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Date

Tuesday, April 28, 2026 at 9 a.m. ET

Call participants

  • Chief Executive Officer — Ryan McMonagle
  • Chief Financial Officer — Christopher Eperjesy
  • Investor Relations — Brian

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Takeaways

  • Total Revenue -- $462 million for the quarter, an all-time company record for Q1, driven by both segments and enabled by continued strength in T&D infrastructure markets.
  • Adjusted EBITDA -- $98 million, representing a 933% year-over-year increase under the new segment reporting structure.
  • SER Third-Party Revenue -- $194 million, a 16% year-over-year increase, with both rental revenue and rental equipment sales contributing double-digit growth.
  • SER Segment Adjusted EBITDA -- $105 million, up 23% year over year, with the adjusted EBITDA margin rising to 51.5%, an increase of over 415 basis points.
  • Rental Fleet Utilization -- Averaged 81.4%, up 370 basis points, supported by $1.34 billion average OEC on rent, which rose 12% year over year.
  • OEC on Rent -- $1.34 billion average in the quarter, 12% higher than the prior year, with quarter-end total OEC reaching $1.66 billion, the highest in company history.
  • On-Rent Yield -- 38.9% for the quarter, marking both sequential and year-over-year improvement and remaining in the company's targeted upper-30s to low-40% range.
  • Rental Fleet Age -- Ended the quarter at just under three years, maintaining one of the youngest specialty rental fleets in the sector.
  • Net Rental CapEx -- Exceeded $49 million in the quarter, with management planning a meaningful reduction in maintenance CapEx for the year.
  • STEM Third-Party Revenue -- $268 million, reflecting 5% year-over-year growth, with equipment sales up more than 4%, and aftermarket parts and service revenue up almost 17%.
  • STEM Adjusted EBITDA & Margin -- $33 million and 9%, respectively, reflecting gross margin expansion from cost-out and productivity initiatives.
  • Sales Order Backlog (STEM) -- Ended the quarter at $411 million, up $76 million or 23% sequentially, with continued growth in Q2 and roughly four to six months of expected conversion.
  • Net Leverage Ratio -- Slightly above four times at quarter-end, improving by approximately 30 basis points sequentially and 80 basis points year over year.
  • Availability Under ABL -- $257 million at quarter-end, with over $190 million of expansion potential based on the current borrowing base.
  • Inventory -- Approximately 7.5 months on hand at quarter-end, expected to decrease below six months by year-end as part of a targeted working capital reduction initiative.
  • 2026 Revenue Guidance (Consolidated) -- Affirmed at $2.005 billion to $2.12 billion, reflecting no change in the consolidated outlook from the previous update, but now based on new segment reporting.
  • Adjusted EBITDA Guidance (2026) -- Raised to $415 million to $440 million, an 8%-15% projected increase from the prior year amid continued T&D market strength.
  • SER and STEM Segment Revenue Guidance (2026) -- Forecasted at $835 million to $870 million for SER, and $1.58 billion to $1.655 billion for STEM, with STEM third-party growth projected at 3%-10%.
  • Capital Expenditure Guidance -- Projected net investment in the rental fleet of $150 million to $170 million, with total non-rental CapEx of $40 million to $50 million, both lower than 2025’s levels.
  • Free Cash Flow Guidance -- Projecting more than $50 million in levered free cash flow for the year, with working capital and lower CapEx as main contributors.
  • Net Working Capital Plans -- Company expects to unlock $100 million year over year from inventory, although only $20 million may translate to cash due to floor plan financing structure.
  • EPA 2027 Preparation -- Management stated, “We are well positioned as we continue to watch how the mandate comes through and the final rulings from the EPA around warranty and other open questions.”

Summary

Management attributed the dramatic year-over-year improvement in adjusted EBITDA to both sustained rental market strength and the expanded influence of transmission projects on rental mix and yields. Strategic fleet investments led to the company’s youngest fleet profile, supporting revenue growth and positioning Custom Truck One Source (CTOS +4.19%) for regulatory transitions such as the EPA 2027 standards. Guidance for 2026 levered free cash flow and net leverage reduction signals a near-term focus on deleveraging and cash generation as inventory normalization continues. Backlog growth was concentrated among local and regional customers in utility and forestry segments, with management indicating Q2-to-date order strength above quarter-end levels.

