Custom Truck OneSource at 24th Annual Diversified Conference: Strategic Insights

On Thursday, 18 September 2025, Custom Truck OneSource (NYSE:CTOS) presented at the 24th Annual Diversified Industrials & Services Conference, providing a detailed overview of its operations and strategic vision. The company highlighted its robust "one-stop shop" model and addressed both challenges and opportunities in its core markets.

Key Takeaways

• Custom Truck OneSource’s rental fleet utilization rebounded to optimal levels after a dip due to supply chain issues.
• The company aims to achieve a leverage ratio of 3x by 2026 through EBITDA growth and inventory reduction.
• Custom Truck OneSource’s domestic sourcing strategy effectively minimized the impact of tariffs.
• The company’s utility segment, a major revenue driver, is expected to grow at high single to low double digits.
• Custom Truck OneSource maintains a strong competitive position with a large rental fleet and extensive production capabilities.

Financial Results

• In Q2, the company reported a gross margin of 74%.
• Current leverage is at 4.5x, with a target to reduce it to 3x by 2026.
• The orderly liquidation value of the rental fleet stands at approximately $1.3 billion, against debt of about $1.6 billion.
• The company anticipates a $200 million reduction in inventory from the start to the end of the year, contributing to cash flow.
• EBITDA is expected to expand by $40 million to $50 million in the second half of the year.

Operational Updates

• Utility and infrastructure sectors contribute 55% and 30% of revenue, respectively.
• The rental fleet includes over 10,000 trucks, valued at about $1.6 billion.
• Custom Truck OneSource operates about a million square feet of production space across seven locations and services trucks at 40 locations in the U.S. and Canada.
• Fleet utilization improved to nearly 80% post-quarter, recovering from previous lows.

Future Outlook

• The company plans to reduce inventory by $300 million over two years, decreasing whole goods inventory from eleven to six months.
• Custom Truck OneSource will focus on setting competitive rental rates as it heads into 2026.
• The utility segment is poised for significant growth, driven by data center development and grid modernization.

Q&A Highlights

• Tariff impacts were minimal, thanks to strategic domestic sourcing and early chassis purchases.
• The company is optimistic about end market demand and expects to continue gaining market share into the next year.

Readers are invited to refer to the full transcript for more detailed insights into Custom Truck OneSource’s strategic plans and financial performance.

Full transcript - 24th Annual Diversified Industrials & Services Conference:

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: Good? Okay. Alright. Well, everybody in the room, welcome to our conference here at DA Davidson here in here in here in Nashville. I am Mike Schlisky.

I’m the industrial machinery analyst here at the firm covering most of the sector. Got a pretty wide coverage here. It ranges from ag to trucks to specialized vehicles and rental fleets, and that’s what we’re here to talk about today. I’m joined by the folks from Custom Truck OneSource, CTOS. They call it sometimes CTAS.

We all know we’re talking about Custom Truck also for short. Honest here with me on stage, Ryan McMonagle, he’s the CEO. Perseprajesse, he is the CFO. And then that’s gonna give us a little bit of overview today and answer a few questions about trends and what’s going on in the business. So let’s just jump right in.

And what so I’m gonna do a bunch of questions, a handful of questions, and then we’ll certainly gonna give a chance for the for the, for the audience to also ask a few questions of their own. But as you can see, I’ve got an endless number of questions here if we if things get quiet. So, guys, just to get everyone started, for those who are less familiar, tell us a little about about Custom Truck, your products and services, and maybe just a brief overview of the end markets that you’re that you’re serving.

Ryan McMonagle, CEO, Custom Truck OneSource: Sure. And, Mike, thanks for having us. So it’s been a it’s been a great conference, and so appreciate you all taking time. But when we talk about custom truck, we really, talk about two businesses. One is a great truck upfitting business, right, where we build vocational trucks.

The second is our specialty rental fleet. And when we put those two together, we get the one stop shop that we talk a lot about. So that means that we build, we sell, we service, and we rent vocational trucks. So you can think about vocational trucks as everything but on highway tractors. And we do that for four primary end markets.

The first is the utility end market. Utility is about 55% of our revenue. So that’s both transmission and distribution. We primarily serve utility contractors, in that market. And then infrastructure broadly is about 30% of revenue.

