Breaking Down Custom Truck One Source, Inc. (CTOS) Financial Health: Key Insights for Investors

You're looking at Custom Truck One Source, Inc. (CTOS) and trying to reconcile strong operational growth with a market that seems defintely skeptical, and honestly, that's the right place to start. The core takeaway from their Q3 2025 report is a classic split: the business is growing, but the balance sheet still has some heavy lifting to do. They posted a solid revenue of $482.1 million, up a healthy 7.8% year-over-year, and Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) jumped nearly 20% to $96.0 million, driven by a 17% increase in the average Original Equipment Cost (OEC) on rent. But still, the market reacted sharply, sending shares down 14.76% because the GAAP net loss, while down 66.9% to just $5.8 million, missed analyst expectations, and the current net leverage ratio sits at a high 4.53x. The full-year guidance remains confident, projecting revenue at the midpoint of $2.02 billion, but you need to know if the tailwinds from infrastructure spending can outrun the debt load and the pressure on earnings per share (EPS).

Revenue Analysis

You need to know where the money is coming from, and for Custom Truck One Source, Inc. (CTOS), the story for 2025 is one of continued, albeit uneven, growth driven by infrastructure demand. The company is defintely on track to hit its full-year consolidated revenue guidance of between $1.97 billion and $2.06 billion, which signals double-digit growth for the year. This top-line expansion is largely fueled by the strong demand for vocational vehicles across their core markets, especially in the electric utility sector.

The revenue structure is split across three key business segments, and understanding their contribution is crucial for investors. The largest segment, Truck & Equipment Sales (TES), generates the bulk of the revenue, but the Equipment Rental Solutions (ERS) segment is where you see the most potent growth momentum. It's a classic sales vs. recurring revenue dynamic.

Here's the quick math on the expected revenue breakdown for the 2025 fiscal year, based on the midpoint of the company's guidance:

Looking at the near-term performance, the year-over-year revenue growth rate remains healthy. For the nine months ended September 30, 2025, total revenue increased by 10.5% compared to the same period in 2024. In the third quarter of 2025 alone, total revenue was $482.1 million, an increase of 7.8% over the third quarter of 2024. That's solid growth, even if it slightly missed Wall Street's higher expectations.

The significant change in the revenue mix is the accelerating strength of the ERS segment. This is important because rental revenue typically offers higher margins and more predictable cash flow than one-off equipment sales. The ERS segment saw a 12% revenue increase in Q3 2025, with rental revenue specifically jumping by a robust 18% year-over-year. This performance was driven by improved average fleet utilization, which climbed to over 79% in Q3 2025.

Still, the TES segment, which focuses on new equipment sales, continues to be the largest, with a 6% revenue increase in Q3 2025. The Aftermarket Parts & Service (APS) segment, which provides maintenance and repair, saw a more modest 3.0% increase in Q3 2025. This tells you the primary growth engine is currently the rental fleet, not just new truck sales, which is a positive shift toward recurring revenue streams.

The key takeaway here is that while the bulk of revenue comes from equipment sales, the quality of earnings is improving as the higher-margin rental business accelerates. You can dive deeper into the operational levers driving this trend in the full post: Breaking Down Custom Truck One Source, Inc. (CTOS) Financial Health: Key Insights for Investors.

• ERS rental revenue grew 18% in Q3 2025.
• TES sales increased 6% in Q3 2025.
• Full-year revenue guidance midpoint is $2.02 billion.

Profitability Metrics

You need to know if Custom Truck One Source, Inc. (CTOS) is making money efficiently, not just moving a lot of metal. The quick answer is that while the company is driving significant top-line growth, its overall margins are thin and lag behind industry peers, largely due to its high-volume Truck & Equipment Sales (TES) segment.

For the third quarter of 2025 (Q3 2025), CTOS reported total revenue of $482.1 million, a solid 7.8% jump year-over-year. But looking at the margins tells a more nuanced story about where the profits actually come from and the cost of capital. Here's the quick math on Q3 2025 performance:

• Gross Profit Margin: 20.9% ($100.8 million Gross Profit / $482.1 million Revenue)
• Operating Profit Margin: 6.8%
• Net Profit Margin: -1.2% (a net loss of $5.8 million)

The company is profitable at the operating level, but high interest expense (common for asset-heavy businesses) pushes it to a net loss. This is defintely a key risk to watch.