  • Management signaled disciplined conservatism on segment revenue guidance, stating, “As part of your question was about guidance, we raised the EBITDA guidance really because, as Ryan was touching on, the rental business is outperforming, but then also due to some of the operating execution that is happening. It really is a combination of those two—the mix and the operating execution—and not so much anything on the top line in terms of a more aggressive top-line assumption.”
  • Customer conversations and recent bidding activity support management’s expectation for persistent demand in T&D markets and ongoing transmission project awards in 2026 and 2027.
  • Pricing environment in new equipment is described as “certainly more stable” by the CFO, with gross margin gains attributed primarily to cost management and operational efficiency improvements.
  • Inventory is expected to peak seasonally in the first half, then decline sharply, with $30 million to $40 million of 2026 free cash flow projected to come from working capital reductions, and the remainder from lower CapEx and operating profits.
  • Backlog analysis reveals the “far majority” of STEM orders will deliver in 2026, minimizing near-term revenue timing risk.
  • No significant product shortages or supply chain bottlenecks affecting major categories were cited, but management stated vigilance around chassis and transmission-related suppliers amid robust sector demand.
  • Price increases taken in December are flowing through yield metrics as expiring contracts reprice, with management stating, “Price typically takes a full year to cycle through the fleet.”

Industry glossary

  • OEC (Original Equipment Cost): The original capitalized value of owned rental fleet assets before depreciation, used to monitor rental asset investment and utilization rates.
  • CapEx (Capital Expenditures): Funds used by a company to acquire, maintain, or upgrade physical assets such as equipment, trucks, and infrastructure.
  • ABL (Asset-Based Lending): A revolving credit facility secured by company assets such as inventory or receivables, used to fund working capital and liquidity needs.
  • STEM: The company’s Specialty Truck Equipment and Manufacturing segment, responsible for new equipment production and related aftermarket sales.
  • SER: The company’s Specialty Equipment Rentals segment, which provides truck and equipment rental services for infrastructure customers.

Full Conference Call Transcript

Today's discussion of our results of operations for Custom Truck One Source, Inc., or Custom Truck, is presented on an historical basis as of or for the three months ended 03/31/2026 and prior periods. Also, a reminder that beginning this quarter, our financial reporting reflects our two new operating 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 intersegment pricing and margins, as per accounting requirements for intersegment sales, the segment results for 2025 reflect the intersegment sales with no margin, as no intersegment agreement was in place in the period. For an illustrative comparison of what the 2025 results would have been had intersegment 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 Q1 investor presentation posted on our Investor Relations website.

Also, certain data in the appendix of the investor deck for Q1 and Q2 2025 for our STEM segment was corrected to reflect an internal error. Full year 2025 STEM results were not impacted by the change. Joining me today are Ryan McMonagle, CEO, and Christopher Eperjesy, CFO. I will now turn the call over to Ryan.

Ryan McMonagle: Thanks, Brian, and good morning, everyone. 2026 is off to a great start, as we delivered record first quarter revenue driven by continued strong momentum in our core end markets and excellent execution by our team. In the first quarter, we generated revenue of $462 million and adjusted EBITDA of $98 million, up more than 933% year over year. The key driver of our performance in the quarter was continued strength in our Specialty Equipment Rentals segment, as the improvement we experienced throughout last year in the transmission and distribution markets continued into Q1. Our rental fleet averaged 81.4% utilization during the quarter, up 370 basis points from Q1 of last year.

This was supported by continued robust levels of OEC on rent, which averaged $1.34 billion in Q1, up 12% year over year. So far in Q2, both measures have continued to strengthen, with utilization and OEC on rent currently trending above our first quarter averages. We ended the quarter with total OEC of $1.66 billion, the highest quarter-end level in our history, which will support our expectation for continued growth in SER revenues this year. Also, the average age of our fleet is less than three years old, which we believe is one of the youngest fleets in the industry and positions us well to support our customers.