Today, that’s been growing as as part of our business. And so you can think about that as things like refuse, things like vacuum excavators, specialty dump trucks, that type of product. And then, rail and telecom are each about 5% of our revenue. But it’s really utility and infrastructure are the primary are the two primary end markets that we serve, in our one stop shop model that I’m sure we’ll spend more time explaining in more detail.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: Yeah. I wanna clarify. You’re really marrying a truck with the back of the truck, which can do any number of things with sounds like the bucket truck, the infrastructure type of stuff is the major major area. How much of it do you actually make yourselves, and how much of it is sourced from the various body type manufacturers?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. It’s a it’s a good question. And so we the way we describe it, and Mike’s talking about our production process, so we will buy a chassis maybe from a Peter a Peterbilt or a Freightliner or a Ford chassis, and then then we will turn it into a thing. Right? And that thing may be a bucket truck.

We may buy Terex. They’re our our largest supplier on the attachment side, for buckets and digger derex, or we may buy a dump truck, or we may buy a crane, you know, from somebody else as well. And so of things that we build, we really build about 90%, 95% of the trucks that we put together. There are a few suppliers who prefer to do the install for us. We’ve we we’ve described that as just, you know, as a as a build versus buy type, type analysis that we do.

But the far majority of what we put into our Mernal fleet or ultimately sell to our customers, we’ve put together from our great suppliers, like I mentioned, like a Terex or Versalift or Galbreath, and in some cases, our TBEI, in many cases, the dump truck side, and then from our chassis OEMs and Peterbilt or Freightliner or Ford, and, you know, are are some of the largest suppliers that we buy we we buy chassis from.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: And and and just discuss the size and set of offerings that you offer compared to peers. What makes custom trucks what’s what makes custom truck so unique in the market that you think other folks aren’t really doing?

Ryan McMonagle, CEO, Custom Truck OneSource: Sure. Yeah. No. It’s it’s great. And we like to talk about kind of the competitive moat that we’ve built here, but I always start with the breadth of product that we offer first.

So, you know, if you think about utility and you think about all of the other end markets that we’re serving, we’re offering an entire set of products, to those customers. And then I think about scale, a lot as well. So and I think scale is really where we’ve built a a a strong competitive moat, right, for our business. The first is the rental fleet. We have over 10,000 trucks in our rental fleet today.

It’s about $1,600,000,000 cost, right, that we have in those trucks. The second is our production capability. So we have about a million square feet across seven primary locations where we build trucks. And so to me, that’s a really, great moat to have. And so our ability, obviously, to leverage that scale is important.

And then we have a national and really The US and Canada. We have about 40 locations across the country and in Canada where we service trucks. And so to me, as you think about moat, you think about what really makes us unique. It’s it’s the size of the rental fleet, the size of the buy, obviously, that we’re that we’re buying to feed the rental fleet and to feed our third party customers, you know, the number of square feet that we have to build trucks. And then it’s the national, service network where we can take care of first our rental fleet, but then our customers also, through our service locations around The US.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: Let just back on that mode question. Let’s talk about number two and three in the market. What sizes are their fleets and how many, what kind of nationwide presence do do do do what they have?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. No. It’s a, so a couple ways to answer that question. Right? The first is to think about rental fleets.

Right? So the we we believe they’re privately owned, but the second largest rental fleet out there is a business called Altec, which is based in Alabama. We think we’re about one and a half times the size of their fleet from a fleet perspective, and then I think you’ve got a few large regional fleet providers who have maybe a thousand trucks, give or take, in their fleet. So we think there’s a real advantage from the rental side of the business. And then Altek just primarily focuses on utility and telecom end markets.

So when you start to think about more broadly infrastructure and rail and some of those other product categories, they don’t offer those products. And then when you think about the sales side of the business, you get into a much more fragmented market very quickly depending on if you’re talking just about dump trucks or just about water trucks or just about service trucks. You get into a very fragmented market very quickly. And so that’s one of the things that we are unique in is that we offer the breadth of product that we offer that that nobody else offers the breadth of product that we offer today to our customers.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: I think the I think the name says it all. Custom truck, one source. Maybe I should’ve just started with that. Don’t There you go. So you talk about some of some of the some of the recent growth drivers.

Tell us bit about the outlook for the for your core, you know, T and D market. Everyone’s talking about a shortage of infrastructure for energy, for data centers, and, like, AI. When I say that word, think everyone’s ears just perked up. Yeah. What role does custom truck play in that?

