Notes to 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. Immediately following the acquisition by Nesco Holdings II, Inc. of Custom Truck One Source, L.P. (“Custom Truck LP”) on April 1, 2021 (the “Acquisition”), Nesco Holdings, Inc. (“Nesco Holdings”) changed its name to “Custom Truck One Source, Inc.” and changed The New York Stock Exchange ticker for its shares of common stock from “NSCO” to “CTOS.”
We are a specialty equipment provider to the electric utility transmission and distribution, telecommunications, rail, forestry, waste management 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. Through December 31, 2025, we managed the business in three reporting segments: Equipment Rental Solutions (“ERS”), Truck and Equipment Sales (“TES”) and Aftermarket Parts and Services (“APS”). Segment information provided within this Annual Report on Form 10-K, is included in Note 19: Segments.
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 December 31, 2025, this equipment (the “rental fleet”) is comprised of more than 10,400 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 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 the majority 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.
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
Our accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and the accounting policies described below. Our 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 Consolidated Financial Statements and most of the disclosures in these Notes be presented on a historical basis, as of or for the current annual period or prior annual periods.
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.
Recently Adopted Accounting Standards
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2023-09, Income Taxes—Improvements to Income Tax Disclosures (Topic 740) (“ASU 2023-09”), which expands income tax disclosure requirements to include additional information related to the rate reconciliation of our effective tax rates to statutory rates as well as additional disaggregation of taxes paid. The amendments in the ASU also remove disclosures related to certain unrecognized tax benefits and deferred taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The amendments may be applied prospectively or retrospectively. The Company adopted ASU 2023-09 on January 1, 2025, on a prospective basis, and has included the required updates in its consolidated financial statements and disclosures.
Recently Issued Accounting Standards
In December 2025, the FASB issued ASU 2025-11 — Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”), which is intended to improve the navigability of the guidance in ASC 270, Interim Reporting, and clarify when it applies. Under the amendments, an entity is subject to ASC 270 if it provides interim financial statements and notes in accordance with GAAP. ASU 2025-11 also addresses the form and content of such financial statements, interim disclosures requirements, and establishes a principle under which an entity must disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, and early adoption is permitted. The Company is currently assessing the impact of ASU 2025-11 may have on its consolidated financial statements and disclosures.
In September 2025, the FASB issued Accounting Standards Update No. 2025-06, Intangibles — Goodwill and Other — Internal-Use Software (“ASU 2025-06”), which amends the guidance for accounting for software costs to reflect current software development practices, including iterative and agile methodologies, by removing references to development stages. It also clarifies the criteria for capitalization, which begins when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted. The amendments may be applied either prospectively, retrospectively, or utilizing a modified transition approach. The Company is currently assessing the impact of ASU 2025-06 on its consolidated financial statements and disclosures.
In November 2024, the FASB issued Accounting Standards Update No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires additional disclosures in the notes to financial statements, disaggregating specific expense categories within relevant income statement captions. The FASB further clarified the effective date in January 2025 with the issuance of ASU 2025-01, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective
Date (“ASU 2025-01”). ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently assessing the impact of the requirements on its consolidated financial statements and disclosures.
Revenue Recognition
We recognize revenue in accordance with two different accounting standards: Topic 606, Revenue from contracts with customers (“Topic 606”), and Topic 842, Leases (“Topic 842”).
Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A “performance obligation” is a promise in a contract to transfer a distinct good or service to a customer and is the unit of account under Topic 606. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services. Our contracts with customers generally do not include multiple performance obligations.
Rental Revenue – Rental revenue is primarily comprised of revenues from rental agreements and freight charges billed to customers. We also charge customers for damaged equipment, which is assessed and billed at the time a rental asset is returned to the Company and recorded within Parts Sales and Services revenue. We record changes in the estimated collectability of operating lease trade receivables against rental revenue. Our rental contracts are for various types of equipment and tools under 28-day or monthly agreements which include automatic renewal provisions. The majority of our rental payments are due upon receipt, with a majority billed at the end of each 28-day or monthly period. Revenue is recognized ratably over the rental agreement period and in accordance with Topic 842. Unearned revenue is reported in deferred revenue and customer deposits in our consolidated balance sheets. We require our rental customers to maintain liability and property insurance covering the units during the rental term and to indemnify us from losses caused by the negligence of the customer, their employees or contractors during the rental term.