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, and 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 throughout 2026 and beyond. Performance of our Specialty Truck and Equipment Manufacturing segment in the first quarter was strong, reflecting continued healthy end market demand and order flow. For Q1, STEM revenue, excluding sales to our SER segment, was up 5% year over year.

We also saw gross margin expand in the quarter driven by significant cost-out and productivity improvements led by our production team. New sales order backlog ended the first quarter at $411 million, up more than $76 million, or 23%, from the end of Q4. Our backlog has continued to grow so far in Q2. As we have 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 13% in Q1, with particular strength coming from our 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 STEM, not including intersegment sales to our SER segment. Custom Truck One Source, Inc. is well positioned with our young rental fleet, current inventory positions, and strong relationships with our chassis OEM partners to navigate the impact of the EPA's 2027 emission standards. We are affirming our previous full year 2026 revenue outlook, which we updated earlier this month solely to reflect our new segment reporting with no change to consolidated guidance. We expect consolidated revenue in the range of $2.005 billion to $2.12 billion.

Given strong conditions in the T&D end markets, we are raising both the bottom and top ends of our adjusted EBITDA guidance, and now project a range of $415 million to $440 million. Despite some macroeconomic volatility, we continue to be optimistic about our business. Long-term sustained end market demand is buoyed by secular megatrends, and our ability to provide exceptional execution on behalf of our customers sets us apart from our competition. Our longstanding 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 One Source, Inc. team and want to thank everyone for their hard work and dedication that helped achieve our strong results in the first quarter. We look forward to updating everyone soon. With that, I will turn it over to Chris to walk through the numbers in more detail.

Christopher Eperjesy: Thanks, Ryan, and good morning, everyone. I will start with the consolidated results for the quarter, then discuss segment performance, our balance sheet, liquidity and leverage, and finally, our 2026 outlook. Before I begin, I would like to expand somewhat on Brian's comments in the introduction about our segment reporting. As a reminder, because of reporting guidelines for segment reporting, segment data included in our earnings press release for periods prior to January 1 are not fully comparable to the current year data, largely because 2025 results disclosed in our press release do not include any margin on intersegment sales.

In the appendix of the deck we posted on our Investor Relations site in early April, we included reconciliations of our historical 2024–2025 quarterly segment data in an attempt solely to illustrate what those results would have been had our new segment reporting accounting and intersegment sales and margin agreements been in place at such time. The appendix of our first quarter 2026 investor presentation includes our segment data for 2026 as presented in our earnings press release, with additional adjustments shown so revenues and expenses are presented on the same basis as our 2025 as-adjusted results. For illustrative purposes, we provide comparison of the as-adjusted data for Q1 2025 and Q1 2026.

All year-over-year comparisons in my portion of the call are based on the figures in our earnings press release. To the extent you have any questions, please do not hesitate to reach out to Brian, Investor Relations. Our first quarter 2026 results reflect stronger operating performance across the business and improved rental fundamentals, particularly in our T&D end markets. For the first quarter, total revenue was $462 million and adjusted EBITDA was $98 million, representing 933% growth, respectively, versus Q1 2025. Turning to our segments. In SER, first quarter third-party revenue, excluding intersegment sales, was $194 million, up 16% year over year, driven by strong double-digit growth in both rental revenue and rental equipment sales activity.

Segment adjusted EBITDA of $105 million was up 23% year over year, with segment adjusted EBITDA margin in Q1 of 51.5%, up more than 415 basis points versus Q1 2025, continuing the momentum we experienced in 2025. Our key rental KPIs in SER remained quite strong in Q1. Utilization averaged 81.4%, up 370 basis points versus Q1 2025. Average OEC on rent in the quarter was $1.34 billion, up more than $141 million, or 12%, versus the same period in 2025. On-rent yield in the first quarter was 38.9%, reflecting both sequential quarterly and year-over-year increases.