Just some thoughts on the on the growth outlook here.

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. No. That’s so as as I said at the beginning, T and D is about 55% of our revenue, and so it really is kind of the primary end market, that we service. And you’re right, Mike. There’s so much tailwind right now, on both sides of that business.

So on transmission is obviously pulling power. A lot of that is for new data center development that’s happening. So there are a lot of transmission projects that are beginning to go under construction that have been talked about for a long period of time. And so we’re seeing a lot of improvement in the regulatory environment where more more transmission projects are are starting and construction’s happening, and therefore, they need our trucks. But our trucks are are foundational, are fundamental fundamental to if you’re going to build a new transmission line, like, they’re used early on from a from a setting setting the foundation, building the right of way, setting pads along the way to setting the steel structure to obviously hanging the wire, as well.

So that’s a big part of our business, and then distribution is an important part of our business too. So that’s where you hear a lot about aging infrastructure and grid modernization that has to happen. That’s what a lot of our distribution trucks are are used for, to maintain the power lines that run to all of our homes, to our businesses. And so that’s been a big part of our business too. So we watch rate case approvals a lot on that side of the business, and we’ve seen continued really positive trends there as well.

And so we’re seeing a big pickup on both the distribution side of the house and the transmission side of the house. Right?

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: I’ll I’ll be a little more direct about it. I mean, is all these data centers that are planned, all this infrastructure they’re gonna need for energy to power them, is there really any way we can we can all these plans can come to fruition to build all these data centers without the use of custom trucks trucks?

Ryan McMonagle, CEO, Custom Truck OneSource: No. Yeah. I think, our trucks, you know, working for the contractors who are building those is is what’s going to be needed to to power the data centers that we’re talking about to keep our homes running. And so I think we feel like we’re in a great sweet spot from from how our trucks are used each and every day.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: And and again, not just bucket trucks in general. I mean, your truck, your exact fleet, your 10,000 trucks Yeah. Be hard to get them to without them being used heavily to to install all the all the stuff.

Ryan McMonagle, CEO, Custom Truck OneSource: Absolutely. Yeah. So you think about dump trucks, you you and which are used to kind of build from a from a foundation from a building standpoint, you think about roll offs and obviously all the work that’s done. A roll off truck is what drops off a large dump container kind of at your house if it’s a home remodel or on a construction site when it’s a more industrial project, that’s going. And you think about heavy haul tractors and lowboy trailers, and that’s all the equipment, you know, that we that we sell and that we keep in our rental fleet and and rent each and every day.

So you’re right.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: And and speaking of your fleet rental utilization, it’s been up and down the last couple of couple of years. Over the last eight quarters, start thinking back, we had a very robust eight quarters ago or so. I don’t know the exact seven quarters ago, followed by a real trough with low utilization. And now we’re kinda back in this middle ground, I would characterize it as not too high, not too low, like a just right situation. Just take us through the last eight quarters, the huge highs, the low lows, now we’re in the middle.

Kinda what happened through that time in demand for your for your for your trucks, and what happened to that so so that it turned it out to be just right today?

Perseprajesse, CFO, Custom Truck OneSource: So I’ll start before the eight quarters. So if you go back to 2021, which is before I arrived at custom truck, you know, Ryan has often said that the previous historical kind of theoretical max for utilization was 80%. And to your point, we got into 2022, 2023. We got up within a month, I think, as high as 89%. And typically, that theoretical max is because there’s equipment coming off of rent and it has to be repaired before it goes back out into the fleet.

And so we experienced that. There was supply chain constraints, which helped elevate the overall utilization. We got into late ’twenty three, and we started to see something that was unexpected, and it continued into 2024. And so utilization went from mid- high mid-80s down to as low as 70% in the 2024. And what we experienced were a number of different things.

One is there were some supply chain issues for the builders of the transmission lines. There were certainly some regulatory delays. And in reality, it wasn’t because it wasn’t demand. There was a backlog of projects that needed to go, and it largely impacted our utility business. And as Ryan mentioned, it’s 55% of our revenue, but it’s more disproportionately 65%, 70% of the rental fleet.

And so we saw utilization go as low as the 60s, 70%. Subsequently, we’ve seen that kind of the supply chain issues improve. We’ve seen regulatory rate approvals kind of accelerate, and we’ve seen the projects begin to break ground. And so what we’ve seen is, you know, that the utilization in that space grow, you know, from 60s and 70% to 80s and 90% over that ensuing six, seven months period. So it really was an issue around utility.

