Custom Truck One Source, Inc. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-Q

_______________________________




☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023




☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38186

_______________________________

CUSTOM TRUCK ONE SOURCE, INC.

(Exact name of registrant as specified in its charter)

_______________________________


Delaware			84-2531628
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

7701 Independence Ave

Kansas City, MO 64125

(Address of principal executive offices, including zip code)

(816) 241-4888

(Registrant’s telephone number, including area code)

_______________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	CTOS	New York Stock Exchange
Redeemable warrants, exercisable for Common Stock, $0.0001 par value per share	CTOS.WS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☒

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock outstanding as of November 3, 2023 was 242,880,347.

Custom Truck One Source, Inc. and Subsidiaries

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Page Number

Item 1.

Financial Statements

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2023 and 2022

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

SIGNATURES

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Custom Truck One Source, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in $000s, except per share data)	2023		2022		2023		2022
Revenue
Rental revenue	$	118,209	$	115,010	$	358,666	$	336,210
Equipment sales	283,079		210,903		886,486		656,595
Parts sales and services	33,065		31,867		98,194		93,557
Total revenue	434,353		357,780		1,343,346		1,086,362
Cost of Revenue
Cost of rental revenue	29,874		28,207		91,754		82,791
Depreciation of rental equipment	42,469		42,612		126,415		130,900
Cost of equipment sales	228,912		173,588		720,303		545,461
Cost of parts sales and services	25,942		25,201		77,438		71,787
Total cost of revenue	327,197		269,608		1,015,910		830,939
Gross Profit	107,156		88,172		327,436		255,423
Operating Expenses
Selling, general and administrative expenses	56,955		49,835		171,974		152,269
Amortization	6,698		6,794		19,976		27,000
Non-rental depreciation	2,602		1,938		7,973		7,302
Transaction expenses and other	2,890		6,498		10,039		17,192

Total operating expenses	69,145		65,065		209,962		203,763
Operating Income	38,011		23,107		117,474		51,660
Other Expense

Interest expense, net	34,144		22,887		94,945		62,324
Financing and other income	(5,745)		(1,747)		(14,744)		(25,905)
Total other expense	28,399		21,140		80,201		36,419
Income Before Income Taxes	9,612		1,967		37,273		15,241
Income Tax Expense	432		4,349		2,683		7,273
Net Income (Loss)	$	9,180	$	(2,382)	$	34,590	$	7,968

Other Comprehensive Income (Loss):
Unrealized foreign currency translation adjustments	$	(2,823)	$	(7,651)	$	(259)	$	(10,287)
Other Comprehensive Loss	(2,823)		(7,651)		(259)		(10,287)
Comprehensive Income (Loss)	$	6,357	$	(10,033)	$	34,331	$	(2,319)

Net Income (Loss) Per Share:
Basic	$	0.04	$	(0.01)	$	0.14	$	0.03
Diluted	$	0.04	$	(0.01)	$	0.14	$	0.03
Weighted-Average Common Shares Outstanding:
Basic (in thousands)	245,810		247,704		245,987		247,448
Diluted (in thousands)	246,594		247,704		246,809		247,926

See accompanying notes to unaudited condensed consolidated financial statements.

Custom Truck One Source, Inc.

Condensed Consolidated Balance Sheets (unaudited)


(in $000s, except share data)	September 30, 2023		December 31, 2022
Assets
Current Assets
Cash and cash equivalents	$	8,793	$	14,360
Accounts receivable, net	156,305		193,106
Financing receivables, net	41,914		38,271
Inventory	888,755		596,724
Prepaid expenses and other	21,036		25,784
Total current assets	1,116,803		868,245
Property and equipment, net	136,567		121,956
Rental equipment, net	924,315		883,674
Goodwill	703,812		703,827
Intangible assets, net	284,146		304,132
Operating lease assets	36,920		29,434
Other assets	25,107		26,944
Total Assets	$	3,227,670	$	2,938,212
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	130,466	$	87,255
Accrued expenses	72,550		68,784
Deferred revenue and customer deposits	22,641		34,671
Floor plan payables - trade	194,929		136,634
Floor plan payables - non-trade	396,891		293,536
Operating lease liabilities - current	6,198		5,262
Current maturities of long-term debt	1,286		6,940
Current portion of finance lease obligations	—		1,796
Total current liabilities	824,961		634,878
Long-term debt, net	1,426,062		1,354,766
Finance leases	—		3,206
Operating lease liabilities - noncurrent	31,559		24,818
Deferred income taxes	31,091		29,086
Derivative, warrants and other liabilities	606		3,015
Total long-term liabilities	1,489,318		1,414,891

Stockholders' Equity
Common stock — $0.0001 par value, 500,000,000 shares authorized, 249,538,314 and 248,311,104 shares issued and outstanding, at September 30, 2023 and December 31, 2022, respectively	25		25
Treasury stock, at cost — 5,630,643 and 2,241,069 shares at September 30, 2023 and December 31, 2022, respectively	(37,256)		(15,537)
Additional paid-in capital	1,533,823		1,521,487
Accumulated other comprehensive loss	(9,206)		(8,947)
Accumulated deficit	(573,995)		(608,585)
Total stockholders' equity	913,391		888,443
Total Liabilities and Stockholders' Equity	$	3,227,670	$	2,938,212

See accompanying notes to unaudited condensed consolidated financial statements.

Custom Truck One Source, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)


	Nine Months Ended September 30,
(in $000s)	2023		2022
Operating Activities
Net income	$	34,590	$	7,968
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation and amortization	162,084		171,121
Amortization of debt issuance costs	4,221		3,485

Provision for losses on accounts receivable	4,522		5,905
Share-based compensation	10,312		9,526
Gain on sales and disposals of rental equipment	(48,392)		(35,064)


Change in fair value of derivative and warrants	(2,409)		(18,013)

Deferred tax expense	1,959		6,792
Changes in assets and liabilities:

Accounts and financing receivables	21,978		(17,637)
Inventories	(290,302)		(155,111)
Prepaids, operating leases and other	6,143		2,475

Accounts payable	42,707		9,900
Accrued expenses and other liabilities	3,620		9,397
Floor plan payables - trade, net	58,295		8,726
Customer deposits and deferred revenue	(12,034)		(5,126)
Net cash flow from operating activities	(2,706)		4,344
Investing Activities
Acquisition of business, net of cash acquired	—		(49,832)
Purchases of rental equipment	(289,984)		(224,002)
Proceeds from sales and disposals of rental equipment	177,623		135,436

Purchase of non-rental property and cloud computing arrangements	(33,251)		(15,529)

Net cash flow from investing activities	(145,612)		(153,927)
Financing Activities
Proceeds from debt	13,537		—



Share-based payments	387		(1,250)
Borrowings under revolving credit facilities	111,057		87,000
Repayments under revolving credit facilities	(56,377)		(34,945)
Repayments of notes payable	(6,674)		(6,126)
Finance lease payments	(2,682)		(3,308)
Repurchase of common stock	(19,936)		(1,752)
Acquisition of inventory through floor plan payables - non-trade	571,062		451,202
Repayment of floor plan payables - non-trade	(467,707)		(348,961)
Payment of debt issuance costs	(110)		—

Net cash flow from financing activities	142,557		141,860
Effect of exchange rate changes on cash and cash equivalents	194		(2,005)
Net Change in Cash and Cash Equivalents	(5,567)		(9,728)
Cash and Cash Equivalents at Beginning of Period	14,360		35,902
Cash and Cash Equivalents at End of Period	$	8,793	$	26,174

Custom Truck One Source, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited) — Continued


	Nine Months Ended September 30,
(in $000s)	2023		2022
Supplemental Cash Flow Information
Interest paid	$	51,142	$	44,414
Income taxes paid	1,897		—
Non-Cash Investing and Financing Activities


Rental equipment and property and equipment purchases in accounts payable	596		—
Rental equipment sales in accounts receivable	1,573		747

See accompanying notes to unaudited condensed consolidated financial statements.

Custom Truck One Source, Inc.

Condensed Consolidated Statements of Stockholders' Equity (unaudited)


			Common Stock		Treasury Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares
(in $000s, except share data)	Common	Treasury
Balance, December 31, 2022	248,311,104	(2,241,069)	$	25	$	(15,537)	$	1,521,487	$	(8,947)	$	(608,585)	$	888,443
Net income	—	—	—		—		—		—		13,800		13,800
Other comprehensive income	—	—	—		—		—		342		—		342
Common stock repurchase	—	(174,744)	—		(1,122)		—		—		—		(1,122)
Share-based payments	130,484	(11,582)	—		(77)		3,451		—		—		3,374
Balance, March 31, 2023	248,441,588	(2,427,395)	$	25	$	(16,736)	$	1,524,938	$	(8,605)	$	(594,785)	$	904,837
Net income	—	—	—		—		—		—		11,610		11,610
Other comprehensive income	—	—	—		—		—		2,222		—		2,222
Common stock repurchases	—	(505,142)	—		(3,205)		—		—		—		(3,205)
Share-based payments	919,763	(221,233)	—		(1,497)		5,505		—		—		4,008
Balance, June 30, 2023	249,361,351	(3,153,770)	$	25	$	(21,438)	$	1,530,443	$	(6,383)	$	(583,175)	$	919,472
Net income	—	—	—		—		—		—		9,180		9,180
Other comprehensive loss	—	—	—		—		—		(2,823)		—		(2,823)
Common stock repurchases	—	(2,466,609)	—		(15,754)		—		—		—		(15,754)
Share-based payments	176,963	(10,264)	—		(64)		3,380		—		—		3,316
Balance, September 30, 2023	249,538,314	(5,630,643)	$	25	$	(37,256)	$	1,533,823	$	(9,206)	$	(573,995)	$	913,391


			Common Stock		Treasury Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares
(in $000s, except share data)	Common	Treasury
Balance, December 31, 2021	247,358,412	(318,086)	$	25	$	(3,020)	$	1,508,995	$	—	$	(647,490)	$	858,510
Net income (loss)	—	—	—		—		—		—		(3,273)		(3,273)
Share-based payments	102,630	(21,505)	—		(287)		3,559		—		—		3,272
Balance, March 31, 2022	247,461,042	(339,591)	$	25	$	(3,307)	$	1,512,554	$	—	$	(650,763)	$	858,509
Net income	—	—	—		—		—		—		13,623		13,623
Other comprehensive loss	—	—	—		—		—		(2,636)		—		(2,636)
Share-based payments	607,561	(150,420)	—		(1,156)		1,785		—		—		629
Balance, June 30, 2022	248,068,603	(490,011)	$	25	$	(4,463)	$	1,514,339	$	(2,636)	$	(637,140)	$	870,125
Net income (loss)	—	—	—		—		—		—		(2,382)		(2,382)
Other comprehensive loss	—	—	—		—		—		(7,651)		—		(7,651)
Common stock repurchases	—	(388,521)	—		(2,437)		—		—		—		(2,437)
Share-based payments	1,250	(305)	—		(3)		4,378		—		—		4,375
Balance, September 30, 2022	248,069,853	(878,837)	$	25	$	(6,903)	$	1,518,717	$	(10,287)	$	(639,522)	$	862,030

See accompanying notes to unaudited condensed consolidated financial statements.