On-rent yield remained within our targeted upper-30s to low-40% range, and we continue to see opportunities for rate improvement as transmission mix grows and pricing discipline holds. Our current historically strong rental KPIs reflect both increased rental activity and the continued scaling of our fleet to meet demand. Net rental CapEx in Q1 was more than $49 million, and our fleet age at quarter end was just under 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 $1.6 billion, up more than $107 million versus the end of Q1 2025, and up more than $18 million in the quarter. The increase reflects disciplined fleet investment against 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. In STEM, first quarter third-party revenue was $268 million, up 5% year over year, comprising equipment sales growth of more than 4% and parts sales and service revenue growth of almost 17%.

STEM segment adjusted EBITDA was $33 million and segment adjusted EBITDA margin was 9% in the quarter. Recall that our 2025 segment adjusted EBITDA does not include any margin on intersegment sales, while 2026 segment adjusted EBITDA does. STEM margin gains in the quarter were driven by significant cost-out and productivity improvements led by our production team. Importantly, our new sales backlog ended Q1 at $411 million, up more than $76 million sequentially, within our expected range of roughly four to six months. We have continued to see strong order growth so far in Q2 2026, and our backlog currently stands at more than $425 million. Turning to the balance sheet and liquidity.

With LTM adjusted EBITDA more than $408 million, and net debt of $1.65 billion, we finished Q1 with net leverage of slightly more than four times. This represents an approximately 30 basis point sequential improvement and approximately 80 basis points versus Q1 2025. Availability under our ABL was $257 million as of March 31, and based on our borrowing base, we have more than $190 million of additional availability that we can potentially access by upsizing our existing facility. Free cash flow generation and deleveraging remain key focus areas for us. Our inventory increased during the first quarter, reflecting seasonal order flow.

Even with that increase, we expect to reduce inventory and floor plan balances over the balance of 2026, which should support improved free cash flow generation. With respect to our 2026 guidance, the macro demand across our key end markets remains very strong. We expect the STEM segment to continue to benefit from an overall favorable macro demand environment as well as strong relationships with our key customers and chassis and attachment suppliers. Our strong order backlog supports this. In our SER segment, consistent with our Q1 results, 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 the average age of our fleet at just over 2.9 years, down by more than a year since the beginning of fiscal 2022. As a result, we expect to be able to significantly reduce maintenance CapEx in our rental fleet in 2026 while continuing to generate growth. Our increase in fleet age to just under three years in the first quarter reflects this.

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 our $250 million in 2025. After prior years' investments in inventory, driven by the strong demand environment, we expect to continue making 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 six 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 four times by the end of fiscal 2026, while progressing towards our three times net leverage target in 2027. Our affirmed 2026 revenue guidance reflects total revenue in the range of $2.005 billion to $2.12 billion. Given conditions in the T&D end markets, we are raising both the bottom and top ends of our adjusted EBITDA guidance and now project a range of $415 million to $440 million, resulting in year-over-year revenue growth of 3% to 9%, and adjusted EBITDA growth of 8% to 15%.

We still expect non-rental CapEx of $40 million to $50 million. Our segment guidance for 2026 remains unchanged. We are projecting SER revenue of $835 million to $870 million and STEM revenue of $1.58 billion to $1.655 billion, with STEM third-party revenue growth of 3% to 10%. Overall STEM sales, including intersegment sales, are expected to be flat to slightly down solely as a result of the expected reduction in SER maintenance rental CapEx this year. Despite 2025 being a tough comp given the near-record level of new equipment sales in the quarter, given current trends, we do expect to show year-over-year growth in adjusted EBITDA in Q2.

In closing, I want to echo Ryan's comments regarding our continued strong business outlook. Despite broader macroeconomic uncertainty, recent results and end market fundamentals support our confidence in the long-term demand drivers and our ability to deliver meaningful adjusted EBITDA growth this year. With that, operator, we can open the line for questions.