Demand is back strong, and we are seeing disproportionate growth in some of the nonutility space around vocational And so that’s what you’re seeing now in the overall what we

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: see on rent. So investors might say, well, 85%. Brian, please.

Ryan McMonagle, CEO, Custom Truck OneSource: What I love about the rental business is trough utilization is is what we hit. Like, for a quarter, 70% is about as low as we ever go. And so to me, living in that band of 70% is a trough, and we used to say 80 was theoretical max. We obviously proved it’s a higher number. Mid eighties is kinda theoretical max is a great spot to be.

And so we’ve hit that a couple of times. So during COVID, April of COVID, we fell to seventy percent. Kind of FERC order 1,000, which was back in 02/2016, we fell to seventy percent, and then it climbed back. And then way back, kind of great recession, you fell to kind of a similar a similar time period. So that’s what I love about the business is if you’re a rental investor, 70% utilization as a trough is a great number.

Right? We we still generate good returns. That’s a great use of capital. It’s still a good return on capital from any kind of rental metric we wanna look at. You know, but that’s kind of how it fell.

And so that was really it it troughed, as Chris said, in in the summer of last year’s, like, July 4 actually was troughed, and then we built, from there. And so we feel pretty good kinda with that, as and that’s that’s kind of the magnitude living in that 70 to mid eighties. We feel like it’s a great spot and kind of where we are now, which we announced on q two was back in the high seventies. We really say that high seventies to low eighties is really our sweet spot where we’re executing well, we’re turning equipment appropriately, we’re not missing kind of opportunities to rent equipment, and and it’s a great return on capital kind of at those at that utilization level.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: And and before, when you were at ’85, ’86, ’90, whatever the number was, you were missing out on certain things, and you couldn’t get what you wanted because of supply chain. If you got the if tons of demand came in now, you could avoid it going to 85 again by adding more equipment.

Ryan McMonagle, CEO, Custom Truck OneSource: That’s right.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: So you’ve got the flexibility now you didn’t have before.

Ryan McMonagle, CEO, Custom Truck OneSource: That’s right. Yes. Supply chain is in a much better spot. Back then, was kind of twelve, fifteen months was were lead times on a chassis to build one of the units that we’re gonna build, and then, our attachment suppliers were slower in how they were able to deliver. Supply chain is in a much better spot where chassis availability is quick.

It’s within months. Now in our, kind of our cadence with our attachment providers, it’s in a very good spot from giving demand and then then being able to produce. So it’s in a much better spot.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: And maybe back to the moat question earlier, because you buy it, you rent it, you marry the chassis and the back part, and your competitors, may not have the same size and scale as as you do. If there was a race to meet a certain RFP, who would be the most risk? Would you say you’d be more responsive the most because you have access that they don’t have?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. I think you got two advantages if it’s just a rental RFP. Right? One is we have the equipment, and we have our our new inventory, right, that we can immediately pull from. So we’ve got availability

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: as well.

Ryan McMonagle, CEO, Custom Truck OneSource: Which is significant. And then two, we’ve got a structural cost advantage. Right? We we talk I talk about a billion 6. That’s our cost to go into into that fleet if we’re competing with just a rental house.

They’re obviously buying that. In many cases, we’ll sell it to them. Right? But we’re selling it to them at margin. So mid we talk about a 15 to 18 gross margin.

So if we had bought that billion 6 of capital at a 15 or 18 gross margin, you’d be closer to a $2,000,000,000 cost, to to put that fleet together. And so to me, that’s kind of the other structural advantage, Mike, that we have because of our model and how we operate.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: So so then and then from there, looking ahead, can you sustain that high seventies, low eighties? How are you current currently managing that that fleet size? I mean, do you ever wanna be at 85 again barring any supply chain problems?

Perseprajesse, CFO, Custom Truck OneSource: Yeah. And so we think we can. So we’re you know, at the end of last quarter, I think we mentioned that we were now pushing 80 post quarter. And as far out as we can see in terms of visibility, we think, you know, maintaining that high seventies, low eighties. To your question about the investment, we’ve made significant investment in the rental fleet this year.