Custom Truck One Source, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1: Business and Organization

Organization

Custom Truck One Source, Inc., a Delaware corporation, and its wholly owned subsidiaries (“we,” “our,” “us,” or “the Company”) are engaged in the business of providing a range of products and services to customers through rentals and sales of specialty equipment, rentals and sales of aftermarket parts and services related to the specialty equipment, and repair, maintenance and customization services related to that equipment.

We are a specialty equipment provider to the electric utility transmission and distribution, telecommunications, rail and other infrastructure-related industries in North America. Our core business relates to our new equipment inventory and rental fleet of specialty equipment that is utilized by service providers in infrastructure development and improvement work. We offer our specialized equipment to a diverse customer base, including utilities and contractors, for the maintenance, repair, upgrade, and installation of critical infrastructure assets, including distribution and transmission electric lines, telecommunications networks and rail systems, as well as for lighting and signage. We rent, produce, sell and service a broad range of new and used equipment, including bucket trucks, digger derricks, dump trucks, cranes, service trucks, and heavy-haul trailers. We manage the business in three reporting segments: Equipment Rental Solutions (“ERS”), Truck and Equipment Sales (“TES”) and Aftermarket Parts and Services (“APS”).

Supply Chain

The Company purchases raw materials, component parts and finished goods to be used in the manufacturing, sale and rental of its products. Uncertainty remains regarding supply chain disruptions, inflationary pressures, public health crises, and geopolitical risks that have led to issues, broadly, in the supply chain. Changes in the Company’s relationships with suppliers, shortages in availability of materials, production delays, regulatory restrictions, public health crises, or other supply chain disruptions, whether due to suppliers or customers, could have a material adverse effect on the Company’s ability to timely manufacture and market products. Increases in the costs of shipping and transportation, purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or the Company’s inability to market products. The unprecedented nature of the supply chain disruptions continues to make it difficult to predict the Company’s future business and financial performance. The Company continues to monitor the impact on its supply chain, including, but not limited to, the commercial vehicle manufacturers that provide the chassis used in the Company’s production and manufacturing processes and the ongoing semiconductor shortage, which could potentially limit the ability of these manufacturers to meet demand in future periods.

Basis of Presentation

Our accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). Our condensed consolidated financial statements include the accounts of all wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in accordance with GAAP requires that these Unaudited Condensed Consolidated Financial Statements and most of the disclosures in these Notes be presented on a historical basis, as of or for the current interim period ended or comparable prior period.

The accompanying interim statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and the Condensed Consolidated Balance Sheet at December 31, 2022, has been derived from the audited consolidated financial statements of Custom Truck One Source, Inc. at that date. Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments and disclosures necessary for a fair statement of these interim statements, have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year or for any other periods. These interim statements should be read in conjunction with the Custom Truck One Source, Inc. audited consolidated financial statements included in the Custom Truck One Source, Inc. Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Accounting Pronouncements Recently Adopted

Contract Assets and Contract Liabilities from Contracts with Customers. In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). This ASU improves the comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination and requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amended guidance specifies for all acquired revenue contracts regardless of their timing of payment (1) the circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business combination and (2) how to measure those contract assets and contract liabilities, thereby providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU was effective as of January 1, 2023. The Company applies the guidance in ASU 2021-08 prospectively to any future business combinations occurring on or after the effective date.

Financing Receivables. In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326) (“ASU 2022-02”), which requires an entity to disclose current period gross write-offs by year of origination for financing receivables and net investment in leases. Gross write-off information must be included in the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit-quality indicator and class of financing receivable by year of origination. The adoption on January 1, 2023 of the ASU had no impact to the Company’s disclosures.

Note 2: Acquisition

Acquisition of HiRail

On January 14, 2022, a subsidiary of the Company, CTOS Canada, Ltd., closed a Share Purchase Agreement with certain affiliates of Ontario Limited (d/b/a HiRail Leasing), Ontario Inc. (d/b/a Heavy Equipment Repairs), and Ontario Limited (d/b/a Northshore Rail Contracting) (collectively, “HiRail”) to acquire 100% of the equity interests of HiRail. The acquisition of HiRail expands our presence in our strategic markets and deepens our relationships with key customers. HiRail, including the assignment of purchase accounting goodwill (see below), is included in the Company’s ERS segment.

Purchase Price

The Company paid $51.0 million, net of working capital adjustments, to HiRail equity interest holders and to repay debt obligations as consideration for the HiRail acquisition.

Opening Balance Sheet

The acquisition of HiRail has been accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the Company was required to assign the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of January 14, 2022. The excess of the purchase price over those fair values was recorded as goodwill and was attributable to expanded access to markets for the Company’s product and service offering, synergies, and broader product offerings to existing customers of HiRail. The total purchase price has been assigned to the underlying assets acquired and liabilities assumed based upon their fair values as of January 14, 2022, and the estimated fair values have been recorded based on independent valuations, discounted cash flow analysis, quoted market prices, contributory asset charges, and estimates made by management, which estimates fall under “Level 3” of the fair value hierarchy.

The following table summarizes the January 14, 2022 fair values of the assets acquired and liabilities assumed. The final assessment of the fair value of the HiRail assets acquired and liabilities assumed was complete as of December 31, 2022.


(in $000s)	January 14, 2022		Changes		December 31, 2022
Current assets	$	2,891	$	956	$	3,847
Property, equipment and other assets	819		—		819
Rental equipment	34,224		—		34,224
Total identifiable assets acquired	37,934		956		38,890

Total identifiable liabilities assumed	(6,011)		(1,596)		(7,607)
Total net assets	31,923		(640)		31,283
Goodwill	8,685		(41)		8,644
Intangible assets	11,027		—		11,027
Net assets acquired (purchase price)	51,635		(681)		50,954
Less: cash acquired	(1,122)		—		(1,122)
Net cash paid	$	50,513	$	(681)	$	49,832

HiRail generated $3.8 million and $11.7 million, respectively, of revenue for the three and nine months ended September 30, 2022, and $1.6 million and $2.3 million, respectively, of pre-tax income from January 14, 2022 through September 30, 2022, for the three and nine months ended September 30, 2022, which were included in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Costs and expenses related to the acquisition were expensed as incurred and were not material. Additionally, pro forma information as if the acquisition of HiRail had occurred on January 1, 2021 is not being presented as the information is not considered material to the Company’s financial statements.

Note 3: Revenue

Revenue Disaggregation

Geographic Areas

The Company had total revenue in the following geographic areas:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in $000s)	2023		2022		2023		2022
United States	$	424,513	$	347,093	$	1,305,292	$	1,056,324
Canada	9,840		10,687		38,054		30,038
Total revenue	$	434,353	$	357,780	$	1,343,346	$	1,086,362

Major Product Lines and Services

Equipment leasing and equipment sales are the core businesses of the Company, with leasing complemented by the sale of rental units from the rental fleet. The Company’s revenue by major product and service line for the three and nine months ended September 30, 2023 and 2022 are presented in the table below.


	Three Months Ended September 30,						Three Months Ended September 30,
	2023						2022
(in $000s)	Topic 842		Topic 606		Total		Topic 842		Topic 606		Total
Rental:
Rental	$	112,373	$	—	$	112,373	$	110,054	$	—	$	110,054
Shipping and handling	—		5,836		5,836		—		4,956		4,956
Total rental revenue	112,373		5,836		118,209		110,054		4,956		115,010
Sales and services:
Equipment sales	12,760		270,319		283,079		4,456		206,447		210,903
Parts and services	4,216		28,849		33,065		970		30,897		31,867
Total sales and services	16,976		299,168		316,144		5,426		237,344		242,770
Total revenue	$	129,349	$	305,004	$	434,353	$	115,480	$	242,300	$	357,780

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2023						2022
(in $000s)	Topic 842		Topic 606		Total		Topic 842		Topic 606		Total
Rental:
Rental	$	339,896	$	—	$	339,896	$	322,634	$	—	$	322,634
Shipping and handling	—		18,770		18,770		—		13,576		13,576
Total rental revenue	339,896		18,770		358,666		322,634		13,576		336,210
Sales and services:
Equipment sales	56,535		829,951		886,486		20,572		636,023		656,595
Parts and services	15,969		82,225		98,194		8,949		84,608		93,557
Total sales and services	72,504		912,176		984,680		29,521		720,631		750,152
Total revenue	$	412,400	$	930,946	$	1,343,346	$	352,155	$	734,207	$	1,086,362

Rental revenue is primarily comprised of revenues from rental agreements and freight charges billed to customers. Equipment sales recognized pursuant to sales-type leases are recorded within equipment sales revenue. Charges to customers for damaged rental equipment are recorded within parts and services revenue.

Receivables, Contract Assets and Liabilities

As of September 30, 2023 and December 31, 2022, the Company had net receivables related to contracts with customers of $61.2 million and $98.0 million, respectively. As of September 30, 2023 and December 31, 2022, the Company had net receivables related to rental contracts and other of $95.1 million and $95.1 million, respectively.

The Company manages credit risk associated with its accounts receivable at the customer level. Because the same customers generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and the Company's allowance for credit losses address the Company's total revenues.

The Company’s allowance for credit losses reflects its estimate of the amount of receivables that it will be unable to collect. The estimated losses are based upon a review of outstanding receivables, the related aging, including specific accounts if deemed necessary, and on the Company’s historical collection experience. The estimated losses are calculated using the loss rate method based upon a review of outstanding receivables, related aging, and historical collection experience. The Company's estimates reflect changing circumstances, including changes in the economy or in the particular circumstances of individual customers, and, as a result, the Company may be required to increase or decrease its allowance.