The trend shows an improving picture, which is the good news. The Q3 2025 net loss of $5.8 million is a significant improvement, narrowing by 66.9% from the $17.4 million net loss in Q3 2024. Also, the operating margin improved to 6.8% in Q3 2025, up from 5.2% in the same quarter last year, showing better cost management below the gross profit line. Management is clearly focused on operational efficiency (OpEx), and it's starting to pay off.

Segment-Level Efficiency vs. Industry Peers

CTOS is a multi-segment business, and its profitability varies wildly between them. The Equipment Rental Solutions (ERS) segment is the high-margin engine, while the Truck & Equipment Sales (TES) segment is the high-volume, lower-margin driver. This is a common but important distinction in the specialty equipment world.

To be fair, the overall 20.9% gross margin looks weak when stacked against the broader heavy equipment rental industry, where gross margins typically hover around 40% for pure-play rental. Even the broader Machinery industry averages a Gross Profit Margin of around 35.54%. The reason for this gap is the TES segment, which posted a gross margin of just 15% in Q3 2025. That's the cost of being a distributor.

However, the high-margin ERS segment is performing well, with an adjusted gross margin of 62% in Q3 2025. This is a best-in-class number and a strong indicator of pricing power and fleet utilization, which reached 79.3% in the quarter. For a deeper look at who's betting on this model, check out Exploring Custom Truck One Source, Inc. (CTOS) Investor Profile: Who's Buying and Why?

Here's a snapshot of how the core segments drive the margin story:

The key action for investors is to focus on the ERS segment's growth. The company's full-year 2025 Adjusted EBITDA guidance midpoint is strong at $380 million, which is a key measure of core profitability before debt and depreciation. This suggests that while net profit is negative, the underlying cash-flow generation is robust and growing, driven by the high-margin rental business.

Debt vs. Equity Structure

You need to know how Custom Truck One Source, Inc. (CTOS) is funding its growth, because a high debt load can quickly turn a market headwind into a financial crisis. The short answer is that CTOS is a highly leveraged company, which is common in the capital-intensive equipment rental and sales business, but its debt-to-equity ratio is noticeably higher than its primary peers.

As of the third quarter of 2025, the company's total debt outstanding stood at approximately $1,666.4 million, with a net debt figure of $1,653.3 million. This debt is primarily long-term, used to finance its expansive fleet of specialized equipment. The long-term debt, net of current maturities, was a substantial $1.63 billion as of September 30, 2025. The current maturities of long-term debt, which is a component of short-term debt, were a manageable $20.89 million. This is a capital-intensive business; they need big loans to buy big trucks.

Here's the quick math on their capital structure, comparing debt to stockholders' equity:

• Total Debt (Q3 2025): $1,666.4 million
• Total Stockholders' Equity (Q3 2025): $784.7 million
• Debt-to-Equity (D/E) Ratio: 2.12x

This Debt-to-Equity (D/E) ratio of approximately 2.12x (or 212%) means that for every dollar of shareholder equity, the company has financed $2.12 with debt. To be fair, capital-intensive sectors like equipment rental often have higher D/E ratios-sometimes up to 2.5x is considered normal. Still, a key competitor in this space operates with a D/E ratio closer to 1.40x, and their Q3 2025 net leverage ratio was around 1.9x, which highlights the relative leverage risk at CTOS.

The company's management is defintely aware of this leverage. Their net leverage ratio (Net Debt / Adjusted EBITDA) was 4.53x as of Q3 2025, a metric they are actively targeting to reduce to below 3x by the end of fiscal year 2026. This focus on debt reduction is a clear strategic priority, with free cash flow expected to be directed toward paying down principal.