We also provide rental customers the opportunity to enter into contracts containing a rental purchase option (“RPO”). The RPO allows the customer to earn credit towards the purchase price of the leased equipment. The earned credit is based on rental payments made. Certain leases containing these purchase options are classified as sales-type leases because the RPO purchase price related to the leased equipment is considered to be a “bargain purchase option” in the lease. However, distinguishing a sales-type lease from an operating lease in the Company's portfolio of rental contracts involves assessing whether a customer’s exercise of their purchase option meets the reasonably certain criteria of Topic 842. This assessment involves judgments about whether there exists a compelling economic reason for an exercise on the part of the customer, considering factors related to the rental contract itself, the underlying asset, specifics about the customer’s financial situation and market conditions related to rentals of similar classes of assets. Revenue on these lease contracts is recognized at the point in time when the Company is reasonably certain that the criteria are met. Revenue from these leases is recorded as equipment sales in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Equipment Sales – We sell both new and used equipment. There are no rights of return or warranties offered on equipment sales. The contractual sales price for each individual equipment represents the standalone selling price. Our used equipment is of a sufficiently unique nature, based on specific characteristics such as its age and usage, that it does not have an observable standalone selling price. Equipment sales revenue is recognized upon the transfer of control of equipment. Except for equipment sold under bill-and-hold arrangements, control is transferred when title and physical possession of the equipment has transferred to the customer, which is at the point in time of customer pickup or when the equipment is delivered to a specified destination and the Company has a present right to payment. Payment is usually due within 30 days subsequent to transfer of control of the equipment. Additionally, revenue is recognized for upfit services on heavy-duty trucks and cranes.
We have bill and hold arrangements with a small number of customers who request to complete the purchase of equipment prior to their ability to take physical possession. In these cases, customers request that we retain physical possession of the equipment until customer pickup or delivery at a later date. Under these arrangements, control is transferred to the customer when the equipment is ready for transfer to the customer, the customer has taken legal title, and the Company has a present right to payment. Under the bill and hold arrangements, which are rare, we recognize sales only when all of the following criteria are met: 1) the customer’s reason for the bill-and-hold arrangement is substantive, 2) the equipment is separately identified as belonging to the customer, 3) the equipment is ready for transfer to the customer and 4) we do not have the ability to use the equipment or direct it to another customer.
Parts Sales and Services – We sell aftermarket parts and services. We derive our services revenue primarily from maintenance and repair services on heavy-duty trucks and cranes. Revenue from these services includes parts sales needed to complete the service work. We recognize services revenue as the service work is completed. We record revenue on a point in time basis as parts are delivered. The amount of consideration we receive for parts is based upon a list price net of discounts and incentives, and the impact of such variable consideration is factored into the amount of revenue we recognize at any point in time. The amount of consideration
received for services is based upon labor hours expended and parts utilized to perform and complete the necessary services for our customers. There are no rights of return or warranties offered on parts sales. Payment is usually due and collected within 30 days subsequent to delivery of parts or performance of service.
We record sales tax billed to customers and remitted to governmental authorities on a net basis and, consequently, these amounts are excluded from revenues and expenses. Sales taxes are recorded as accrued expenses when billed.
Shipping and Handling Costs – We classify shipping and handling fees billed to customers related to the placement of rental units as rental revenue in our Consolidated Statements of Operations and Comprehensive Income (Loss). We include the related shipping and handling costs in cost of rental revenue, excluding depreciation, in our Consolidated Statements of Operations and Comprehensive Income (Loss). Shipping and handling fees billed to customers related to the sale of equipment and parts are recorded as equipment sales or parts sales and services revenue, respectively. The related shipping and handling costs are recorded in cost of equipment sales or cost of parts sales and services, respectively.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash and short-term investments with remaining maturities of three months or less when acquired. The carrying amount of cash and cash equivalents approximates its fair value. The Company maintains deposits at financial institutions in excess of federally insured limits.
Trade Receivables and Allowance for Credit Losses
We are exposed to credit losses from trade receivables generated through our leasing, sales and service businesses. We assess each customer’s ability to pay for the products and services by conducting a credit review. The credit review considers expected billing exposure and timing for payment and the customer’s established credit rating. We perform a credit review of new customers at inception of the customer relationship and, for existing customers, when the customer transacts new leases or product orders after a period of dormancy. We also consider contract terms and conditions, country risk and business strategy in the evaluation.
We monitor ongoing credit exposure through an active review of customer balances against contract terms and due dates. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables. The allowances for credit losses reflect the estimate of the amount of receivables that management assesses will be unable to be collected based on historical write-off experience and, as applicable, current conditions and reasonable and supportable forecasts that affect collectability. This estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease the allowances. We review the adequacy of the allowance on a quarterly basis. The allowance for doubtful accounts is included in accounts receivable, net on our Consolidated Balance Sheets.