Accounts receivable, net consisted of the following:


(in $000s)	September 30, 2023		December 31, 2022
Accounts receivable	$	170,514	$	212,347
Less: allowance for doubtful accounts	(14,209)		(19,241)
Accounts receivable, net	$	156,305	$	193,106

When customers are billed for rentals in advance of the rental period, the Company defers recognition of revenue. As of both September 30, 2023 and December 31, 2022, the Company had approximately $3.0 million of deferred rental revenue. Additionally,

the Company collects deposits from customers for orders placed for equipment and rentals. The Company had approximately $19.6 million and $29.6 million in deposits as of September 30, 2023 and December 31, 2022, respectively. Of the $29.6 million deposit liability balance as of December 31, 2022, $28.9 million was recorded as revenue during the nine months ended September 30, 2023 due to performance obligations being satisfied. The Company’s remaining performance obligations on its equipment deposit liabilities have original expected durations of one year or less.

The Company does not have material contract assets, and as such, did not recognize any material impairments of any contract assets.

Note 4: Sales-Type Leases

Revenue from sales-type leases was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in $000s)	2023		2022		2023		2022
Equipment sales	$	12,760	$	7,099	$	56,535	$	27,007

Cost of equipment sales	11,714		5,938		54,354		23,073


Gross profit	$	1,046	$	1,161	$	2,181	$	3,934

As these transactions remained under rental contracts, $7.1 million and $5.1 million for the three months ended September 30, 2023 and 2022, respectively, and $22.2 million and $15.6 million for the nine months ended September 30, 2023 and 2022, respectively, were billed under the contracts as rentals. Interest income from financing receivables was $4.5 million and $2.7 million for the three months ended September 30, 2023 and 2022, respectively, and $12.3 million and $7.8 million, for the nine months ended September 30, 2023 and 2022, respectively.

Note 5: Inventory

Whole goods inventory is comprised of chassis, attachments (i.e., boom cranes, serial lifts, digger derricks, dump bodies, etc.) and the in-process costs incurred in the final assembly of those units. As part of the business model, the Company sells unassembled individual whole goods and whole goods with varying levels of customization direct to consumers or dealers. Whole goods inventory also includes new equipment purchased specifically for resale to customers. Inventory consisted of the following:


(in $000s)	September 30, 2023		December 31, 2022
Whole goods	$	750,047	$	468,557
Aftermarket parts and services inventory	138,708		128,167

Inventory	$	888,755	$	596,724

Note 6: Floor Plan Financing

Floor plan payables represent financing arrangements to facilitate the Company’s purchase of new and used trucks, cranes, and construction equipment inventory. All floor plan payables are collateralized by the inventory financed. These payables become due and payable upon the sale, transfer, or reclassification of each unit of inventory. Certain floor plan arrangements require the Company to satisfy various financial ratios consistent with those under the ABL Facility. As of September 30, 2023, the Company was in compliance with these covenants.

The amounts owed under floor plan payables are summarized as follows:


(in $000s)	September 30, 2023		December 31, 2022
Trade:
Daimler Truck Financial	$	131,637	$	105,447
PACCAR Financial Services	63,292		31,187
Trade floor plan payables	$	194,929	$	136,634
Non-trade:
PNC Equipment Finance, LLC	$	396,891	$	293,536
Non-trade floor plan payables	$	396,891	$	293,536

Interest on outstanding floor plan payable balances is due and payable monthly. Floor plan interest expense was $10.1 million and $25.0 million for the three and nine months ended September 30, 2023, respectively, and $3.6 million, and $7.5 million for the three and nine months ended September 30, 2022, respectively.

Trade Floor Plan Financing:

Daimler Truck Financial

The Wholesale Financing Agreement with Daimler Truck Financial (the “Daimler Facility”) bears interest at a rate of U.S. Prime plus 0.80% after an initial interest free period of up to 150 days. The total borrowing capacity under the Daimler Facility is $175.0 million. The Daimler agreement is evergreen and is subject to termination by either party through written notice.

PACCAR

The Company has an Inventory Financing Agreement with PACCAR Financial Corp that provides the Company with a line of credit of $75.0 million to finance inventory purchases of new Peterbilt and/or Kenworth trucks, tractors, and chassis. Amounts borrowed against this line of credit incur interest at a rate of U.S. Prime Rate minus 0.71%. The PACCAR agreement extends automatically each April and is subject to termination by either party through written notice.

References to the Prime Rate in the foregoing agreements represent the rate as published in The Wall Street Journal.

Non-Trade Floor Plan Financing:

PNC Equipment Finance, LLC

The Company has an Inventory Loan, Guaranty and Security Agreement (the “Loan Agreement”) with PNC Equipment Finance, LLC. On August 25, 2023, the Company renewed the Loan Agreement by an additional two years. The Loan Agreement as of September 30, 2023, provides the Company with a $400.0 million revolving credit facility, which matures on August 25, 2025 and bears interest at a three-month term secured overnight financing rate (“SOFR”) plus 3.00%.

Note 7: Rental Equipment

Rental equipment, net consisted of the following:


(in $000s)	September 30, 2023		December 31, 2022
Rental equipment	$	1,399,840	$	1,360,205
Less: accumulated depreciation	(475,525)		(476,531)
Rental equipment, net	$	924,315	$	883,674

Note 8: Long-Term Debt

Debt obligations and associated interest rates consisted of the following:


(in $000s)	September 30, 2023		December 31, 2022		September 30, 2023	December 31, 2022
ABL Facility	$	492,400	$	437,731	7.2%	6.1%

2029 Secured Notes	920,000		920,000		5.5%	5.5%


2023 Credit Facility	13,800		—		5.8%	—
Notes payable	24,986		31,661		3.1%-5.0%	3.1%-5.0%
Total debt outstanding	1,451,186		1,389,392
Deferred financing fees	(23,838)		(27,686)
Total debt net of deferred financing fees	1,427,348		1,361,706
Less: current maturities	(1,286)		(6,940)
Long-term debt	$	1,426,062	$	1,354,766

As of September 30, 2023, borrowing availability under the ABL Facility was $254.5 million, and outstanding standby letters of credit were $3.1 million.

ABL Facility

Borrowings under the ABL Facility bear interest at a floating rate, which, at Buyer’s election, could be (a) in the case of U.S. dollar denominated loans, either (i) SOFR plus an applicable margin or (ii) the base rate plus an applicable margin; or (b) in the case of Canadian dollar denominated loans, the CDOR rate plus an applicable margin. The applicable margin varies based on Average Availability (as defined in the ABL Credit Agreement) from (a) with respect to base rate loans, 0.50% to 1.00% and (b) with respect to SOFR loans and CDOR rate loans, 1.50% to 2.00%.

2023 Credit Facility

On January 13, 2023, the Company entered into a new credit agreement allowing for borrowings of up to $18.0 million (the “2023 Credit Facility”). Proceeds from the credit agreement were used to finance a portion of the Company’s acquisition of real property from a related party in December 2022. A portion of the loan proceeds has been used to finance improvements to the property. In connection with entering into the agreement, the Company received net proceeds of $13.7 million with the ability to draw an additional $4.2 million upon completion of certain construction milestones. Borrowings bear interest at a fixed rate of 5.75% per annum and are required to be repaid monthly in an amount of approximately $0.1 million with a balloon payment due on the maturity date of January 13, 2028. Borrowings are secured by the real property and improvements.

Note 9: Earnings Per Share

Basic earnings per share is computed by dividing net earnings by the weighted-average number of shares of Common Stock outstanding. Diluted earnings per share includes the effects of potentially dilutive shares of Common Stock, if dilutive. Our potentially dilutive shares aggregated 29.1 million and 29.0 million for the three and nine months ended September 30, 2023, respectively, and 26.4 million and 25.4 million for the three and nine months ended September 30, 2022, respectively, and included warrants, contingently issuable shares, and share-based compensation, and were not included in the computation of diluted earnings per share because they would be anti-dilutive.

The following tables set forth the computation of basic and dilutive earnings per share:


	Three Months Ended September 30, 2023					Three Months Ended September 30, 2022
(in $000s, except per share data)	Net Income		Weighted Average Shares	Per Share Amount		Net Loss		Weighted Average Shares	Per Share Amount
Basic earnings	$	9,180	245,810	$	0.04	$	(2,382)	247,704	$	(0.01)
Dilutive common share equivalents	—		784	—		—		—	—
Diluted earnings	$	9,180	246,594	$	0.04	$	(2,382)	247,704	$	(0.01)


	Nine Months Ended September 30, 2023					Nine Months Ended September 30, 2022
(in $000s, except per share data)	Net Income		Weighted Average Shares	Per Share Amount		Net Income		Weighted Average Shares	Per Share Amount
Basic earnings	$	34,590	245,987	$	0.14	$	7,968	247,448	$	0.03
Dilutive common share equivalents	—		822	—		—		478	—
Diluted earnings	$	34,590	246,809	$	0.14	$	7,968	247,926	$	0.03

Note 10: Equity

Preferred Stock

As of September 30, 2023 and December 31, 2022, we were authorized to issue 10,000,000 shares of preferred stock with a par value of $0.0001 per share, with such designation, rights and preferences as may be determined from time to time by our board of directors. As of September 30, 2023 and December 31, 2022, there were no shares of preferred stock issued or outstanding.

Common Stock

On August 2, 2022, the Company’s Board of Directors authorized a stock repurchase program, allowing for the repurchase of up to $30 million of the Company’s ordinary common shares. Under the repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions, or otherwise, all in accordance with the rules of the Securities and Exchange Commission and other applicable legal requirements. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The repurchase program does not obligate the Company to acquire any particular amount of its common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. As the Company exhausted this program during the quarter, on September 14, 2023, the Board of Directors approved a stock repurchase program that authorizes additional repurchases of up to $25 million of shares of the Company’s ordinary common shares.

During the three and nine months ended September 30, 2023, the Company repurchased approximately 2.5 million and 3.1 million shares of its common stock, respectively, which are held in treasury, for a total cost of $15.8 million and $20.1 million including commission fees. At September 30, 2023, $24.4 million was available under the stock repurchase program.

Contingently Issuable Shares

NESCO Holdings, LP is a Delaware limited partnership holding shares of our common stock. NESCO Holdings, LP is owned and controlled by Energy Capital Partners, and has the right to receive: (1) up to an additional 1,800,000 shares of common stock through July 31, 2024, in increments of 900,000 shares, if the trading price of the common stock exceeds $13.00 per share or $16.00 per share for any 20 trading days during a 30 consecutive trading day period or if a sale transaction of the Company occurs in which the consideration paid per share to holders of common stock of the Company exceeds $13.00 per share or $16.00 per share, and (2) an additional 1,651,798 shares of common stock if during the seven-year period ending July 31, 2026, the trading price of common stock exceeds $19.00 per share for any 20 trading days during a 30 consecutive trading day period or if a sale transaction of the Company occurs in which the consideration paid per share to holders of common stock exceeds $19.00 per share.