In terms of recent activity, Custom Truck One Source, Inc. primarily uses its Asset-Based Loan (ABL) facility for flexibility, with borrowings under the ABL increasing to approximately $670 million by the end of Q2 2025 to fund fleet expansion and working capital needs. The company is balancing this debt-heavy approach, which allows for faster asset acquisition and growth, against the higher interest expense and financial risk. The key action for you as an investor is to monitor their progress on the 3x net leverage target. If you want to dive deeper into who is buying the stock, check out Exploring Custom Truck One Source, Inc. (CTOS) Investor Profile: Who's Buying and Why?

Liquidity and Solvency

As a seasoned analyst, I look at liquidity-your ability to meet near-term obligations-with a clear-eyed focus on ratios and cash flow. For Custom Truck One Source, Inc. (CTOS), the picture is one of strong operational cash generation but tight current liquidity, which is common for a capital-intensive equipment rental and sales business.

The company's standard liquidity ratios, based on the most recent trailing twelve months (TTM) data available, show a constrained position. The Current Ratio sits at 1.26, meaning CTOS has $1.26 in current assets for every dollar of current liabilities. That's above the 1.0 safety line, but the Quick Ratio (the acid-test ratio, which excludes inventory) is notably low at just 0.23. This tells you the company relies heavily on selling its inventory to cover short-term debts. Honestly, that's a structural reality when a huge portion of your current assets is equipment inventory, but it's a risk you must track.

Here's the quick math on their working capital trends (current assets minus current liabilities):

• The Net Current Asset Value, a proxy for working capital, was $-396.24 million (TTM as of late 2024).
• This negative position reflects the company's reliance on floor plan financing (a type of loan secured by inventory) and other short-term debt to fund its large equipment inventory.
• Management is defintely aware of this, focusing on inventory reduction and directing free cash flow (FCF) toward debt reduction to improve the balance sheet structure.

Still, the cash flow statement for the nine months ended September 30, 2025, tells a much better story about operational health. Cash flow from operating activities (CFO) was a robust $262.8 million, a significant jump from the prior year, driven by lower inventory production. This demonstrates the core business is generating substantial cash, which is the ultimate source of liquidity.

The cash flow trends break down like this:

The Investing Cash Flow (CFI) of $-233.8 million is a planned use of capital, reflecting the strategic decision to invest in the rental fleet, with net rental capital expenditures (CapEx) now guided for approximately $250 million for the full year 2025. This spending is a positive signal, as it supports the high-growth Equipment Rental Solutions (ERS) segment. The Financing Cash Flow (CFF) shows a net outflow of $-84 million over the trailing twelve months, indicating the company is beginning to pay down debt rather than primarily taking on new financing, which aligns with their goal to reduce net leverage from 4.53x (Q3 2025) to below 3x by the end of fiscal 2026.

The company's primary liquidity strength lies in its Asset-Based Lending (ABL) facility. As of Q3 2025, CTOS had $237.6 million in available borrowing capacity under the ABL. While ABL borrowings were $708.5 million, this available capacity, plus $13.1 million in cash, provides a substantial buffer. The core opportunity for investors is the strong operating cash flow being reinvested to fuel rental growth and, eventually, pay down debt. For a deeper dive into the company's strategic position, check out the full post: Breaking Down Custom Truck One Source, Inc. (CTOS) Financial Health: Key Insights for Investors.

Valuation Analysis

You're looking at Custom Truck One Source, Inc. (CTOS) and asking the essential question: is the stock priced right? The short answer, based on a consensus of analyst models and core multiples as of late 2025, is that the market may be undervaluing the company's growth trajectory. The most widely followed narrative suggests a fair value of $7.58 per share, indicating the stock is potentially 24% undervalued from a recent closing price of $5.76.

This view hinges on the company's ability to execute on its strategy, which you can read more about in their Mission Statement, Vision, & Core Values of Custom Truck One Source, Inc. (CTOS).