I think over the past, twelve months through Q2, we had a net investment of about $260,000,000 We’ve said that we’re going to have gross investment of roughly $400,000,000 or a little more than $400,000,000 and net investment from disposals of about $200,000,000 in mid single digit to high single digit kind of growth. And we have reacted in the first half of the year. We will continue to react. If we And that that’s one of one of the benefits of the one stop shop is we also have you know, we have inventory that we can always move into our rental fleet.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: That’s also describing the the the the the balancing act here. You could also raise rental rates. Some folks might have to attrition out for a lower, lesser company, smaller company to rent from. How do you balance let’s buy a new one versus let’s bump up the rental rate a little bit and see who might stick around, who might not.

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. It’s it’s a great question, and we we we manage rate a lot kind of in real time. And so that’s the nice thing is it’s it’s a market, so we can obviously set rates to where the market will where we think they will accept it. And so we we lean a lot on our customer relationships and kinda how we’re feeling about our customers and and their perspective on rate. And so we’ll take rate when we think there’s an opportunity or when we’re seeing cost increase, right, which is a reality of of what we’ve been dealing with over the last several quarters, too.

And so we’ll take rate kind of as there’s an opportunity to do that.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: And let’s now turn to the sales division, which is a very important part of the business as well. Tell us a little about how that works. How how do fleets choose between buying, renting? Do they always do one or the other? Is there a combination?

Just give us a sense as to how that works.

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. We’ve, it’s it’s a great question, and it’s one that we get a lot. And I think where we’ve gotten comfortable is we’re really comfortable with the economics of selling a truck, and we’re really comfortable with the economics of renting a truck. And obviously, there’s very different margin profiles and capital intensity if you think about those two businesses, But we’ve gotten really comfortable with both because that’s how our customers want to consume the equipment. And so the the idea of custom truck of of the one stop shop was really to make sure a customer never had to leave kind of what we can offer when it comes to their equipment needs.

And so a lot of our large contractors will buy a portion of their fleet and will rent a portion of their fleet and kind of that percentage may shift every year that may be based you know, their own balance sheet and capital allocation and how they wanna manage capital. It may be based on the duration of the project. It may be based on the type of equipment that they wanna rent. And so but the reality is all of our large customers buy from custom truck and rent from custom truck. And, you know, we think that will continue.

There are certainly some contractors who prefer to rent, and so we’re good kind of with that. There are certainly some contractors who prefer to buy, and so we’re obviously comfortable with that. And so that’s really where the models come from, but we really say we wanna take care of the customer however they want to consume a piece of equipment. On the margin where we can kind of help shift the customer one way or the other, we’ll shift them towards the rental fleet. But in many cases, that’s not an option, and they have CapEx, and they wanna buy, and so we will sell that truck, to them as well.

So that’s how we’ve had to get comfortable with the model. The reality is as we’ve grown, we’ve built two really compelling businesses. Obviously, the truck upfitter, which I think is kinda great as you think about, the growth profile and the free cash flow that that business can generate. And then a really strong rental fleet that we think has really compelling competitive mode, where we think it’s great rental economics if you compare it to a WillScot or United Rentals or a Herc, I think you’ll see really good asset level. Rental economics really get higher margin, but obviously, it’s a bigger consumer of capital right now because we’re continuing to grow the size of that fleet.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: And we’ll we’ll touch on it. There’s also you also service the vehicles later on. We’ll go on a future question. I’ve got them down here, but there’s a service part too. Absolutely.

Occurring. This is all about the outlook for that for that sales business. If I look at the numbers, it looks like Covetruck is one of the top class a truck buyers or u takers in the entire North American market. Not everyone’s aware of that, more than that Swift, more than old old demand freight line. However, if you’re not shipping nothing’s being shipped.

So there’s two kinds of truck. Right? There’s the cargo truck and then there’s the work truck.

Ryan McMonagle, CEO, Custom Truck OneSource: Sure.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: You’re definitely in the a 100% in the in on the work truck side. Some of the forecast that we see on work trucks, though, the straight truck is for a decline next year. And I’m curious, if we’re seeing a broad market decline of, you know, double digits, can custom truck outperform? Just thoughts wise as to quoting orders, your business does not match the broader class a. I just wanna make sure people are understanding how you might differ.

Could you be up next year despite the broader market being down?