Operator: We will now open the call for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Michael Shlisky of DA Davidson & Co. Michael, your line is open. Please go ahead.

Michael Shlisky: Thanks. Good morning. Thanks for taking my questions here. Let me start off with a tariff question. Any worries you have on the recent changes to the Section 232 tariffs, either on recent quotes you have made or on what is in your backlog? Can you compare what the OEMs are saying on chassis pricing because of the tariffs compared to what you may be seeing from the body or back part of the truck that you are building?

Ryan McMonagle: Yeah, Mike, good to talk to you, and great question. I think we are in a pretty good spot when it comes to tariffs, as we have talked about. Obviously, having inventory on the ground puts us in a good position. We are seeing a little bit of tariff exposure on some of our bodies because of February, but I think the team has done a good job managing that, and so I feel like we are well positioned. And then OEMs—as we are talking with OEMs—that is a discussion, but the bigger discussion right now seems to be getting orders for them heading into 2027. I think we are in a good spot overall, Mike.

Michael Shlisky: Okay. Great. And then your metric of the average age being at roughly three years, that is up for the first time in quite some time. Can you maybe comment on how far ahead of the second-place player you are on average age? I am wondering how much you can age the fleet and still be reasonably ahead of peers and have a great-looking fleet. Is there a very big cash piece that you could be getting if you aged it, let us say, a half year or a year, or would you still be in front of your larger peers on the fleet side?

Ryan McMonagle: Yeah, it is a great question. There is not great data on the other fleets and age of fleet, so it is more based on feel and what we hear from our customers. But I will give you this data point. When we put the business back together in 2021, the average age of the fleet was just about four years. So we are about a year younger than we were then, and I think the business performed well at that age too. So I think that is the band that we have talked about. We have been as low as 2.9; we are still under three; and four years ago, we were just under four years old.

That feels like a good band. You are right, there is real cash generation in there as you think about it. But most important, as you know, is taking care of the customer and making sure we give them the product that they need to keep them working and to provide for what our trucks do.

Michael Shlisky: Okay. Thank you. I will pass it along.

Operator: Your next question comes from Daniel Hultberg with Oppenheimer & Co. Daniel, your line is open. Please go ahead.

Daniel Hultberg: Thank you. Hey, good morning, guys. Congrats on the quarter. I want to hone in on margin a little bit. I mean, obviously, the rental revenue growth is strong and that is higher margin. But you also mentioned productivity improvement, and I see in the deck it says effective cost management. Could you please elaborate on what you are doing on the cost side to drive margin here, as well as how it pertains to the guidance increase? And then on yield, it is like the last quarter up 40 basis points year on year this quarter. Could you speak to the pricing environment and the opportunity there, and what is embedded in the guidance as it is?

Ryan McMonagle: Yes, great questions. The team has done a great job of managing through our overall cost structure. There have been a lot of efforts underway by our production team to drive productivity improvement, and I think we are seeing the benefits of that. As we have talked about on a few prior calls, we continue to evaluate our overall cost structure, and the team has done a good job to right-size it, particularly related to our production efforts, which is why you see the expansion in STEM gross margin in particular. On yield, we talked about on the last call that we took a price increase on the rental side of the business in December of last year.

It was about a 5% price increase. Some of that is what is flowing through the on-rent yield number that you see. The other thing flowing through there is mix. Transmission is coming on very strong, and that is at a higher yield than distribution, due to the type of equipment that we are renting there. That has been influencing yield well. Price typically takes a full year to cycle through the fleet because we increase price only as new equipment goes out on rent. The mix impact will be a function of how strong transmission stays, which we expect over the balance of 2026.

Christopher Eperjesy: As part of your question was about guidance, we raised the EBITDA guidance really because, as Ryan was touching on, the rental business is outperforming, but then also due to some of the operating execution that is happening. It really is a combination of those two—the mix and the operating execution—and not so much anything on the top line in terms of a more aggressive top-line assumption.

Daniel Hultberg: Gotcha. Perfect. Thank you so much. I will turn it over.