Note 11: Fair Value Measurements

The FASB accounting standards provide a comprehensive framework for measuring fair value and sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs.

The following table sets forth the carrying values (exclusive of deferred financing fees) and fair values of our financial liabilities:


	Carrying Value		Fair Value
(in $000s)			Level 1		Level 2		Level 3
September 30, 2023
ABL Facility	$	492,400	$	—	$	492,400	$	—
2029 Secured Notes	920,000		—		809,600		—
2023 Credit Facility	13,800		—		13,800		—
Other notes payable	24,986		—		24,986		—
Warrant liabilities	603		—		—		603

December 31, 2022
ABL Facility	$	437,731	$	—	$	437,731	$	—
2029 Secured Notes	920,000		—		814,200		—
Other notes payable	31,661		—		31,661		—
Warrant liabilities	3,012		—		—		3,012

The carrying amounts of the ABL Facility, the 2023 Credit Facility and other notes payable approximated fair value as of September 30, 2023 and December 31, 2022 based upon terms and conditions available to the Company at those dates in comparison to the terms and conditions of its outstanding debt. The estimated fair value of the 2029 Secured Notes is calculated using Level 2 inputs, based on bid prices obtained from brokers. The Level 3 fair value presented above consists of the fair value of the Non-Public Warrants. The Company estimated the fair value using the Black-Scholes option-pricing model based on the market value of the underlying Common Stock, the remaining contractual term of the warrant, risk-free interest rates and expected dividends, and expected volatility of the price of the underlying Common Stock. The changes in the fair value of the warrant liabilities are recorded in

Financing and other income in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and cash flow from operating activities in the Condensed Consolidated Statements of Cash Flows.

Note 12: Income Taxes

For interim periods, we estimate our annual effective tax rate, exclusive of discrete items, which is derived primarily by our estimate of our valuation allowance as of the end of our fiscal year. The Company’s effective tax rate for the nine months ended September 30, 2023 and 2022 differs from the U.S. federal statutory tax rate due to the recording of valuation allowances. We recorded an income tax expense of $2.7 million for the nine months ended September 30, 2023 resulting in an effective tax rate of 7% compared to an income tax expense of $7.3 million for the comparable prior year period, at an effective tax rate of 48%. The reduction in the effective tax rate for the nine months ended September 30, 2023 compared to same period in 2022, was primarily due to discrete items recorded in the third quarter of 2022, including derivative mark-to-market adjustments and certain tax attribute changes related to personal property.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”), which, among other things, implements a 15% minimum tax for certain large corporations, a 1% excise tax on net stock repurchases, and several tax incentives to promote clean energy. The IRA is effective for tax years beginning after December 31, 2022. The IRA does not have a material effect on our consolidated financial statements. We will continue to monitor the additional guidance from the Internal Revenue Service (the “IRS”).

Note 13: Commitments and Contingencies

We record a liability when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.

Legal Matters

In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. At this time, no claims of these types, certain of which are covered by insurance policies, have had a material effect on the Company. Certain jurisdictions in which the Company operates do not allow insurance recoveries related to punitive damages. For matters pertaining to the pre-acquisition activities of Custom Truck One Source, L.P. (“Custom Truck LP”), the sellers of Custom Truck LP have agreed to indemnify the Company for losses arising out of the breach of pre-closing covenants in the purchase agreement and certain indemnified tax matters discussed below, with recourse limited to $10.0 million and $8.5 million escrow accounts, respectively.

From time to time, the Company may be audited by state and local taxing authorities. These audits typically focus on the Company’s withholding of state-specific sales tax and rental-related taxes.

Custom Truck LP’s withholdings of federal excise taxes for each of the four quarterly periods during 2015 are currently under audit by the IRS. The IRS issued an assessment on October 28, 2020 in an aggregate amount of $2.4 million for the 2015 periods, alleging that certain types of sold equipment are not eligible for the Mobile Machinery Exemption set forth in the Internal Revenue Code (the “Code”). An appeal was filed on January 28, 2021. Based on management’s understanding of the facts and circumstances, including the relevant provisions of the Code, and historical precedent, including previous successful appeals of similar assessments in prior years, management does not believe the likelihood of a loss resulting from the IRS assessment to be probable at this time.

While it is not possible to predict the outcome of the foregoing matters with certainty, it is the opinion of management that the final outcome of these matters will not have a material effect on the Company’s consolidated financial condition, results of operations and cash flows.

Purchase Commitments

We enter into purchase agreements with manufacturers and suppliers of equipment for our rental fleet and inventory. All of these agreements are cancellable within a specified notification period to the supplier.

Note 14: Related Parties

The Company has transactions with related parties as summarized below.

Rentals and Sales — The Company rents and sells equipment and provides services to R&M Equipment Rental, a business partially owned by members of the Company’s management. The Company also rents equipment and purchases inventory from R&M Equipment Rental.

Prior to August 1, 2022, Energy Capital Partners (“ECP”), a stockholder of the Company, and its affiliates had ownership interests in PLH Group, Inc., which was a customer of the Company.

Facilities Leases and Other — The Company leased certain facilities, as well as purchased aircraft charter services, from entities owned by members of the Company’s management and their immediate families. Lease and charter services payments related to these transactions are immaterial. Rent and air travel expenses are recorded in selling, general, and administrative expenses. In December 2022, the Company terminated the lease agreements and purchased the facilities and land from these related parties for a purchase price of approximately $15.4 million.

Management Fees — The Company entered into the Corporate Advisory Services Agreement with Platinum effective in April 2021, under which management fees are payable to Platinum quarterly. The management fees are recorded in transaction expenses and other in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).

A summary of the transactions with the foregoing related parties included in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in $000s)	2023		2022		2023		2022
Total revenues from transactions with related parties	$	4,728	$	8,385	$	23,231	$	27,128
Expenses incurred from transactions with related parties included in cost of revenue	$	239	$	297	$	1,091	$	2,109
Expenses incurred from transactions with related parties included in operating expenses	$	1,391	$	1,398	$	4,154	$	4,635

Amounts receivable from/payable to related parties included in the Condensed Consolidated Balance Sheets are as follows:


(in $000s)	September 30, 2023		December 31, 2022
Accounts receivable from related parties	$	695	$	5,053
Accounts payable to related parties	$	140	$	36

Note 15: Segments

Our operations are primarily organized and managed by operating segment. Operating segment performance and resource allocations are primarily based on gross profit. Intersegment sales and any related profits are eliminated in consolidation. We manage the business in three reporting segments: Equipment Rental Solutions (“ERS”), Truck and Equipment Sales (“TES”) and Aftermarket Parts and Services (“APS”).

The Company’s segment results are presented in the tables below:


	Three Months Ended September 30,
	2023
(in $000s)	ERS		TES		APS		Total
Revenue:
Rental	$	114,929	$	—	$	3,280	$	118,209
Equipment sales	52,175		230,904		—		283,079
Parts and services	—		—		33,065		33,065
Total revenue	167,104		230,904		36,345		434,353
Cost of revenue:
Rentals/parts and services	29,613		—		26,203		55,816
Equipment sales	37,828		191,084		—		228,912
Depreciation of rental equipment	41,652		—		817		42,469
Total cost of revenue	109,093		191,084		27,020		327,197
Gross profit	$	58,011	$	39,820	$	9,325	$	107,156


	Three Months Ended September 30,
	2022
(in $000s)	ERS		TES		APS		Total
Revenue:
Rental	$	112,009	$	—	$	3,001	$	115,010
Equipment sales	37,121		173,782		—		210,903
Parts and services	—		—		31,867		31,867
Total revenue	149,130		173,782		34,868		357,780
Cost of revenue:
Rentals/parts and services	27,221		—		26,187		53,408
Equipment sales	27,015		146,573		—		173,588
Depreciation of rental equipment	41,776		—		836		42,612
Total cost of revenue	96,012		146,573		27,023		269,608
Gross profit	$	53,118	$	27,209	$	7,845	$	88,172

	Nine Months Ended September 30,
	2023
(in $000s)	ERS		TES		APS		Total
Revenue:
Rental	$	346,545	$	—	$	12,121	$	358,666
Equipment sales	195,005		691,481		—		886,486
Parts and services	—		—		98,194		98,194
Total revenue	541,550		691,481		110,315		1,343,346
Cost of revenue:
Rentals/parts and services	90,014		—		79,178		169,192
Equipment sales	148,711		571,592		—		720,303
Depreciation of rental equipment	123,969		—		2,446		126,415
Total cost of revenue	362,694		571,592		81,624		1,015,910
Gross profit	$	178,856	$	119,889	$	28,691	$	327,436

	Nine Months Ended September 30,
	2022
(in $000s)	ERS		TES		APS		Total
Revenue:
Rental	$	325,679	$	—	$	10,531	$	336,210
Equipment sales	133,674		522,921		—		656,595
Parts and services	—		—		93,557		93,557
Total revenue	459,353		522,921		104,088		1,086,362
Cost of revenue:
Rentals/parts and services	79,863		—		74,715		154,578
Equipment sales	100,663		444,798		—		545,461
Depreciation of rental equipment	128,126		—		2,774		130,900
Total cost of revenue	308,652		444,798		77,489		830,939
Gross profit	$	150,701	$	78,123	$	26,599	$	255,423

Total assets by operating segment are not disclosed herein because asset by operating segment data is not reviewed by the chief operating decision-maker (“CODM”) to assess performance and allocate resources.

