history, which will support our expected continued growth in SER revenues in the second half of this year. Our average fleet age is just over three years old, which we believe is one of the youngest fleets in the industry and positions us well to support our customers' needs across the country. Our trucks and equipment continue to power the people who strengthen and build critical infrastructure in the U.S. and Canada. The market has been focused on the durability of demand in T&D and our ability to convert improving rental KPIs into earnings and cash flow. We believe our trending results over recent quarters speak directly to that.

Bidding activity and ongoing conversations with our customers lead us to believe that these conditions will persist through the remainder of 2026 and beyond. Our specialty truck equipment and manufacturing segment had record performance in the second quarter, with equipment sales reaching an all-time quarterly high for the company and reflecting continued healthy end market demand and order flow. For Q2, STEM revenue, excluding sales to our SER segment, was up 5% versus Q2 of 2025, which at the time was a record for non-fourth quarter equipment sales. New sales order backlog ended the second quarter at $322 million, down $89 million from the end of Q1 on record Q2 deliveries. Despite the decrease in our backlog in Q2, intra-quarter order flow remains strong and our backlog has grown so far in Q3. We continue to see strong sales demand in the utility end market, especially focused on transmission equipment.

In the infrastructure end market, our ongoing conversations with our customers and the pace of bidding and our order activity combine to provide us with the confidence to expect another year of growth in third-party customer revenue for STEM. With respect to the EPA 2027 NOx emission regulations, the EPA introduced its proposed changes to the rules in early July, which maintain the 2027 NOx standards while adding non-conformance penalty provisions. The regulations are expected to be finalized later this year. Given our current inventory position, the chassis pre-buy actions we have already taken, and our strong relationships with our chassis OEM partners, we believe CECO is well-positioned to navigate the impact of the upcoming emission standards changes.

Given our strong year-to-date performance, robust conditions in the T&D markets, and our outlook for the rest of the year, we are increasing our previous full year 2026 consolidated revenue and adjusted EBITDA outlooks. We expect consolidated revenue in the range of $2.1 billion-$2.2 billion and adjusted EBITDA in the range of $437.5 million-$455 million. Long-term sustained end market demand, buoyed by secular megatrends, combined with our ability to provide exceptional execution on behalf of our customers, sets us apart from our competition. Our long-standing relationships with our strategic suppliers and customers continue to be 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 extraordinary results in the second quarter. We look forward to updating everyone soon.

With that, I'll turn it over to Chris to walk through the numbers in more detail.

Thanks, Brian, and good morning, everyone. I'll start with the consolidated results for the quarter, then discuss segment performance, our balance sheet, liquidity, and leverage, and finally, our updated 2026 outlook. Our second quarter 2026 results reflect stronger operating performance across the business and improved rental fundamentals, particularly in our T&D markets. For the second quarter, total revenue was $563 million and adjusted EBITDA was $117 million, representing 10% and 25% growth, respectively, versus Q2 2025. On a GAAP basis, second quarter net income was $10 million, or $0.05 per diluted share, compared with a net loss of $28 million a year ago, bringing first half net income to $6 million. About $19 million of that year-over-year improvement reflects a favorable income tax rate as the prior year quarter carried a tax expense related to an adjustment in our estimated effective tax rate.

The balance was driven by higher operating income. Turning to our segments. In SER, second quarter third-party revenue, excluding inter-segment sales, was $219 million, up 20% year-over-year, driven by strong double-digit growth in both rental revenue and rental equipment sales activity. Rental sales activity benefited from an increase in RPO activity in Q2 versus the same period last year. Segment adjusted EBITDA of $117 million was up 26% year-over-year, with segment adjusted EBITDA margin of 53%, up more than 700 basis points versus Q2 2025. Our key rental KPIs in SER remained quite strong in Q2, continuing the momentum we've experienced in recent quarters. In Q2, utilization averaged 81.6%, up 400 basis points versus Q2 2025. Average OEC on rent in the quarter was $1.37 billion, up almost $160 million, or 13%, versus the same period in 2025.

On rent yield in the second quarter was 39.4%, reflecting both sequential and year-over-year increases for the quarter. Our 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 historically strong rental KPIs reflect both increased rental activity and the continued scaling of our fleet to meet demand. Net rental CapEx in Q2 was $36 million, and our fleet age at quarter end was just over three years. A modest increase from the end of last quarter, which is consistent with our plan to reduce maintenance CapEx and age the fleet somewhat this year. Our OEC in the rental fleet ended the quarter at almost $1.68 billion, up approximately $120 million versus the end of Q2 2025, and by almost $24 million sequentially.

The increase reflects disciplined fleet investment in the face of strong demand, particularly in T&D. While we expect to continue to invest in the fleet in 2026, our planned decrease in maintenance CapEx in 2026 compared to 2025 should contribute to increased free cash flow generation this year versus last year. In STEM, second quarter third-party revenue was $345 million, a quarterly record and up 5% versus Q2 of 2025, which previously represented our highest non-fourth quarter revenue in our history. STEM segment adjusted EBITDA was $37 million, and segment adjusted EBITDA margin was 8.5% in the quarter. Recall that our 2025 segment adjusted EBITDA does not include any margin on inter-segment sales, while 2026 segment adjusted EBITDA does. STEM gross margins in the quarter were slightly lower as a result of increased sales to national accounts, which tend to carry modestly lower margins.