Key Valuation Multiples

When we look at traditional valuation metrics, we get a mixed picture, which is common for a company still in a high-growth, capital-intensive phase. Here's the quick math on the TTM (Trailing Twelve Months) figures for the 2025 fiscal year:

• Price-to-Earnings (P/E): This ratio is currently not meaningful as the company reported a negative EPS (Earnings Per Share) of approximately -$0.16 for the 2025 fiscal year. You can't divide by a negative number to get a useful multiple, so we have to look elsewhere.
• Price-to-Book (P/B): The P/B ratio is sitting at roughly 1.72. For a specialty equipment provider, this suggests the market is valuing the company at a premium to its net assets, but not excessively. It signals confidence in the quality of those assets and their future earning power.
• Enterprise Value-to-EBITDA (EV/EBITDA): This is arguably the most critical metric here, as it strips out the impact of debt and depreciation. As of November 2025, CTOS's EV/EBITDA is approximately 9.06. This is calculated using an Enterprise Value of around $3.58 billion and TTM EBITDA of $395.18 million. This multiple is often considered reasonable for an industrial rental company, suggesting it's not defintely overvalued on an operational basis.

Stock Performance and Capital Returns

The stock has had a good run for patient investors, but it's been volatile. Over the last 52 weeks, the stock price has climbed by over +18.92%, with a 52-week trading range between a low of $3.18 and a high of $6.78. The year-to-date gain is similar, up around 19% as of early November 2025. This upward trend shows the market is reacting positively to the company's strong revenue growth and reaffirmed 2025 guidance, which projects revenue between $1.97 billion and $2.06 billion.

Regarding capital returns, Custom Truck One Source, Inc. is a growth-focused stock. The company does not currently pay a dividend, meaning both the dividend yield and payout ratio are 0.00%. They are reinvesting all cash back into the business, primarily expanding their rental fleet, which is exactly what you want to see from a company focused on long-term infrastructure demand.

Analyst Consensus and Price Targets

The Street's view is generally positive, but not without caution. The overall analyst consensus is a 'Buy', though a few firms maintain a 'Hold' rating.

The average 12-month price target is $7.33, which suggests an upside of over 33.64% from a recent price. This target is driven by expectations of continued strong demand from utility infrastructure upgrades and sustained high fleet utilization rates, which exceeded 79% in Q3 2025.

What this estimate hides is the company's high debt load, which could quickly alter sentiment if borrowing costs rise further. Still, the underlying operational performance supports the optimistic price targets.

Next Step: Review the Q3 2025 earnings call transcript for management's commentary on debt reduction plans to gauge the risk-mitigation strategy.

Risk Factors

You're looking at Custom Truck One Source, Inc. (CTOS) because the specialty equipment market is hot, driven by utility and infrastructure spending. That's the opportunity. But as a seasoned analyst, I focus on what can derail the plan, and for CTOS, the key risks in the 2025 fiscal year center on debt, sales volatility, and external regulatory headwinds.

The most pressing financial risk is the company's debt load. As of September 30, 2025, total debt outstanding was a significant $1,666.4 million, resulting in a Net Leverage Ratio of 4.53x. This is a high number for an industrial company. The company's primary financial goal is to reduce this net leverage below 3x by the end of fiscal 2026, using their levered free cash flow to pay it down. That's a tough, but necessary, target to hit.

On the operational front, the Truck & Equipment Sales (TES) segment shows some near-term softness. The sales order backlog for TES was down 29% compared to the third quarter of 2024, falling just under the company's expected four-to-six-month range. Plus, the gross margin in the TES segment was 15% in Q3 2025, a decrease from the prior year, indicating pricing pressure in the market. This is a clear sign of competition or a shift in the sales mix. Honestly, a shrinking backlog means you need to watch those future revenue projections closely.

• High interest rates may deter smaller customers.
• TES backlog is down 29% year-over-year.
• Net leverage of 4.53x needs aggressive reduction.

External factors also pose a threat. The company operates in a highly regulated space, and new environmental rules, like the potential NOx and Advanced Clean Truck (ACT) regulations, could increase the cost of new trucks by 5% to 15%. Also, U.S. tariff policy changes, especially on chassis coming from Canada and Mexico, are a constant concern, potentially raising costs and putting pressure on the Truck & Equipment Sales margin. The good news is CTOS is defintely aware of this.