Accounts receivable, net consisted of the following:
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| (in $000s) | December 31, 2025 | | December 31, 2024 |
| Accounts receivable | $ | 213,472 | | | $ | 233,688 | |
| Less: allowance for doubtful accounts | (17,931) | | | (17,815) | |
| Accounts receivable, net | $ | 195,541 | | | $ | 215,873 | |
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The relationship between provision for losses on accounts receivable and allowance for doubtful accounts is presented below:
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| Year Ended December 31, |
| (in $000s) | 2025 | | 2024 | | 2023 |
| Allowance - beginning of period | $ | 17,815 | | | $ | 17,503 | | | $ | 19,241 | |
| Provision for losses on accounts receivable | 9,441 | | | 10,777 | | | 8,585 | |
| Accounts written off during period, net of recoveries | (9,325) | | | (10,465) | | | (10,323) | |
| Allowance - end of period | $ | 17,931 | | | $ | 17,815 | | | $ | 17,503 | |
Specifically identifiable lease revenue receivables not deemed probable of collection are recorded as a reduction of rental revenue. The remaining provision for credit losses, which relates to product sales and services, is recorded in selling, general and administrative expense.
Inventory
Inventory is carried at the lower of cost or net realizable value. The Company periodically reviews inventories on hand and maintains reserves for slow-moving, excess, or obsolete inventories.
Whole goods inventory is comprised of chassis, attachments (i.e., boom cranes, aerial lifts, digger derricks, dump bodies, etc.), and the in-process costs incurred in the final assembly of those units. As part of our business model, we sell 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, which purchases are recorded directly to inventory when received. Cost is determined by specific identification for whole goods inventory. Aftermarket parts and services inventories are recorded at standard cost.
Rental Equipment and Property and Equipment
Rental Equipment
Rental equipment is primarily comprised of the cost of truck-mounted aerial lifts, cranes, trucks, trailers, digger derricks, line equipment, cranes, pressure diggers, underground and other machinery and equipment. The rental equipment we purchase is recorded at cost and depreciated over the estimated rentable life of the equipment using the straight-line method over useful lives, depending on product categories, ranging from 1 to 7 years, to an estimated residual value, depending on product categories, ranging from 0% to 35% of cost. Depreciation of rental equipment commences when a rental unit is placed into the rental fleet and becomes available to rent and the cost is depreciated whether or not the equipment is on rent. We reevaluate the estimated rentable life as rental equipment is purchased, estimating the period that the asset will be held, considering factors such as historical rental activity and expectations of future rental activity. We also reevaluate the estimated residual values of the applicable rental equipment. The residual value of equipment is affected by factors that include equipment age, amount of usage and market conditions. Market conditions for used equipment sales can also be affected by external factors such as the economy, natural disasters, fuel prices, supply of similar used equipment, the market price for similar new equipment, and incentives offered by manufacturers of new equipment. These factors are considered when estimating future residual values and depreciation periods.
Expenditures for repair and maintenance that extend the useful life of the equipment and are necessary to keep an equipment unit in rentable condition are capitalized and depreciated over the estimated remaining useful life of the equipment, which is the period the repair and maintenance is expected to provide future economic benefit. When making repairs, we dispose of damaged and replaced components at their net carrying values. The cost of routine and recurring maintenance activities related to the rental fleet are charged to expense as incurred.
Property and Equipment
Property and equipment is primarily comprised of land, buildings and improvements, machinery and equipment, and vehicles and is carried at cost, net of accumulated depreciation. Depreciation is provided using the straight-line method based on useful lives ranging from three to 39.5 years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Leasehold improvements are depreciated over the lesser of the improvement’s useful life or the remaining lease term.
Leases as Lessee
We determine if an arrangement is a lease at inception of an arrangement. Operating and finance lease assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Lease assets represent the Company’s right to use an underlying asset for the lease term, while lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As most leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the lease commencement date, in determining the present value of lease payments. The length of a lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise those options. The Company does not recognize lease assets or liabilities for leases with a term of 12 months or less, and it recognizes these lease payments as lease cost on a straight-line basis over the lease term. We do not separate lease and non-lease components. The Company applies a portfolio approach to determine the discount rate for leases with similar characteristics.
For our leases classified as operating, the ROU asset is measured throughout the lease term at the carrying amount of the lease liability, plus unamortized initial direct costs, plus/(minus) any unamortized prepaid/(accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Goodwill
We recognize goodwill when the purchase price of an acquired business exceeds the fair value of identifiable net assets acquired, and goodwill is assigned to each of our three reporting units, which are ERS, TES and APS. Goodwill is not amortized for financial reporting purposes. See Note 10: Goodwill and Intangible Assets for summary of goodwill balances by reporting unit.
