Custom Truck One Source’s Q1 2025: Navigating Contradictions in Margins, Sales, and Growth Expectations

Gross margin guidance for TES, sales conversion time, ERS rental revenue growth expectation, and leverage expectations are the key contradictions discussed in Custom Truck One Source, Inc.'s latest 2025Q1 earnings call.



Strong Financial Performance and Revenue Growth:
- Custom Truck One Source (CTOS) reported revenue of $422 million for Q1 2025, with ERS segment revenue up 13% year-over-year, driven by increased rental demand and a 13% growth in OEC on rent.
- The growth was driven by solid fundamentals across primary end markets such as utilities and a robust rental fleet investment.

TES Segment Recovery and Backlog Expansion:
- TES segment experienced a backlog increase of over $51 million (14%) in Q1, with March being the strongest sales month in the company's history.
- The recovery was due to strong order flow and customer demand, offsetting a slower start in January and February.

Tariff Mitigation Efforts and Inventory Management:
- CTOS mitigated tariff impacts by proactively managing inventory levels, with an increase in borrowings to $655 million in Q1.
- The company strategically pulled forward inventory purchases and leveraged long-term vendor relationships to manage tariff-related cost increases.