Ryan McMonagle, CEO, Custom Truck OneSource: I I would say a definite yes, right, to that question. And I think you have to to me, it starts first with the end markets, right, that we serve. So you go back to utility, you look at any sort of kind of CapEx demand forecast for utility more broadly, you’re still talking about high single digits, maybe low double digits from a growth rate. So I think we’re feeling really good kind of about the demand drivers in that end market. And so I think that’s true there.

It’s true in infrastructure as well. And as Mike said, what we don’t do are over the road trucks. We don’t do highway tractors. We don’t do over the road trucks. And then the other big piece of the straight truck market is what I’ll call kind of box trucks.

So kind of a Penske or a rider model of renting out, you know, 26 foot box trucks. And so we don’t do those either. And so to me, you have to think about end market demand. And so when you think about, utility and infrastructure and rail and telecom, all much stronger kind of fundamental demand drivers there. And then the other piece is we still feel like we are in a market share gaining strategy right now too.

And so to me, that comes from execution. The teams are doing a great job of going out and capturing new customers. We talked a little bit about opening new locations. As we open in a new location, there’s a big new regional market that we can go sell into. And so I think that’s a bit of our market share gain story.

We think we have the right production partners. So we have great partners with a name like Terex or Waste Quip on the Galbert side of things or TBEI on the dump truck side of things, who are all very good partners, for us. And then I also think it gets back to where we started with kind of the competitive moat and scale question as we are able when there is some disruption, we’re able to grow and take advantage of opportunities to go capture more share. So we think kind of the addressable market for the new truck side, some numbers will be closer to $15,000,000,000 some numbers will be closer to $30,000,000,000 of what that addressable market looks like. And even us doing $1,100,000,000 or $1,200,000,000 depending on where the year finishes, we still have a lot of share to gain kind of in that market.

So we see great end market demand and then a really good share gain story that we’re gonna continue to execute on, the rest of this year and into next year as well.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: And now let’s let’s, let’s touch on your gross margins. First half of the year in the sales organization, you were down a couple 100 basis points from the previous year. Can you take us through what happened in the first half of the year as why they’d be down despite good demand? And what are the prospects to get back to those prior levels later this year or or into into 2026?

Perseprajesse, CFO, Custom Truck OneSource: Yeah. We’ve been seeing, I think, the past three years that our target over a cycle is to maintain margins in kind of a 15% to 18% range, which we kind of stayed in. If you go back to ’23 and into early twenty four, margins got, as you said, as high as 17% to 18%. There are a couple of things. One is there were supply chain constraints that were impacting some of our competitors more than it was impacting us.

And so there was less inventory available for the marketplace. And so pricing we do basically market based pricing, and we did see the opportunity to get some incremental pricing. What’s happened since then, obviously, is there’s a lot more inventory out there, as Brian was just talking about, in terms of availability of chassis but also attachments. And so with that, we have seen some pressure when it comes to pricing. But also there’s going to be a mix component both product and customer mix.

Certainly, we sell to larger customers that buy larger amounts of equipment, there’s going be a margin impact there. We did see some improvement in Q2 from 15% to 15.5% for 50 basis points. And we are seeing some potential mix impact favorable mix impact from product in the second half of the year. So again, I think staying within that 15% to 18% is our target. Certainly, we see room for growth, you know, including looking at production efficiencies, you know, cost out exercises, but that target remains the same.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: And that’s and then, again, the same question on the on the the rental side. Gross margin has bounced around a bit the last couple of years. We discussed utilization earlier that might obviously affect things. Having some lumpy quarters on used sales too as I as I as I recall. Just take us through the last couple of quarters on your biz on the rental business, and do you see opportunities to, with the correct utilization, smoothing it out and getting a little more of a consistent number into 2026?

Perseprajesse, CFO, Custom Truck OneSource: Yeah. You know, similar to TES, we’ve set a range of low to mid seventies, which I think we’ve stayed in pretty much during the past three years. And actually, we have seen growth the last three quarters. I think in Q4, we saw an 80 basis point improvement. Q1, we saw, I think, a 200 basis and I think this most recent quarter was almost a 300 basis point improvement in margin.

I think we finished Q2 at 74%. So I think staying in that kind of range, that mid-70s range is the near term target. Certainly, there’s investments we’re making in the rental fleet that are disproportionately in terms of as a percentage into our vocational and specialty rental, which tend to have higher utilization, higher rate, which can impact it. And also as we have grown the fleet and grown OEC on rent, certainly, there’s an absorption impact there of having the fixed cost structure across 40 sites but higher revenue, and so we have seen a little bit of that impact. In the higher utilization, we also see slightly lower repairs and maintenance as percentage.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: Got it. Let’s touch on on on parts and service. That’s the custom trucks third segment. Doesn’t get a lot of press. Yep.