We perform our assessment of goodwill impairment utilizing either a qualitative or quantitative impairment test, and we perform our test at least annually. Our annual assessment date is October 1, and we perform impairment tests in interim periods (e.g. other than October 1) when factors are identified that could indicate goodwill of any of our reporting units may be impaired. Examples of such factors may include a significant adverse change in business climate, weakness in an industry in which our reporting units operate or recent significant cash or operating losses with expectations that those losses will continue. The qualitative and quantitative impairment tests are described further below.
Qualitative Impairment Test – The qualitative impairment test assesses company-specific, industry, market and general economic factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or we elect not to use the qualitative impairment test, a quantitative impairment test is performed.
Quantitative Impairment Test – The quantitative impairment test involves a comparison of the estimated fair value of a reporting unit to its carrying amount with the fair value of a reporting unit being estimated by using a discounted cash flow model (the “income approach”) that calculates fair value as the present value of expected cash flows of the reporting unit. Additionally, a market analysis is performed that encompasses an analysis of comparable publicly-traded companies (the “market approach”).
Determining the fair value of a reporting unit requires judgment and the use of significant estimates that include assumptions about the reporting unit’s future revenue (considering expectations about rental and sales volumes and prices as well as capital spending related to the end-markets we serve), profitability and cash flows, long-term growth rates, amount and timing of estimated capital expenditures, inflation rates, risk adjusted cost of capital, operational plans, and current and future economic conditions, among other assumptions. The fair value of each reporting unit is determined using a weighted combination of the income and market approaches. We believe that the estimates and assumptions used in our impairment assessments are reasonable and based on available market information. We use a discounted cash flow methodology for the income approach. Under the income approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specified period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate that reflects the best estimate of the risk adjusted cost of capital at each reporting unit. Changes in these estimates, many of which fall under Level 3 within the fair value measurement hierarchy (refer to Note 2: Summary of Significant Accounting Policies – Fair Value Measurements to the consolidated financial statements included in this Annual Report on Form 10-K), could change our conclusion regarding the impairment of goodwill assets and potentially reduce the carrying value of goodwill on our balance sheet and reduce our income in the year in which it is recorded.
The following is a discussion of the estimates and assumptions from our October 1, 2025 quantitative impairment test for the ERS, TES and APS reporting units:
•The risk adjusted cost of capital varies by reporting unit and was in the range of 9.5% to 10.0% and represents our estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise.
•Our projections were based on our assessment of macroeconomic variables, industry trends and market opportunities, as well as our strategic objectives and future growth plans. Revenue growth rates assumed ranged from approximately 4% to 10% for 2026 and from approximately 3% to 12% for 2027 and beyond. EBITDA Margin assumed ranged from approximately 4% to 45% for 2026 and from approximately 5% to 47% for 2027 and beyond.
As a result of completing our October 1, 2025 quantitative impairment test, we determined that the fair value of the ERS, TES and APS reporting units exceeded their carrying values by 34%, 14% and 81%, respectively. While there is no “bright line” to determine whether or not a reporting unit’s fair value is substantially in excess of its carrying amount (“cushion”), significant adverse changes in business climate, weakness in an industry in which our reporting units operate (for example, electric utility T&D, telecom, rail and general infrastructure) or significant cash or operating losses and changes in expectations of profitability could reduce the amounts of cushion applicable to our reporting units and result in impairment of one or more of our reporting units’ goodwill. As a result of our analyses, the Company determined that there was no impairment of goodwill.
Impairment of Long-Lived Assets, including Intangible Assets
We evaluate the carrying value of long-lived assets held for use, including rental equipment and definite-lived intangible assets, for impairment whenever an event or circumstance has occurred (such as a significant adverse change in the business climate, operating performance metrics, or legal factors) which suggests that the carrying value may not be recoverable. Impairment of a long-lived asset held for use (or relative asset group, if applicable) is measured when the anticipated separately identifiable undiscounted cash flows from the asset are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value. Fair value is determined primarily using anticipated cash flows discounted at a rate commensurate with the risk involved.
Other intangible assets consist of customer relationships, non-compete agreements and trade names. We amortize intangible assets with finite lives over the period the economic benefits are estimated to be consumed. Definite lived intangibles are amortized using the straight-line method over their useful life, as we believe this method best matches the pattern of economic benefit. See Note 10: Goodwill and Intangible Assets for additional information.
Fair Value Measurements
Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets and liabilities. These inputs can be readily observable, market corroborated, or generally unobservable.
