Custom Truck One Source Delivers Record-Breaking Quarter with Strong Rental Business Performance
Custom Truck One Source, a leading provider of rental equipment and services for the construction industry, recently reported its third-quarter 2026 earnings, delivering another strong quarter driven by record performance in its rental business. The company's adjusted EBITDA was $111 million, up 16% year-over-year, with SER segment revenue increasing 18% and STEM segment revenue growing 8%.
CEO Ryan McMonagle highlighted the company's record demand in the transmission and distribution (T&D) markets, with rental fleet utilization averaging 81.5% during the third quarter, up 220 basis points from Q3 last year. This was supported by record levels of OEC on rent, which averaged just under $1.4 billion in Q3, a 10% increase year-over-year.
McMonagle also emphasized that the company is seeing the early stages of what could be a once-in-a-generation transmission demand super cycle, with SER third-quarter results supporting this trend. The company ended the third quarter with total OEC of over $1.76 billion, the highest quarter-end level in its history.
The continued investment in Custom Truck One Source's rental fleet reflects sustained record-level demand and supports the company's expected growth in SER for the remainder of 2026 and into 2027. With an average fleet age of just under three years old, one of the youngest fleets in the industry, Custom Truck One Source is well-positioned to support its customers' needs across the country.
McMonagle emphasized that capital allocation was a key decision for the company this quarter, with demand from transmission customers building beyond original fleet plan assumptions. The company chose to meet this demand by raising its 2026 net rental fleet investment to $210 million-$230 million, directing STEM production capacity to its own fleet to get units on rent faster and targeting high-return specialty products.
The company's rental gross margins were nearly 79% in the quarter, with on-rent yield over 39%. However, McMonagle noted that there is a trade-off in timing, as levered free cash flow this year will be slightly positive rather than the more than $50 million expected. The incremental units added this year are expected to contribute meaningfully in 2027 but only modestly in 2026 due to delivery timing.
Despite the investment, Custom Truck One Source's net leverage fell to 3.7 times this quarter, down sequentially from Q2. The company remains committed to getting below three times in 2027 and is confident that its trucks and equipment will continue to power the people who strengthen and build critical infrastructure.
Custom Truck One Source's strong performance in the third quarter demonstrates its ability to adapt to changing market conditions and capitalize on growth opportunities, further solidifying its position as a leader in the rental equipment industry.