Gross profit is the primary operating result whereby our segments are evaluated for performance and resource allocation. The following table presents a reconciliation of consolidated gross profit to consolidated income before income taxes:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in $000s)	2023		2022		2023		2022
Gross Profit	$	107,156	$	88,172	$	327,436	$	255,423
Selling, general and administrative expenses	56,955		49,835		171,974		152,269
Amortization	6,698		6,794		19,976		27,000
Non-rental depreciation	2,602		1,938		7,973		7,302
Transaction expenses and other	2,890		6,498		10,039		17,192


Interest expense, net	34,144		22,887		94,945		62,324
Financing and other income	(5,745)		(1,747)		(14,744)		(25,905)
Income Before Income Taxes	$	9,612	$	1,967	$	37,273	$	15,241

The following table presents total assets by country:


(in $000s)	September 30, 2023		December 31, 2022
Assets:
United States	$	3,109,472	$	2,830,958
Canada	118,198		107,254
Total Assets	$	3,227,670	$	2,938,212

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Any statements made in this report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and should be evaluated as such. These statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “estimate,” “target,” “project,” “should,” “could,” “would,” “may,” “will,” “forecast,” and other similar expressions. We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this report, you should understand that these statements are not guarantees of performance or results and are subject to and involve risks, uncertainties and assumptions. You should not place undue reliance on these forward-looking statements or projections. Below is a summary of risk factors applicable to us that may materially affect such forward-looking statements and projections:

•increases in labor costs, our inability to obtain raw materials, component parts and/or finished goods in a timely and cost-effective manner, and our inability to manage our rental equipment in an effective manner;

•our sales order backlog may not be indicative of the level of our future revenues;

•increases in unionization rate in our workforce;

•our inability to recruit and retain the experienced personnel, including skilled technicians, we need to compete in our industries;

•our inability to attract and retain highly skilled personnel and our inability to retain our senior management;

•material disruptions to our operation and manufacturing locations as a result of public health concerns, equipment failures, natural disasters, work stoppages, power outages or other reasons;

•potential impairment charges;

•any further increase in the cost of new equipment that we purchase for use in our rental fleet or for sale as inventory;

•aging or obsolescence of our existing equipment, and the fluctuations of market value thereof;

•disruptions in our supply chain;

•our business may be impacted by government spending;

•we may experience losses in excess of our recorded reserves for receivables;

•unfavorable conditions in the capital and credit markets and our inability to obtain additional capital as required;

•increases in price of fuel or freight;

•regulatory technological advancement, or other changes in our core end-markets may affect our customers’ spending;

•difficulty in integrating acquired businesses and fully realizing the anticipated benefits and cost savings of the acquired businesses, as well as additional transaction and transition costs that we will continue to incur following acquisitions;

•material weakness in our internal control over financial reporting which, if not remediated, could result in material misstatements in our financial statements;

•the interest of our majority stockholder, which may not be consistent with the other stockholders;

•our significant indebtedness, which may adversely affect our financial position, limit our available cash and our access to additional capital, prevent us from growing our business and increase our risk of default;

•our inability to generate cash, which could lead to a default;

•significant operating and financial restrictions imposed by our debt agreements;

•changes in interest rates, which could increase our debt service obligations on the variable rate indebtedness and decrease our net income and cash flows;

•disruptions in our information technology systems or a compromise of our system security, limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, and implement strategic initiatives;

•we are subject to complex laws and regulations, including environmental and safety regulations that can adversely affect cost, manner or feasibility of doing business;

•we are subject to a series of risks related to climate change; and

•increased attention to, and evolving expectations for, sustainability and environmental, social and governance initiatives.

These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. See “Risk Factors” in Part I, Item 1A of the Annual Report for the year ended December 31, 2022 and in Part II, Item 1A of this report, for additional risks.

Financial and Performance Measures

Financial Measures

Revenue — As a full-service equipment provider, we generate revenue through renting, selling, assembling, upfitting, and servicing new and used heavy-duty trucks and cranes, as well as the sale of related parts. We also sell and rent specialized tools on an individual basis and in kits. Rental revenue is primarily comprised of revenues from rental agreements and freight charges billed to customers. The Company records changes in estimated collectability directly against rental revenue. Equipment sales revenue reflects the value of vocational trucks and other equipment sold to customers. Parts and service revenue is derived from maintenance and repair services, light upfit services, and parts, tools and accessories sold directly to customers.

Cost of rental revenue — Cost of rental revenue reflects repairs and maintenance costs of rental equipment, parts costs, labor and other overheads related to maintaining the rental fleet, and freight associated with the shipping of rental equipment.

Depreciation of rental equipment — Depreciation of rental equipment is comprised of depreciation expense on the rental fleet. We allocate the cost of rental equipment generally over the rentable life of the equipment. The depreciation allocation is based upon estimated lives ranging from five to seven years. The cost of equipment is depreciated to an estimated residual value using the straight-line method.

Cost of equipment sales — Cost of equipment sales reflects production and inventory costs associated with new units sold, parts costs, labor and other overheads related to production, and freight associated with the shipping and receiving of equipment and parts. Cost of equipment sales also includes the net book value of rental units sold.

Selling, general and administrative expenses — Selling, general and administrative expenses include sales compensation, fleet licensing fees and corporate expenses, including salaries, stock-based compensation expense, insurance, advertising costs, professional services, fees earned on customer arranged financing, gains or losses resulting from insurance settlements, and information technology expenses, including amortization of capitalized cloud computing arrangements.

Amortization and non-rental depreciation — Amortization expense relates to intangible assets such as customer lists, trade names, etc. Non-rental depreciation expense reflects the depreciation of property and equipment that is not part of the rental fleet. Depreciation of property used in the production of our specialized equipment is included in cost of equipment sales.

Transaction expenses and other — Transaction expenses and other expense include expenses directly related to the acquisition of businesses. These expenses are comprised of travel and out-of-pocket expenses and legal, accounting and valuation or appraisal fees incurred in connection with pre- and post-closure activities. We include costs and expenses associated with post-acquisition integration activities related to the acquired businesses. Management fees pursuant to the Corporate Advisory Services Agreement with Platinum are also included in this category.

Financing and other income — Financing and other income reflects the financing income associated with sales-type lease activity, foreign currency gains and losses related to our Canadian operations, as well as other miscellaneous gains or losses from non-operating activities. Also included in financing and other income are the unrealized remeasurement gains and losses related to our warrants.

Interest expense — Interest expense consists of contractual interest expense on outstanding debt obligations, floorplan financing facilities, amortization of deferred financing costs and other related financing expenses.

Income Tax Expense — We have net operating loss carryforward and disallowed interest deduction carryforward assets, which are generally available to be used to offset taxable income generated in future years. Due to limitations on the use of these carryforwards under U.S. federal and state income tax regulations, we record valuation allowances to reduce the carryforward assets to amounts that we estimate will be realized. Accordingly, income tax expense or benefit generally is comprised of changes to these valuation allowance estimates and does not reflect taxes on current period income (or tax benefit on current period losses). For these reasons, our effective tax rate differs from the federal statutory tax rate.

Performance Measures

We consider the following key operational measures when evaluating our performance and making day-to-day operating decisions:

Ending OEC — Ending original equipment cost (“OEC”) is the original equipment cost of units comprising our fleet of rental inventory at the end of the measurement period. OEC represents the original equipment cost, exclusive of the effect of adjustments to rental equipment fleet acquired in business combinations, and is the basis for calculating certain of the measures set forth below. Additionally, the pricing of our rental contracts and equipment sales prices for our equipment is based upon OEC, and we measure a rate of return from our rentals and sales using OEC. OEC is a widely used industry metric to compare fleet dollar value independent of depreciation.

Average OEC on rent — Average OEC on rent is calculated as the weighted-average OEC on rent during the stated period.

Fleet utilization — Fleet utilization is defined as the total number of days the rental equipment was rented during a specified period of time divided by the total number of days available during the same period and weighted based on OEC. Utilization is a measure of fleet efficiency expressed as a percentage of time the fleet is on rent and is considered to be an important indicator of the revenue generating capacity of the fleet.

OEC on rent yield — OEC on rent yield (“ORY”) is a measure of return realized by our rental fleet during a period. ORY is calculated as rental revenue (excluding freight recovery and ancillary fees) during the stated period divided by the average OEC on rent for the same period. For periods of less than 12 months, ORY is adjusted to an annualized basis.

Sales order backlog — Sales order backlog consists of purchase orders received for customized and stock equipment. Sales order backlog should not be considered an accurate measure of future net sales.

Operating Segments

We operate in three reportable operating segments: Equipment Rental Solutions, Truck and Equipment Sales and Aftermarket Parts and Services.

Equipment Rental Solutions (“ERS”) Segment — We own a broad range of new and used specialty equipment, including truck-mounted aerial lifts, cranes, service trucks, dump trucks, trailers, digger derricks and other machinery and equipment. As of September 30, 2023, this equipment (the “rental fleet”) is comprised of more than 10,200 units. The majority of our rental fleet can be used across a variety of end-markets, which coincides with the needs of many of our customers who operate in multiple end-markets. As is customary for equipment rental companies, we sell used equipment out of our rental fleet to end-user customers. These sales are often made in response to specific customer requests. These sales offer customers an opportunity to buy well-maintained equipment with long remaining useful lives and enable us to effectively manage the age and mix of our rental fleet to match current market demand. We also employ rental purchase options (“RPOs”) on a select basis, which provide a buyout option with an established purchase price that decreases over time as rental revenue is collected. Customers are given credit against such purchase price for a portion of the amounts paid over the life of the rental, allowing customers the flexibility of a rental with the option to purchase at any time at a known price. Activities in our ERS segment consist of the rental and sale from the rental fleet of the foregoing products.

Truck and Equipment Sales (“TES”) Segment — We offer a broad variety of new equipment for sale to be used across our end-markets, which can be modified to meet our customers’ specific needs. We believe that our integrated production capabilities and extensive knowledge gained over a long history of selling equipment have established us as a trusted partner for customers seeking tailored solutions with short lead times. In support of these activities, we primarily employ a direct-to-customer sales model, leveraging our dedicated sales force of industry and product managers, who are focused on driving national and local sales. We also opportunistically engage in the sale of used equipment purchased from third parties or received via trade-ins from new equipment sales customers. In all of these cases, we will sell used equipment directly to customers, rather than relying on auctions. Activities in our TES segment consist of the production and sale of new and used specialty equipment and vocational trucks, which includes equipment from leading original equipment manufacturers (“OEMs”) across our end-markets, as well as our Load KingTM brand.

Aftermarket Parts and Services (“APS”) Segment — The APS segment includes the sale of specialized aftermarket parts, including captive parts related to our Load KingTM brand, used in the maintenance and repair of the equipment we sell and rent. Specialized tools, including stringing blocks, insulated hot stick, and rigging equipment, are sold or rented to our customers on an individual basis or in packaged specialty kits. We also provide truck and equipment maintenance and repair services, which are executed throughout our nationwide branch network and fleet of mobile technicians supported by our 24/7 call center based in Kansas City, Missouri.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial performance measure that the Company uses to monitor its results of operations and to measure performance against debt covenants and performance relative to competitors. The Company believes Adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of operating performance, without regard to financing methods or capital structures. The Company excludes the items identified in the reconciliations of net income (loss) to Adjusted EBITDA because these amounts are either non-recurring or can vary substantially within the industry depending upon accounting methods and book values of assets, including the method by which the assets were acquired, and capital structures. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historical costs of depreciable assets, none of which are reflected in Adjusted EBITDA. The Company's presentation of Adjusted EBITDA should not be construed as an indication that results will be unaffected by the items excluded from Adjusted EBITDA. The Company’s computation of Adjusted EBITDA may not be identical to other similarly titled measures of other companies.