Operator: Your next question comes from Justin Hauke with Baird. Justin, your line is open. Please go ahead.

Justin Hauke: Thanks for taking the question here. I wanted to drill into the EBITDA guidance. It increased a little bit more, which is great to see. Obviously, we are looking for more. If I look at the quarter, you guys were thinking EBITDA would be up kind of 10% plus. You were meaningfully above that, so you are kind of $10 million to $15 million ahead of where you were guiding to. You raised by $5 million. Is that conservatism? Was there anything that was maybe a one-time pull-forward in the quarter that was unusually strong, or how should we think about how the $5 million factored into the raise?

Christopher Eperjesy: Yeah, Justin, if you look at Q1, Q1 of last year was going to be our easiest comp. I think our actual guidance was that we were going to be up double digits. I do not think we necessarily banded what we thought that was going to be. Clearly, SER continues to outperform. OEC on rent is up, you know, $160 million to $170 million through the first four months of this year. We are continuing to see that strong performance, and really it is that mix that is driving it. But if you look at Q2, you are going to see the exact opposite; that is a pretty tough comp for us.

We talked about this last year on the call. We had two months within the quarter that had third-party new sales above $110 million, and those were the only two months outside of December that were ever above $100 million. So it is going to be a much tougher comp here in Q2. I would not say we are being conservative, but we are certainly being prudent. We felt it was the right thing to do to increase our guidance, and we feel comfortable in that $415 million to $440 million range. We will adjust it as the year goes on if it makes sense to do so.

Justin Hauke: Okay. Fair enough. My next question: we have been seeing more articles about political pushback on data centers and some of these projects getting pushed out. I know your direct exposure to data centers is pretty modest, but the impact to some of these interconnect T&D projects—are you seeing anything where that is having a discernible impact, or is that just noise in the market in terms of people procuring things in anticipation of that work?

Ryan McMonagle: It is a great question. We are still seeing strong demand from our customers for equipment. Public companies’ sentiment and reported backlog continue to increase. Our conversations with our customers are still bullish on additional transmission work that has not yet started, which is a good tailwind for us. As we look at macro reporting around line miles in service and what is coming online, it continues to be very positive. I would say the specific noise around data centers does not seem to be impacting our customers and the work they are planning to start over the coming quarters and years.

Justin Hauke: Yep. That is what I figured. Thank you for answering those two. I appreciate it.

Operator: Your next question comes from the line of Naim Kaplan with Deutsche Bank. Naim, your line is open. Please go ahead.

Naim Kaplan: Hey, good morning. On for Nicole DeBlase. First question: given the substantial macroeconomic assumptions underpinning your T&D outlook—specifically, you mentioned 23% expected CAGR in data center power demand—how much of this impending infrastructure wave is already actively reflected in the quoting pipeline? Are there specific specialized equipment categories that you foresee could have industry-wide supply chain shortages? In SER, you mentioned the rental business is performing very strong with OEC on rent, utilization, and gross margins all continuing to perform ahead of expectations in 2026. So why would you not raise the guide there? Is there maybe some conservatism?

Ryan McMonagle: Good questions. Broadly on transmission, we are seeing demand for transmission equipment continue to pick up. It is not back to the highest levels that it has been over the past several years, but it is continuing to pick up. Conversations with our customers suggest that will continue to increase for the foreseeable future—certainly for the balance of 2026—and we are starting to talk about 2027 at this point. We are not seeing any product category where availability of equipment looks like it could be an issue right now. It continues to be favorable—bullish—as we think about transmission in particular.

Christopher Eperjesy: When I said SER was ahead of expectations, the comparison was versus last year, and really ahead of expectations on the margin front. That is why we felt comfortable taking up the EBITDA guide but leaving the revenue range where it is for now.

Naim Kaplan: Okay. I appreciate it. I will pass it on.

Operator: Your next question comes from the line of Brian Brophy with Stifel. Brian, your line is open. Please go ahead.