And it’s a bit smaller. It is complementary because it it it will include accessories. So when you talk about one source, you can go to the line and get all your, I guess, gloves or safety gear, whatever you might need. Just tell us a little about that segment. And are you giving any extra focus these days?

And do you foresee it becoming really a more important, part of EBITDA, going forward? Yep.

Ryan McMonagle, CEO, Custom Truck OneSource: No. We say that it’s it’s important, obviously, to executing our overall strategy of being a one stop shop, and there’s two things that I would highlight there. The first is what Mike said. We’re actually seeing a lot of, upsell opportunity as we’re selling trucks and actually as rental trucks are going out to tool them up. And so as Mike said, when a bucket truck is is going out, it needs rubber gear to obviously work on the live power lines.

It needs tools. It needs equipment. And so we’re seeing a big opportunity now to kit up or tool up a lot of these trucks. And so to me, that’s been a nice kinda add on sale, that runs through the the parts, tools, and accessories business. And then the other opportunity that we’re seeing is as our installed base is growing, we see a bigger opportunity to go offer third party service to our customers.

If you all know the history of Custom Truck when we merged, with Nesco back in April ’21, We basically doubled the size of the rental fleet overnight, and custom truck the legacy custom truck model was to perform all of our own service. The Nesco model was more of a third party, service network. And so we doubled the size of the fleet, which doubled the amount of service, right, that we had to to stabilize, we’re starting to hit a bit more maturity on that side of the business. We’re now starting to talk more about how do we offer that service to our third party sales customers as well. And so I think you’ll see more about that in the months and quarters and years ahead of how do we now expand kind of our service offering to better take care of the customers that we’re selling trucks to.

So there’s real demand for it. There’s no question. And we’re starting this to see opportunities and come up with a few strategies of how we’re going to execute that. And so I think that’s what you’ll see is really a growth driver moving forward.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: Got it. Let’s let me touch one last topic here for me on the balance sheet. The debt leverage situation, I’ve always found to be a little bit misunderstood. If you went to your Bloomberg and just typed in some numbers as you come out, they tell you that your leverage is in the fours. But you have rental assets.

You’re a rental company, so there are new or new new assets that can be liquidated. You’re also a distributor with a lot of debt for your for your, floor plan and interest, which people think of as traditional debt, but it really isn’t. Tell us little bit about how you look at the balance sheet internally when you have your internal meetings. How healthy do you think it is? And what would be the right if there were if there were alternative metrics that we could all talk about here, what would they be as to how you how your how your leverage truly is right?

Perseprajesse, CFO, Custom Truck OneSource: Yeah. To your point, our I think our reported leverage is four and a half times at the end of q two. We feel very comfortable, at those levels. We understand as a publicly traded company that that magical mythical three times is kind of a we hear it pretty much in every investor meeting we have, and so it is a target of ours to get there. But to your point, in terms of the rental fleet, if you look at our rental fleet, it’s $1.6 And as Ryan said, if we had to go and buy it on the open market, be $1,900,000,000 $2,000,000,000 A couple of times a year, we get appraisal of those assets.

And we’ve started disclosing in our investor presentation that the orderly liquidation value of that fleet is about $1,300,000,000 So about $1.3 of against debt of about $1.6 so about 80% of that debt level. And so that to answer your question, that’s kind of the way we view it and look at our balance sheet. We very feel very comfortable with $1.6 of debt. Still a priority to further delever. And then on floorplan, as you were mentioning, floorplan, we treat as a payables.

And as a result, the interest cost or the floorplan expense related to that, we don’t add back to EBITDA. We actually reduce it from EBITDA. And so if you look at last year, there was a $60,000,000 charge to EBITDA. And so we we view it, you know, more as an operating cost. Right.

So it’s

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: the most conservative accounting. Exactly. I’ve got a few more, but let’s we’re kind towards the last quarter or so of our session. So I wanna make sure that if anybody has any questions, feel free to throw them out there. I’ve got more.

Alright. I’ll I’ll ask maybe one or two more. So getting leverage down to down to three x by 2026, what do you get there mechanically? Because you’ve got great assets that are running, so why would you you’re gonna probably invest in more assets. So how do you mechanically get to that to that to that three?

