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Utility demand is fueling record rental fleet growth. Custom Truck One Source said its Specialty Equipment Rental fleet has grown to about 10,400 units and $1.66 billion in capital, with roughly 75% of the fleet tied to utility transmission and distribution work.
Backlog and project visibility are improving. Backlog reached 4.5 months at the end of Q1 and has risen further in Q2, while management said transmission-side visibility is the strongest it has been in a long time with project starts extending into 2027.
The company is focusing on cash flow and deleveraging. CTOS expects more than $50 million in levered free cash flow and plans to reduce leverage below 4x by year-end and below 3x next year, supported by higher EBITDA, lower rental capex and inventory reductions.
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Custom Truck One Source (NYSE:CTOS) executives outlined a strong demand backdrop for specialty rental equipment, particularly in utility transmission and distribution, during an Oppenheimer fireside chat hosted by Senior Industrial Services Analyst Scott Schneeberger.
CEO Ryan McMonagle said the company’s Specialty Equipment Rental, or SER, segment has grown to about 10,400 units and represents approximately $1.66 billion of capital, the largest level in the company’s history. About 75% of the fleet is utility equipment focused primarily on transmission and distribution, including bucket trucks, digger derricks, boom trucks and stringing gear. The remaining 25% includes specialty equipment such as vacuum trucks, dump trucks, heavy haul tractors, water trucks and roll-off trucks.
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McMonagle said fleet time utilization was 81.4% in the first quarter and had increased early in the second quarter. The average rental duration is between 12 and 13 months, currently near the high end of that range. He added that the fleet is under three years old, with useful lives generally in the 10- to 15-year range depending on the asset.
McMonagle said transmission and distribution, or T&D, is Custom Truck’s largest end market, representing about 60% of total revenue and roughly 75% of revenue within the rental segment. He cited grid modernization, data centers and electrification as key long-term drivers.
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Infrastructure more broadly accounts for about 40% of revenue, including waste, rail, telecom, roads and bridges. McMonagle said waste is the largest of the three named infrastructure verticals.
Asked how much rental strength is tied to data center-related power generation, McMonagle said it is difficult to isolate, but data centers are helping drive transmission work across the country. He said major project starts have continued to pick up in 2026, and the company is speaking with customers about starts extending into 2027, including late 2027.
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“The visibility on the transmission side of things in particular is as good as it’s been in a really long time,” McMonagle said.
McMonagle said the company’s backlog is moving back toward what Custom Truck historically considers a normal range of four to six months. Backlog peaked after COVID-19 amid supply chain disruptions, declined through 2025 and began rebuilding late in 2025 and into 2026.
As of the end of the first quarter, backlog stood at 4.5 months, and McMonagle said it had increased so far in the second quarter. He also said backlog rose by more than $70 million during the first quarter.
The company said demand is especially strong in T&D, while infrastructure and vocational product categories are also improving.
In response to a pricing question, the company said its preferred on-rent yield range is in the high 30s to low 40s and that recent trends have been positive. On-rent yield increased 40 basis points from the fourth quarter to the first quarter and was up 70 to 80 basis points from the third quarter. The company also took an average price increase of about 5% in December, which is expected to continue flowing through as assets turn over.
The company described the pricing environment as constructive, particularly for transmission and T&D assets, while acknowledging that the market remains competitive and varies by region and asset type.
McMonagle said tariffs have added roughly $10 million to $15 million to overall spend, or about 1% on more than $1.5 billion of spending. He said the company has managed those impacts well, though some newer changes may create additional cost increases.
McMonagle also said smaller customers are showing more caution because of tariffs, interest rates and diesel costs, including concerns tied to the Middle East conflict. Some smaller buyers are delaying truck purchases and keeping older vehicles running longer. He said large customers continue to move ahead with projects and purchase decisions.
The company said it is not capital constrained and plans to invest in both rental and manufacturing. For 2026, it expects $150 million to $170 million of net rental capital expenditures, while non-rental capital expenditures are guided at $40 million to $50 million, with two-thirds to three-quarters related to the Specialty Truck Equipment and Manufacturing, or STEM, business.
The company said first-quarter revenue grew 9% while adjusted EBITDA rose 33%, reflecting operating leverage and mix benefits from rental revenue, which grew just under 20% year over year. It raised EBITDA guidance on its most recent earnings call while maintaining revenue guidance.
Executives said free cash flow should benefit from three main factors:
Year-over-year EBITDA growth, with about $45 million of incremental EBITDA at the midpoint of guidance;
A reduction in net rental fleet investment, expected to unlock $80 million to $100 million year over year;
Inventory reduction, with gross inventory expected to decline by more than $100 million, partially offset by floor plan paydowns.
The company is targeting more than $50 million of levered free cash flow, an improvement of roughly $130 million year over year.
On capital allocation, the company said deleveraging is the priority. Leverage has fallen from a peak of 4.8 times to just over 4 times, with a target to move meaningfully below 4 times by the end of this year and below 3 times by the end of next year. The company does not anticipate large M&A, though it may continue to pursue tuck-in acquisitions.
McMonagle said supplier relationships are strong across chassis and attachment providers, and that the company has learned from supply constraints experienced from 2020 through early 2024. He said the supply chain is in much better shape and that Custom Truck is positioned to deliver on its growth expectations for 2026 and 2027.
Asked about long-term growth, McMonagle said the company has guided to high-single-digit to low-double-digit growth for the current year and said those levels are “pretty good proxies,” though the company has not provided guidance for 2027 or beyond.
Custom Truck One Source, Inc (NYSE: CTOS) is a North American provider of specialty rental equipment, parts and services. The company's fleet encompasses a wide range of assets, including cranes, aerial work platforms, trench safety and shoring equipment, fluid management solutions, generators and other industrial machinery. Customers rely on Custom Truck One Source to support projects in construction, energy, telecommunications, industrial manufacturing, municipalities and large-scale events.
Headquartered in Plano, Texas, Custom Truck One Source has expanded through a combination of organic growth and strategic acquisitions to establish a network of more than 140 branch locations across the United States and Canada.
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The article "Custom Truck One Source Says Utility Demand Is Driving Record Rental Fleet Growth" was originally published by MarketBeat.
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