Brian Brophy: Yes, thanks. Good morning, everybody. Congrats on the nice quarter. I want to ask about bidding activity. You mentioned it is quite healthy in your opening comments. Any more color on what you are seeing there? And on the new equipment side, last year there was some discussion on pricing pressure that you were seeing. It does not appear that you mentioned that this quarter. What is the latest you are seeing on the pricing front on the new equipment side?

Ryan McMonagle: Thanks for the question, and good to talk to you. It is robust, which is probably a fair way to say it. For us, bidding activity happens most on the transmission side of things. There are several specific projects that are in process where we are bidding and are waiting on awards to be made. It continues to remain robust, and we think we should be well positioned for the rest of 2026 and heading into 2027.

Christopher Eperjesy: Compared to this time last year, pricing is certainly more stable. There still is some pressure. Ryan touched on cost improvement and initiatives that have benefited margin and allowed us to offset some of that pressure. The way I would characterize it is it is certainly a lot more stable than it was this time last year.

Brian Brophy: Appreciate it. I will pass it on.

Operator: Your next question comes from the line of Analyst with Cantor Fitzgerald. Your line is open. Please go ahead.

Analyst: Yes. Hi, good morning. It is Manish. Two questions. First on STEM: how should we think about the normalized margins for STEM? And the backlog was up nicely on a sequential basis—what is driving that, what are the conversations like with your customers, and what is the customer composition? You have a lot of small customers, so with the macro environment, what does that backlog segmentation look like?

Christopher Eperjesy: Historically, we have given guidance on the biggest component of STEM sales—third-party new sales—of a 15% to 18% range. A couple years ago, we were pushing that 18% and even slightly higher. This past year, we were closer to 15%. We have seen that go up now the last couple quarters, and we are living closer to 16%. I think 15% to 18% is still a good range; we are probably going to live closer to the 16% to 17% range this year. That is the best way to model it.

Ryan McMonagle: On backlog, we actually saw the biggest pickup with our small customers. We break them into our local and regional customers, and that is where we saw the largest increase in backlog. From a product standpoint, utility is very strong, and we saw a pickup in backlog in our utility and forestry segment more broadly with those small customers. Where we have seen less of a pickup is on the infrastructure side—waste and dump truck segments have not seen a significant pickup yet in backlog.

Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Tami, your line is open. Please go ahead.

Tami Zakaria: Hey, good morning. Thank you so much. On the STEM segment, the backlog saw impressive growth. How much of the backlog is for 2026 versus beyond that? And because you resegmented your disclosures, of the $415 million to $440 million EBITDA guide for the year, what would be the mix from the two segments, SER versus STEM, in that full year number? One last one: the debt paydown target—three turns leverage by next year—do you expect any debt paydown, or is this all coming from EBITDA growth?

Ryan McMonagle: Great question, and good to talk to you, Tami. The far majority of the STEM backlog will be for 2026 deliveries. There is very little at this point that we would not be able to deliver in 2026.

Christopher Eperjesy: We do not give guidance for the segment EBITDAs. If you look at the prior year, you can get a relatively comparable mix. Given the guidance this year, there may be a little bit of a shift towards SER. I would look at what we disclosed on April 1, and you can use that as a proxy. One other point: as you do that, remember that the two segment adjusted EBITDAs will sum to a higher number than our consolidated guidance—you have to take into account the corporate unallocated cost, which you will also find in that April 1 presentation. On leverage, it will be both EBITDA growth and debt paydown.

This year, we guided levered free cash flow north of $50 million. That would all be used to pay down debt.

Tami Zakaria: Understood. Thank you.

Operator: Your next question comes from the line of Abe Landa with Bank of America. Abe, your line is open. Please go ahead.

Abe Landa: Morning. Thank you for taking my questions. One quick housekeeping: I know last year, within your STEM segment, it does not include margins on intersegment sales. If we were to look at it from an apples-to-apples perspective, what would that change be? And then shifting gears to the general environment—there are a lot of data centers, a lot more generation is on-site. Are you seeing that impact demand in any way, whether mix or actual absolute level of demand? How is that shift and the data center buildout impacting buy versus rent decisions by utilities, contractors, etc.? Lastly, longer term, you are saying inventory levels are going to be below six months by year-end.