Perseprajesse, CFO, Custom Truck OneSource: So I think it’s gonna be three things. I think it’s gonna be, you know, continued growth, so EBITDA expansion. Expansion. We’ve talked about the fact that we expect to get meaningful inventory reduction in the balance of this year on a path from, I think, we got as high as eleven months on hand of our whole goods inventory. I think at the end of last quarter, we were just under nine.

We want to get to six. And so that’s another, let’s call it, 300,000,000 over the course of two years. We’ve said from the start of this year to the end of this year, we’re going to get $200,000,000 It is important to note that a lot of that is floor planned, and so you get about 15% to 20% in terms of cash flow through. So that’s going be a big component of it. Typically, first half, second half EBITDA expansion is roughly 40,000,000 to $50,000,000 better second half versus first half.

And then typically, we see a lower net investment in our rental fleet in the second half of the year. So that’s how you get at the path from where we are at 4.5% at the end of Q2 down to closer to 4% by the end of this year. It’s more of the same next year. So we’re going to continue we think there’s going to be growth next year, so clearly, we’re going to get EBIT expansion. We’re going to continue to work on net working capital improvements.

We’ll get back more to an orderly cadence of kind of how we’re having receipts, which will provide some benefit at the end of the year from a net working capital standpoint. And as I just mentioned, the last twelve months has been the highest investment, net investment in our rental fleet, two x of what it had been the prior two years. So I do think there’ll be some moderation of that as we head into ’26.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: Got it. Got it. Any any I’ll pause again. Any questions from the audience? Alright.

I’m gonna mention a word that I hopefully, everyone’s already sick of, but I might as well bring it up. We’ve gone forty minutes almost without saying the word tariffs.

Ryan McMonagle, CEO, Custom Truck OneSource: Great.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: So I’m gonna throw it out there now. How has that affected I guess it will affect more both on both sides of the business. How how has it affected rental rates? How has it affected your have you had to take a lot of pricing, and have you been able to pass along almost all of that so far?

Ryan McMonagle, CEO, Custom Truck OneSource: Yeah. No. It’s a it’s a great question, and one one one of the things I love about the business is how domestically sourced it is. Right? So it is not as large of an impact as as some other businesses, I know.

And so there are two two big pieces, right, to that story. So the first is the impact of tariffs on the chassis. And so what we did, some of our chassis are built in Mexico. Some of our chassis are built in Canada. They both have plants in The US as well.

And but what we did to mitigate any tariff impact early on was to buy forward more chassis. So we we received more chassis than we originally planned. We pulled them into q two, just to make sure that we had them without any tariff impact. So the tariff impact on chassis was very minimal. And then where there has been some is on some of the parts and excess in some of the parts that we use to put a truck together, but it’s worked out to less than one and a half percent kind of of of the overall cost of what we’re buying.

And so where we’ve seen that cost increase, a little bit has been a headwind to margin on the new sales side. We’ve tried to pass through as much of that as we think the market, would bear. And then as we’ve set rental rates, as we think about rental rates now going forward into 2026, you know, that will be it’ll be part of how we set rental rates heading into 2026. So the the real impact is it’s it was a lot of noise in the beginning of q one and the beginning at

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: the end of q one and

Ryan McMonagle, CEO, Custom Truck OneSource: the beginning of q two, and it’s really turned into not that big of an impact in our overall business.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: So even maybe since the last few weeks with the new tariffs from Mexico content Yep. Some of the PACCAR charges are still made in Mexico, if I’m not mistaken. Yep. So Hasn’t been an issue on price?

Ryan McMonagle, CEO, Custom Truck OneSource: Hasn’t been an issue. Yeah. It’s a really it’s gonna be a really interesting dynamic to watch at the OEMs too because demand forecasts are down so much there. So it seems like there’s a little give and take of price and tariff talk, you know, that that everybody’s working through right now.

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: Got it. Give it one last chance for the for the audience here if anyone wants to ask anything. Okay. Well, with that with that, Ryan and Chris, thanks for being up here with us, and thanks for coming. And thanks to all of you.

Ryan McMonagle, CEO, Custom Truck OneSource: Thanks, Mike. Thank you,

Mike Schlisky, Industrial Machinery Analyst, DA Davidson: Mike. We appreciate

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