The Company defines Adjusted EBITDA as net income or loss before interest expense, income taxes, depreciation and amortization, share-based compensation, and other items that the Company does not view as indicative of ongoing performance. The Company’s Adjusted EBITDA includes an adjustment to exclude the effects of purchase accounting adjustments when calculating the cost of inventory and used rental equipment sold. When inventory or rental equipment is purchased in connection with a business combination, the assets are revalued to their current fair values for accounting purposes. The consideration transferred (i.e., the purchase price) in a business combination is allocated to the fair values of the assets as of the acquisition date, with amortization or depreciation recorded thereafter following applicable accounting policies; however, this may not be indicative of the actual cost to acquire inventory or new equipment that is added to product inventory or the rental fleets apart from a business acquisition. The Company also includes an adjustment to remove the impact of accounting for certain of our rental contracts that are accounted for under GAAP as a sales-type lease, however, in actuality, the rental contract remains in place, and we continue to invoice the rentals to the customers. Sales-type lease accounting results in an accelerated revenue recognition profile compared to the period of service (that is, time of use by the rental customer) that is provided evenly over the duration of our time-based rental contracts, and compared to the cash payment profile, which is typically received evenly over the duration of our rental contracts. We include this adjustment because we believe continuing to reflect the transactions as an operating lease more closely measures the period of service provided and rental payment receipts better reflects the economics of the transactions given our large portfolio of rental contracts. These, and other, adjustments to GAAP net income or loss that are applied to derive Adjusted EBITDA conform to the definitions in the Company’s senior secured credit agreements.

Although management evaluates and presents Adjusted EBITDA for the reasons described herein, please be aware that this non-GAAP measure has limitations and should not be considered in isolation or as a substitute for revenue, operating income/loss, net income/loss, earnings/loss per share or any other comparable operating measure prescribed by GAAP. In addition, we may calculate and/or present this non-GAAP financial measure differently than measures with the same or similar names that other companies report, and, as a result, the non-GAAP measure we report may not be comparable to those reported by others. Reconciliations of GAAP financial information to Adjusted EBITDA are provided below.

Results of Operations

Three and nine months ended September 30, 2023 compared to the same periods in 2022

Consolidated Results of Operations


	Three Months Ended
(in $000s)	September 30, 2023		% of revenue	September 30, 2022		% of revenue	$ Change		% change	June 30, 2023		% of revenue
Rental revenue	$	118,209	27.2%	$	115,010	32.1%	$	3,199	2.8%	$	122,169	26.7%
Equipment sales	283,079		65.2%	210,903		58.9%	72,176		34.2%	302,117		66.1%
Parts sales and services	33,065		7.6%	31,867		8.9%	1,198		3.8%	32,544		7.1%
Total revenue	434,353		100.0%	357,780		100.0%	76,573		21.4%	456,830		100.0%
Cost of revenue, excluding rental equipment depreciation	284,728		65.6%	226,996		63.4%	57,732		25.4%	302,595		66.2%
Depreciation of rental equipment	42,469		9.8%	42,612		11.9%	(143)		(0.3)%	43,616		9.5%
Gross profit	107,156		24.7%	88,172		24.6%	18,984		21.5%	110,619		24.2%
Operating expenses	69,145			65,065			4,080		6.3%	71,044
Operating income	38,011			23,107			14,904		64.5%	39,575
Total other expense	28,399			21,140			7,259		34.3%	26,577
Income before income taxes	9,612			1,967			7,645		388.7%	12,998
Income tax expense	432			4,349			(3,917)		(90.1)%	1,388
Net income (loss)	$	9,180		$	(2,382)		$	11,562	NM	$	11,610


	Nine Months Ended September 30,
(in $000s)	2023		% of revenue		2022		% of revenue	$ Change		% of change
Rental revenue	$	358,666	26.7	%	$	336,210	30.9%	$	22,456	6.7	%
Equipment sales	886,486		66.0	%	656,595		60.4%	229,891		35.0	%
Parts sales and services	98,194		7.3	%	93,557		8.6%	4,637		5.0	%
Total revenue	1,343,346		100.0	%	1,086,362		100.0%	256,984		23.7	%
Cost of revenue, excluding rental equipment depreciation	889,495		66.2	%	700,039		64.4%	189,456		27.1	%
Depreciation of rental equipment	126,415		9.4	%	130,900		12.0%	(4,485)		(3.4)	%
Gross profit	327,436		24.4	%	255,423		23.5%	72,013		28.2	%
Operating expenses	209,962				203,763			6,199		3.0	%
Operating income	117,474				51,660			65,814		127.4	%
Total other expense	80,201				36,419			43,782		120.2	%
Income before income taxes	37,273				15,241			22,032		144.6	%
Income tax expense	2,683				7,273			(4,590)		(63.1)	%
Net income (loss)	$	34,590			$	7,968		$	26,622	334.1	%

Total Revenue - The increase in total revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to strong customer demand for new equipment and used rental equipment. Equipment sales increased as the continuing improvement in supply chain challenges allowed for greater order fulfillments and our ability to replenish inventory.

Cost of Revenue, Excluding Rental Equipment Depreciation - The increase in cost of revenue, excluding rental equipment depreciation for the three and nine months ended September 30, 2023 compared to the same periods in 2022, was driven primarily by the increase in new and rental equipment sales volume.

Depreciation of Rental Equipment - Depreciation of our rental fleet was flat in the three months ended September 30, 2023 as a result of the higher level of rental equipment sales offset by higher rental equipment levels. For the nine months ended September 30, 2023, depreciation of our rental fleet decreased due to favorable market demand for used rental equipment.

Operating Expenses - Operating expenses increased in the three and nine months ended September 30, 2023 compared to the same periods in 2022, primarily as a result of an increase in general and administrative expenses due to higher commissions, increased

headcount and wages, elevated marketing-related activities, and additional expense associated with various information technology projects.

Total Other Expense - Other expense for the three and nine months ended September 30, 2023 compared to the same periods in 2022 increased primarily due to the increase in interest expense from variable rate debt and floor plan financing liabilities. Additionally for the nine months ended, the increase is also attributable to the mark-to-market income (loss) from the private warrants liability (accounted for as a derivative financial instrument) being in an income position of $2.4 million for the nine months ended September 30, 2023, compared to a gain of $18.0 million for the same period in 2022.

Income Tax Expense - Income tax expense for the three and nine months ended September 30, 2023 of $0.4 million and $2.7 million, respectively, resulting in an effective tax rate of 4% and 7%, respectively, compared to income tax expense for the three and nine months ended September 30, 2022 of $2.7 million and $7.3 million, respectively, at an effective tax rate of 221% and 48%, respectively. The reduction in the effective tax rate was primarily due to discrete items recorded in the third quarter of 2022, including derivative mark-to-market adjustments and certain tax attribute changes related to personal property.

Net Income (Loss) - The increase in net income for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily the result of gross profit expansion, partially offset by higher interest expense on variable-rate debt and variable-rate floor plan liabilities.

Key Performance Measures

We believe that our operating model, together with our highly variable cost structure, enables us to sustain high margins, strong cash flow generation and stable financial performance throughout various economic cycles. We also believe that our vertical integration of rental equipment production as the principal supplier of our rental fleet provides us a cost advantage relative to other specialty rental companies. We are able to generate cash flow through our earnings, as well as sales of used and rental equipment. Our highly variable cost structure adjusts with the utilization of our equipment, thereby reducing our costs to match our revenue. We principally evaluate financial performance based on the following measurements: average OEC on rent, fleet utilization, and OEC on rent yield. We also report sales order backlog related to our customers’ orders for new vocational heavy duty trucks as an indicator of the demand environment for our products. The table below presents these key measures.


	Three Months Ended
(in $000s)	September 30, 2023			September 30, 2022			Change			% Change		June 30, 2023			% Change
Ending OEC	$	1,466,000		$	1,428,800		$	37,200		2.6	%	$	1,467,779		(0.1)	%
Average OEC on rent	$	1,155,600		$	1,182,500		$	(26,900)		(2.3)	%	$	1,203,855		(4.0)	%
Fleet utilization	78.9		%	83.8		%	(4.9)		%	(5.8)	%	81.7		%	(3.4)	%
OEC on rent yield	40.8		%	38.5		%	2.3		%	6.0	%	40.1		%	1.7	%
Sales order backlog	$	779,295		$	709,180		$	70,115		9.9	%	$	863,757		(9.8)	%


	Nine Months Ended September 30,
(in $000s)	2023			2022			Change			% Change
Ending OEC	$	1,466,000		$	1,428,800		$	37,200		2.6	%
Average OEC on rent	$	1,191,300		$	1,161,400		$	29,900		2.6	%
Fleet utilization	81.3		%	83.0		%	(1.7)		%	(2.0)	%
OEC on rent yield	39.8		%	38.9		%	0.9		%	2.3	%
Sales order backlog	$	779,295		$	709,180		$	70,115		9.9	%

Ending OEC - The increase in Ending OEC for the three and nine months ended September 30, 2023 compared to the same periods in 2022, was driven by positive net rental fleet additions since the second quarter of 2022, partially offset by our continued focus on selling older equipment from our rental fleet at current advantageous residual values.

Average OEC on Rent - Average OEC on rent for the three months ended September 30, 2023 remained flat when compared to the same period in 2022. The increase in Average OEC on rent for the nine months ended September 30, 2023 was driven by fleet growth and continued strong rental demand.

Fleet Utilization - Fleet utilization decreased for the three and nine months ended September 30, 2023 compared to the same periods in 2022, due to project delays related to transmission and distribution work caused by elevated temperatures in North America.

OEC on Rent Yield - OEC on Rent Yield increased for the three and nine months ended September 30, 2023 compared to the same periods of 2022, as a result of the impact of the favorable pricing environment for our rental products, reflective of strong demand.

Sales Order Backlog - The increase in sales order backlog for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was driven by continued strong customer demand.