What is that number today and how do you expect that to trend during the year? Do you expect the EPA 2027 rules to have any impact on that? And overall on working capital, what are you assuming for the year, with inventory reduction being offset by revenue growth?

Christopher Eperjesy: I do not have the intersegment apples-to-apples figure off the top of my head, but if you look in the April 1 presentation on our website, as well as the one we posted last night, that information is in there. On inventory, we are somewhere north of seven, probably closer to seven and a half months right now. It is typical to see an increase in Q1—seasonal timing and getting ready for the second half—and this year is consistent with that. We are only slightly higher than our expectation for this time of year—less than $10 million higher than we had forecasted.

We had given guidance that we would expect to get north of $100 million year-over-year out of inventory as part of our working capital initiative this year. I would point out that the $100 million does not translate to $100 million in cash because between 75%–80% of the inventory is floor plan. Typically, if you reduce inventory by $100 million, you may generate $20 million of cash. In terms of our guide of $50 million levered free cash flow for the year, you are probably going to get between $30 million and $40 million from working capital.

Ryan McMonagle: On the demand questions, generally, on-site generation around data centers is not impacting our demand in a significant way. It is something we watch, but it is not impacting our business directly. It is also not significantly impacting buy versus rent. As we have discussed, transmission is often rented because of the nature of the equipment, while distribution is more commonly bought and rented. On EPA 2027, we are in a really good spot.

Three things to highlight: first, the age of the fleet—having roughly 10 thousand pieces in our fleet that are under three years positions us well for the new engines; second, having inventory on the ground—we are just over seven, seven and a half months now, and being at six months at the end of the year positions us well with current model year chassis heading into next year; and third, the strength of our relationships with our chassis OEM partners and our dealers. We are well positioned as we continue to watch how the mandate comes through and the final rulings from the EPA around warranty and other open questions.

Abe Landa: Thank you for the time.

Operator: Your next question comes from the line of Analyst with Cantor Fitzgerald. Your line is open. Please go ahead. A reminder to unmute locally if you would like to ask a question.

Analyst: Hi. Can you hear me? Wonderful. Maybe, Ryan, can you talk about some of the bottlenecks that could slow execution despite strong end markets? Then maybe Chris—what is going to take over the next one or two quarters for you guys to raise the free cash flow outlook? Thank you.

Ryan McMonagle: On bottlenecks, we are in a good spot, but we are watching our supply chain closely. Transmission seems very strong right now, so we are working closely with our suppliers—on the back end, that is our largest supplier on the transmission side, and some of our pulling and stringing suppliers as well—and we are working closely with our chassis suppliers. These are typically larger trucks, all-wheel drive—six-by-six and four-by-four chassis. It is making sure that supply chain continues to perform, which it is currently, but that is where a bottleneck would come from if one were to show up.

Christopher Eperjesy: On free cash flow, we talked about three major areas that will drive it. First, incremental EBITDA—if you take the midpoint of EBITDA guidance, that is up $40 million to $45 million year over year. Second, rental CapEx—the net investment last year (growth CapEx plus maintenance CapEx less proceeds from sales) was roughly $250 million; we said it is going to be meaningfully less this year, in particular on the maintenance CapEx side—roughly $100 million less. Third, inventory—the bulk of the reduction is going to come in the second half, and typically our best free cash flow period is Q4. Those are the three main drivers: incremental EBITDA, lower net rental CapEx, and working capital unlock.

Analyst: Okay. Wonderful. Chris, thank you so much. Ryan, best of luck as well.

Operator: There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Ryan McMonagle for closing remarks.

Ryan McMonagle: Thanks, everyone, for your time today and your interest in Custom Truck One Source, Inc. We appreciate the continued engagement and look forward to updating you next quarter. In the meantime, please do not hesitate to reach out with any questions. Thank you again, and have a great day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.