Here's the quick math on their 2025 outlook versus the risk of a sales slowdown. The company reaffirmed its full-year 2025 guidance, expecting total revenue between $1.97 billion and $2.06 billion. If the TES backlog trend continues, hitting the high end of that range, which is $2.06 billion, becomes much harder. What this estimate hides is that the Equipment Rental Solutions (ERS) segment is currently a strong mitigator, with average fleet utilization exceeding 79% in Q3 2025, which helps offset sales volatility.

The mitigation strategy is two-fold: operational efficiency and proactive risk management. They are leveraging their large rental fleet and strong inventory management to hedge against inflation and supply chain issues, including proactively pulling forward chassis purchases to minimize the impact of new tariffs. For a deeper look at their long-term vision that underpins these strategies, you can review their Mission Statement, Vision, & Core Values of Custom Truck One Source, Inc. (CTOS).

To summarize the key risk and mitigation points for your review:

So, the action item is clear: track the net leverage ratio and the TES backlog trend in the next quarter. If the leverage doesn't drop and the backlog continues to shrink, the stock's risk profile rises significantly.

Growth Opportunities

You're looking for a clear map of where Custom Truck One Source, Inc. (CTOS) is heading, and the path is defintely paved by infrastructure spending. The company is strategically positioned to capitalize on massive, long-term secular tailwinds (big, enduring market trends) that are driving demand for their specialty equipment across all three segments: Equipment Rental Solutions (ERS), Truck & Equipment Sales (TES), and Aftermarket Parts and Services (APS).

The core of their near-term opportunity is the utility sector, specifically Transmission & Distribution (T&D), which represents about 55% of their business. This isn't just maintenance work; it's a multi-year build-out. Here's the quick math: U.S. Investor-Owned Utilities are projected to spend nearly $600 billion on T&D capital projects between 2025 and 2029, with transmission spending growing at a 15%+ Compound Annual Growth Rate (CAGR).

Future Revenue and Earnings Projections

For the full 2025 fiscal year, Custom Truck One Source is guiding toward double-digit growth, which shows real confidence in their market position despite some macro volatility. They are reaffirming their guidance for consolidated revenue between $1.97 billion and $2.06 billion, representing a solid 9% to 14% year-over-year increase. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), a key measure of operational cash flow, is also projected to grow by 9% to 15%, landing between $370 million and $390 million. While the consensus EPS estimate for 2025 is a net loss of -$0.05 per share, the focus is on their operational performance and cash generation. They expect to generate meaningful levered free cash flow of more than $50 million this year, which is crucial for debt reduction.

The growth is balanced across their segments, but the Truck & Equipment Sales (TES) segment remains the largest revenue driver. For 2025, the segment-specific revenue outlook is clear:

Key Growth Drivers and Competitive Edge

The company's growth isn't reliant on a single bet; it's a confluence of macro forces and operational execution. They are seeing sustained demand driven by electrification of vehicles and buildings, the onshoring of manufacturing, and the massive power needs of AI-related data centers. This is a strong, diversified tailwind.

Their competitive advantage rests on two pillars: their integrated model and operational efficiency.

• Integrated Model: Offering rental, sales, and service (APS) provides a full-service solution, making them a one-stop shop for customers.
• Fleet Utilization: The Equipment Rental Solutions (ERS) segment is showing impressive operational discipline, with average utilization exceeding 79% in Q3 2025. This high utilization rate directly translates to better returns on their assets.
• Supply Chain Strength: Their multi-decade relationships with key chassis, body, and attachment suppliers are critical for the TES segment, ensuring a steady flow of vocational vehicles to meet robust customer orders.

Plus, they are actively managing their balance sheet, with a clear strategic initiative to reduce their net leverage ratio by the end of 2025, aiming for a target under 3x by the end of 2026. This focus on financial discipline alongside growth is what separates a good strategy from a great one. If you want a deeper dive into their balance sheet metrics, you should check out the full article at Breaking Down Custom Truck One Source, Inc. (CTOS) Financial Health: Key Insights for Investors.

Finance: Track the net leverage ratio quarterly against the goal of a meaningful reduction by year-end.