Adjusted EBITDA

The following table provides a reconciliation of net income (loss) to Adjusted EBITDA. As previously noted, Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for revenue, operating income, net income (loss), earnings per share, or any other comparable measures prescribed by GAAP.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30, 2023
(in $000s)	2023		2022		2023		2022
Net income (loss)	$	9,180	$	(2,382)	$	34,590	$	7,968	$	11,610
Interest expense	24,044		19,338		69,982		54,833		23,575
Income tax expense	432		4,349		2,683		7,273		1,388
Depreciation and amortization	54,552		54,001		162,083		171,121		55,441
EBITDA	88,208		75,306		269,338		241,195		92,014
Adjustments:
Non-cash purchase accounting impact (1)	5,884		3,408		13,552		14,801		469
Transaction and integration costs (2)	2,890		6,501		10,039		17,192		3,689


Sales-type lease adjustment (3)	1,640		1,232		7,736		3,793		3,293
Share-based payments (4)	2,843		4,378		10,312		9,526		4,322
Change in fair value of derivative and warrants (5)	(1,280)		809		(2,409)		(18,013)		(604)
Adjusted EBITDA	$	100,185	$	91,634	$	308,568	$	268,494	$	103,183

(1) Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment and inventory sold. The equipment and inventory acquired received a purchase accounting step-up in basis, which is a non-cash adjustment to the equipment cost pursuant to our credit agreement.

(2) Represents transaction and process improvement costs related to acquisitions of businesses, including post-acquisition integration costs, which are recognized within operating expenses in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). These expenses are comprised of professional consultancy, legal, tax and accounting fees, and management fees to Platinum. Also included are expenses associated with the integration of acquired businesses. These expenses are presented as adjustments to net income (loss) pursuant to our ABL Credit Agreement.

(3) Represents the adjustment for the impact of sales-type lease accounting for certain leases containing rental purchase options ("RPOs"), as the application of sales-type lease accounting is not deemed to be representative of the ongoing cash flows of the underlying rental contracts. The adjustments are made pursuant to our credit agreement. The components of this adjustment are presented in the table below.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30, 2023
(in $000s)	2023		2022		2023		2022
Equipment sales	$	(12,760)	$	(7,099)	$	(56,535)	$	(27,007)	$	(19,603)
Cost of equipment sales	11,714		5,938		54,354		23,073		19,415
Gross profit	(1,046)		(1,161)		(2,181)		(3,934)		(188)
Interest income	(4,461)		(2,719)		(12,295)		(7,827)		(4,406)
Rentals invoiced	7,147		5,112		22,212		15,554		7,887
Sales-type lease adjustment	$	1,640	$	1,232	$	7,736	$	3,793	$	3,293

(4) Represents non-cash share-based compensation expense associated with the issuance of stock options and restricted stock units.

(5) Represents the credit to earnings for the change in fair value of the liability for private warrants.

Operating Results by Segment

Equipment Rental Solutions (ERS) Segment


	Three Months Ended
(in $000s)	September 30, 2023		September 30, 2022		$ Change		% Change		June 30, 2023		% Change
Rental revenue	$	114,929	$	112,009	$	2,920	2.6	%	$	117,832	(2.5)	%
Equipment sales	52,175		37,121		15,054		40.6	%	50,694		2.9	%
Total revenue	167,104		149,130		17,974		12.1	%	168,526		(0.8)	%
Cost of rental revenue	29,613		27,221		2,392		8.8	%	31,341		(5.5)	%
Cost of equipment sales	37,828		27,015		10,813		40.0	%	39,802		(5.0)	%
Depreciation of rental equipment	41,652		41,776		(124)		(0.3)	%	42,805		(2.7)	%
Total cost of revenue	109,093		96,012		13,081		13.6	%	113,948		(4.3)	%
Gross profit	$	58,011	$	53,118	$	4,893	9.2	%	$	54,578	6.3	%


	Nine Months Ended September 30,
(in $000s)	2023		2022		$ Change		% Change
Rental revenue	$	346,545	$	325,679	$	20,866	6.4	%
Equipment sales	195,005		133,674		61,331		45.9	%
Total revenue	541,550		459,353		82,197		17.9	%

Cost of rental revenue	90,014		79,863		10,151		12.7	%
Cost of equipment sales	148,711		100,663		48,048		47.7	%
Depreciation of rental equipment	123,969		128,126		(4,157)		(3.2)	%
Total cost of revenue	362,694		308,652		54,042		17.5	%
Gross profit	$	178,856	$	150,701	$	28,155	18.7	%

Total Revenue - The increase in total revenue for the ERS segment for the three and nine months ended September 30, 2023, compared to the same periods in 2022, was driven by an increase in revenues for rental equipment and equipment sales revenue. Continued demand across our infrastructure end-markets coupled with positive net fleet acquisition in the current year resulted in greater levels of equipment on rent and equipment purchasing from customers.

Cost of Revenue - The increase in total cost of revenue for the three and nine months ended September 30, 2023, compared to the same periods in 2022, was largely due to the increase in cost of equipment sales, resulting from an increase in demand for rental equipment purchases by our customers. The increase is also due to higher levels of fleet maintenance due to the mix of rental returns.

Depreciation - Depreciation of our rental fleet remained flat for the three months ended September 30, 2023, compared to the same period in 2022. For the nine months ended September 30, 2023, depreciation of our rental fleet decreased compared to the same period in 2022, primarily due to favorable market demand for used rental equipment.

Gross Profit - The increase in gross profit for the three and nine months ended September 30, 2023, compared to the same periods in 2022, was due to the increase in rental revenues and equipment sales for the period.

Truck and Equipment Sales (TES) Segment


	Three Months Ended
(in $000s)	September 30, 2023		September 30, 2022		$ Change		% Change		June 30, 2023		% Change
Equipment sales	$	230,904	$	173,782	$	57,122	32.9	%	$	251,423	(8.2)	%
Cost of equipment sales	191,084		146,573		44,511		30.4	%	205,464		(7.0)	%
Gross profit	$	39,820	$	27,209	$	12,611	46.3	%	$	45,959	(13.4)	%


	Nine Months Ended September 30,
(in $000s)	2023		2022		$ Change		% Change
Equipment sales	$	691,481	$	522,921	$	168,560	32.2	%


Cost of equipment sales	571,592		444,798		$	126,794	28.5	%

Gross profit	$	119,889	$	78,123	$	41,766	53.5	%

Equipment Sales - Equipment sales increased for the three and nine months ended September 30, 2023, compared to the same periods of 2022, due to the continued supply chain improvements related to the segment's inventory suppliers, which allowed for greater order fulfillments and sustained strong customer demand.

Cost of Equipment Sales - Cost of equipment sales increased for the three and nine months ended September 30, 2023, compared to the same periods of 2022, due to the increase in equipment sales.

Gross Profit - The increase in gross profit for the three and nine months ended September 30, 2023, compared to the same periods of 2022, is reflective of the positive demand and pricing environment for our products.

Aftermarket Parts and Services (APS) Segment


	Three Months Ended
(in $000s)	September 30, 2023		September 30, 2022		$ Change		% Change		June 30, 2023		% Change
Rental revenue	$	3,280	$	3,001	$	279	9.3	%	$	4,337	(24.4)	%
Parts and services revenue	33,065		31,867		1,198		3.8	%	32,544		1.6	%
Total revenue	36,345		34,868		1,477		4.2	%	36,881		(1.5)	%
Cost of revenue	26,203		26,187		16		0.1	%	25,988		0.8	%
Depreciation of rental equipment	817		836		(19)		(2.3)	%	811		0.7	%
Total cost of revenue	27,020		27,023		(3)		—	%	26,799		0.8	%
Gross profit	$	9,325	$	7,845	$	1,480	18.9	%	$	10,082	(7.5)	%


	Nine Months Ended September 30,
(in $000s)	2023		2022		$ Change		% Change
Rental revenue	$	12,121	$	10,531	$	1,590	15.1	%
Parts and services revenue	98,194		93,557		4,637		5.0	%
Total revenue	110,315		104,088		6,227		6.0	%

Cost of revenue	79,178		74,715		4,463		6.0	%
Depreciation of rental equipment	2,446		2,774		(328)		(11.8)	%
Total cost of revenue	81,624		77,489		4,135		5.3	%
Gross profit	$	28,691	$	26,599	$	2,092	7.9	%

Total Revenue - Total revenue increased for the three and nine months ended September 30, 2023, compared to the same periods of 2022. Growth in demand for parts, tools and accessories sales was augmented by increased tools and accessories rentals in the Parts, Tools and Accessories (“PTA”) division.

Cost of Revenue - Cost of revenue increased for the three and nine months ended September 30, 2023, compared to the same periods of 2022, commensurate with the increase in volume of parts sales and rental activity.

Gross Profit - The increase in gross profit for the three and nine months ended September 30, 2023, compared to the same periods in 2022, was primarily volume driven.

Liquidity and Capital Resources

Our principal sources of liquidity include cash generated by operating activities and borrowings under revolving credit facilities as described below. We believe that our liquidity sources and operating cash flows are sufficient to address our operating, debt service and capital requirements, including investments in our rental fleet, over the next 12 months and beyond. As of September 30, 2023, we had $8.8 million in cash and cash equivalents compared to $14.4 million as of December 31, 2022. As of September 30, 2023, we had $492.4 million of outstanding borrowings under our ABL Facility compared to $437.7 million of outstanding borrowing under the ABL Facility as of December 31, 2022.

ABL Facility

As of September 30, 2023, borrowing availability under the ABL Facility was $254.5 million, and outstanding standby letters of credit were $3.1 million. Borrowings under the ABL Facility bear interest at a floating rate, which, at Buyer’s election, could be (a) in the case of U.S. dollar denominated loans, either (i) the SOFR plus an applicable margin or (ii) the base rate plus an applicable margin or (b) in the case of Canadian dollar denominated loans (“CDOR”), the CDOR rate plus an applicable margin. The applicable margin varies based on Average Availability (as defined in the ABL Credit Agreement) from (x) with respect to base rate loans, 0.50% to 1.00% and (y) with respect to SOFR loans and CDOR rate loans, 1.50% to 2.00%. The ability to draw under the ABL Facility or issue letters of credit thereunder is conditioned upon, among other things, delivery of prior written notice of a borrowing or issuance, as applicable, the ability to reaffirm the representations and warranties contained in the ABL Credit Agreement and the absence of any default or event of default under the ABL Facility. The only financial covenant that currently exists under the ABL Facility is the fixed charge coverage ratio. The fixed charge coverage ratio is defined as the ratio of Adjusted EBITDA to fixed charges (as defined in the agreement) and will only apply in the future if specified availability under the ABL Facility falls below 10% of the maximum revolver amount under the ABL Facility. As of September 30, 2023, specified availability under the ABL Facility exceeded the required threshold and, as a result, this financial covenant was inapplicable.

2029 Secured Notes

The Company issued $920.0 million in aggregate principal amount of 5.50% senior secured second lien notes due 2029 (the “2029 Secured Notes”). The 2029 Secured Notes were issued pursuant to an indenture, dated as of April 1, 2021, between the Issuer, Wilmington Trust, National Association, as trustee and the guarantors party thereto (the “Indenture”). The Issuer pays interest on the 2029 Secured Notes semi-annually in arrears on April 15 and October 15 of each year. Unless earlier redeemed, the 2029 Secured Notes will mature on April 15, 2029.

Restrictive Covenants

The Indenture contains covenants that limit the Issuer’s (and certain of its subsidiaries’) ability to, among other things: (i) incur additional debt or issue certain preferred stock; (ii) pay dividends, redeem stock or make other distributions; (iii) make other restricted payments or investments; (iv) create liens on assets; (v) transfer or sell assets; (vi) create restrictions on payment of dividends or other amounts by the Issuer to the Issuer’s restricted subsidiaries; (vii) engage in mergers or consolidations; (viii) engage in certain transactions with affiliates; or (ix) designate the Issuer’s subsidiaries as unrestricted subsidiaries.

Events of Default

The Indenture provides for customary events of default, including non-payment, failure to comply with covenants or other agreements in the Indenture and certain events of bankruptcy or insolvency. If an event of default occurs and continues with respect to the 2029 Secured Notes, the trustee or the holders of at least 30% in aggregate principal amount of the outstanding 2029 Secured Notes of such series may declare the entire principal amount of all the 2029 Secured Notes to be due and payable immediately (except, that if such event of default is caused by certain events of bankruptcy or insolvency, the entire principal of the 2029 Secured Notes will become due and payable immediately without further action or notice).

Floor Plan Financing

Daimler Truck Financial

The Company is party to the Wholesale Financing Agreement with Daimler Truck Financial (the “Daimler Facility”) which bears interest at a rate of Prime plus 0.80% after an initial interest free period of up to 150 days. The total borrowing capacity under the Daimler Facility is $175.0 million. As of September 30, 2023 and December 31, 2022, borrowings on the Daimler Facility were $131.6 million and $105.4 million, respectively. The Daimler agreement is evergreen and is subject to termination by either party through written notice.

PACCAR

References to the Prime Rate in the foregoing agreements represent the rate as published in the Wall Street Journal.

PNC Equipment Finance, LLC

The Company has an Inventory Loan, Guaranty and Security Agreement (the “Loan Agreement”) with PNC Equipment Finance, LLC. On August 25, 2023, the Company renewed the Loan Agreement by an additional two years. As of September 30, 2023, the Loan Agreement provides the Company with a $400.0 million revolving credit facility, which matures on August 25, 2025 and bears interest at a three-month term secured overnight financing rate (“SOFR”) plus 3.00%. As of September 30, 2023 and December 31, 2022, borrowings on the Loan Agreement were $396.9 million and $293.5 million, respectively.

Notes Payable

Our notes payable require the Company to pay monthly and quarterly interest payments and have maturities from 2023 through 2026. Notes payable include (i) debt assumed from a past business acquisition related to borrowings for facilities renovations and to support general business activities, (ii) notes payable related to past businesses acquired, and (iii) term loans. The Company consolidated certain notes payable assumed from past business acquisitions into a $23.9 million loan agreement with Security Bank of Kansas City (“SBKC”) that bears interest at a rate of 3.125% per annum, and a $3.5 million loan agreement with SBKC that bears interest at a rate of 3.5% per annum.

2023 Credit Facility

On January 13, 2023, the Company entered into a new credit agreement allowing for borrowings of up to $18.0 million (the “2023 Credit Facility”). Proceeds from the credit agreement were used to finance a portion of the Company’s acquisition of real property from a related party in December 2022. A portion of the loan proceeds has been used to finance improvements to the property. In connection with entering into the agreement, the Company received proceeds of $13.7 million with the ability to draw an additional $4.2 million upon completion of certain construction milestones. Borrowings bear interest at a fixed rate of 5.75% per annum and are required to be repaid monthly in an amount of approximately $0.1 million with a balloon payment due on the maturity date of January 13, 2028. Borrowings are secured by the real property and improvements.

Historical Cash Flows

The following table summarizes our sources and uses of cash:


	Nine Months Ended September 30,
(in $000s)		2023		2022
Net cash flow from operating activities		$	(2,706)	$	4,344
Net cash flow from investing activities		(145,612)		(153,927)
Net cash flow from financing activities		142,557		141,860
Effect of exchange rate changes		194		(2,005)
Net change in cash and cash equivalents		$	(5,567)	$	(9,728)

As of September 30, 2023, we had cash and cash equivalents of $8.8 million, a decrease of $5.6 million from December 31, 2022. Generally, we manage our cash flow by using any excess cash, after considering our working capital and capital expenditure needs, including paying down the outstanding balance under our ABL Facility, and availability under our credit facilities.

Cash Flows from Operating Activities

Net cash used by operating activities was $2.7 million for the nine months ended September 30, 2023, as compared to net cash provided by operating activities of $4.3 million in the same period of 2022. The use of cash in the current period is the result of our increased levels of inventory purchases and production.

Cash Flows from Investing Activities

Net cash used in investing activities was $145.6 million for the nine months ended September 30, 2023, as compared to $153.9 million in the same period of 2022. The decrease in cash used for investing activities is due to the cash paid for acquisition, net of cash

acquired in 2022 of $49.8 million as well as an increase in proceeds from sales and disposals of rental equipment of $42.2 million, partially offset by an increase in purchases for rental and non-rental equipment and cloud computing arrangements of $83.6 million.

Cash Flows from Financing Activities

Net cash provided by financing activities remained flat with $142.6 million for the nine months ended September 30, 2023, as compared to $141.9 million in 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

We are subject to interest rate market risk in connection with our long-term debt. Our principal interest rate exposure relates to outstanding amounts under our asset-based revolving credit facility and our floor plan financing arrangements. Interest rate changes generally impact the amount of our interest payments and, therefore, our future net income and cash flows, assuming other factors are held constant. As of September 30, 2023, we had $1,084.2 million aggregate principal amount of variable rate debt, consisting of the balance outstanding under floor plan financing and the ABL Facility. Holding other variables constant, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense under floor plan financing and the ABL Facility by approximately $1.4 million on an annual basis.

We, from time to time, may manage a portion of our risks from exposures to fluctuations in interest rates as part of our risk management program through the use of derivative financial instruments. The objective of controlling these risks is to limit the impact on earnings and cash flows caused by fluctuations in the interest rates of our variable-rate debt.

Foreign currency exchange rate risk

During the nine months ended September 30, 2023, we generated $38.1 million of revenues denominated in Canadian dollars. Each 100-basis point increase or decrease in the average Canadian dollar to U.S. dollar exchange rate for the year would have correspondingly changed our revenues by approximately $0.5 million on an annual basis. We do not currently hedge our exchange rate exposure.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation with the participation of our Chief Executive Officer and Chief Financial Officer. Based on that assessment, the Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2023, the Company’s disclosure controls and procedures were not effective because of the material weakness in our internal control over financial reporting described below.

Inadequate General Information Technology Controls and Business Process Controls

On April 1, 2021, we completed the acquisition of Custom Truck LP, which resulted in a significant change in the Company’s internal control over financial reporting. We are in the process of completing the integration of policies, processes, people, technology and operations for the combined company. As part of this integration, we identified deficiencies in the design and operating effectiveness of internal controls associated with the control activities component of the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework.

During the fourth quarter ended December 31, 2021, we identified control deficiencies related to overall information technology general controls (“ITGCs”) for both user access and program change-management for systems supporting all of the Company’s internal control processes and controls, controls over the completeness and accuracy of information used in business process controls and management review controls. Our business process controls (automated and manual) and management review controls were also deemed ineffective because they are adversely impacted by ineffective ITGCs. These control deficiencies could result in misstatements potentially impacting all financial statement accounts and disclosures that may not be prevented or detected.

Accordingly, these deficiencies constitute a material weakness. The material weakness did not result in any identified misstatements to our consolidated financial statements, and there were no changes to previously released financial results.

(b) Remediation of the Material Weakness in Internal Control Over Financial Reporting

The Company is in the process of implementing changes associated with the design, implementation, and monitoring ITGCs in the areas of user access and program change-management for systems supporting all of the Company’s internal control processes to ensure that internal controls are designed and operating effectively. A significant portion of our remediation plan to address the control deficiencies encompassed implementation of our new enterprise resource planning (“ERP”) system, which was completed in the second quarter of 2022. The new ERP system allows us to address segregation of duties by establishing user roles specific to the nature of each job function. We are also establishing controls to ensure appropriate authorization of new user access requests, including performance of routine reviews of user access, and controls over program-change management. Additionally, we are in the process of enhancing relevant process level controls that are relevant to the preparation of consolidated financial statements and, accordingly, efforts to remediate the ITGC deficiencies were continuing through the nine months ended September 30, 2023. The material weakness cannot be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Other than the ongoing remediation plans described above, there were no changes to our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We may, at any given time, be named as a defendant in certain lawsuits, investigations and claims arising in the ordinary course of business. While the outcome of these potential lawsuits, investigations and claims cannot be predicted with certainty, we do not expect these matters to have a material adverse impact on our business, results of operations, cash flows or financial condition. In the opinion of management, there are no pending litigations, disputes or claims against the Company that, if decided adversely, would have a material adverse effect on its consolidated financial condition, cash flows or results of operations.

Item 1A. Risk Factors

No material changes occurred to the indicated risk factors as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On August 2, 2022, our Board of Directors authorized a stock repurchase program for up to $30 million of the Company’s common stock. As the Company exhausted this program during the quarter, on September 14, 2023, the Board of Directors approved a stock repurchase program that authorizes additional repurchases of up to $25 million of shares of the Company’s common stock. The authorization does not have an expiration date. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases depending on market conditions and corporate needs.

The following table contains information regarding our purchases of our common stock during the three months ended September 30, 2023:


ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in $000s)



July 1, 2023 - July 31, 2023	—	$	—	—	$	15,189
August 1, 2023 - August 31, 2023	159,686	$	6.46	159,686	$	14,157
September 1, 2023 - September 30, 2023	2,317,187	$	6.38	2,306,923	$	24,436
Total	2,476,873	$	6.39	2,466,609

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.

Description

10.1+

Employment Agreement, dated August 2, 2023, by and between Paul M. Jolas and Custom Truck One Source, Inc.

31.1

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

+Management contract or compensatory plan.

* Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		CUSTOM TRUCK ONE SOURCE, INC. (Registrant)

Date:	November 7, 2023	/s/ Ryan McMonagle
		Ryan McMonagle, Chief Executive Officer

Date:	November 7, 2023	/s/ Christopher J. Eperjesy
		Christopher J. Eperjesy, Chief Financial Officer