Fair Value Hierarchy - In measuring fair value, we use observable market data when available and minimize the use of unobservable inputs. Unobservable inputs may be required to value certain financial instruments due to complexities in contract terms. Inputs used in fair value measurements are categorized into three fair value hierarchy levels for disclosure purposes. The entire fair value measurement is categorized based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy are:
Level 1 - Inputs that reflect unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur with both sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 - Inputs that reflect quoted prices for similar assets and liabilities are available in active markets, and inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3 - Inputs that are generally less observable or from unobservable sources in which there is little or no market data. These inputs may be used with internally developed methodologies that result in our best estimate of fair value.
Valuation Techniques - Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:
Market approach - Technique that uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Income approach - Technique that converts future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing, and excess earnings models).
Cost approach - Technique that estimates the amount that would be required to replace the service capacity of an asset (i.e., replacement cost).
Assets and Liabilities with Recurring Fair Value Measurements - Certain assets and liabilities may be measured at fair value on an ongoing basis. We did not elect to apply the fair value option for recording financial assets and financial liabilities. We do not have any assets or liabilities which we measure at fair value on a recurring basis.
Assets and Liabilities with Nonrecurring Fair Value Measurements - Certain assets and liabilities are not measured at fair value on an ongoing basis. These assets and liabilities, which include long-lived assets, goodwill, and intangible assets, are subject to fair value adjustment in certain circumstances. From time to time, the fair value is determined on these assets as part of related impairment tests. For certain assets and liabilities acquired in business combinations, we record the fair value as of the acquisition date. Other than acquisition adjustments, no adjustments to fair value or fair value measurements were required for non-financial assets and liabilities for all periods presented. See Note 10: Goodwill and Intangible Assets and Note 14: Fair Value Measurements for additional information.
Deferred Financing Costs
Direct costs incurred in connection with the issuance, and amendments thereto, of our debt are capitalized and amortized over the terms of the respective agreements using the effective interest method, or the straight-line method when not materially different than the effective interest method. The net carrying value of deferred financing costs are classified as a reduction to long-term debt in the Consolidated Balance Sheets (see Note 8: Long-Term Debt). The amortization is included in interest expense on our Consolidated Statements of Operations and Comprehensive Income (Loss).
Accrued Expenses
Accrued expenses consisted of the following:
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| (in $000s) | December 31, 2025 | | December 31, 2024 |
| Accrued interest | $ | 23,779 | | | $ | 25,965 | |
| Accrued salaries, wages and benefits | 34,064 | | | 32,850 | |
| Accrued sales taxes | 7,344 | | | 5,271 | |
| Other | 4,041 | | | 5,263 | |
| Total accrued expenses | $ | 69,228 | | | $ | 69,349 | |
Cloud Computing Arrangement Implementation Costs
The Company has entered into certain cloud-based hosting agreements that are accounted for as service contracts. For internal-use software obtained through a hosting arrangement that is a service contract, the Company capitalizes certain implementation costs, such as costs incurred to integrate, configure, and customize internal-use software, which are consistent with costs incurred during the application development stage for on-premises software. These capitalized development costs are recorded in other assets on our Consolidated Balance Sheets. Capitalized implementation costs are amortized straight-line over the term of the hosting arrangement plus any reasonably certain renewal periods, which together ranges from three years to 10 years.
Cloud computing arrangements, net included in other assets in the Consolidated Balance Sheets consisted of the following:
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| (in $000s) | December 31, 2025 | | December 31, 2024 | | |
| Cloud computing arrangements | $ | 36,725 | | | $ | 36,725 | | | |
| Less: accumulated amortization | (26,258) | | | (21,977) | | | |
| Cloud computing arrangements, net | $ | 10,467 | | | $ | 14,748 | | | |
Amortization expense for these assets is included in selling, general, and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss). For the years ended December 31, 2025, 2024, and 2023, amortization expense was $4.3 million, $6.9 million and $6.4 million, respectively.
Advertising Costs
We promote our business through various industries media channels, and expense advertising costs as incurred to selling, general, and administrative expenses. For the years ended December 31, 2025, 2024, and 2023, advertising costs were approximately $6.7 million, $6.2 million and $3.3 million, respectively.
Share-Based Compensation
The fair value of equity-classified awards is determined at the grant date using techniques appropriate for the awards, which we use to determine compensation expense over the service period. We recognize compensation expense for our share-based payments over the requisite service period for the entire award and forfeitures are recognized as they occur. See Note 13: Share-Based Compensation for additional information.
Income Taxes
We utilize the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial accounting and tax bases of assets and liabilities and are measured using the tax rates and laws that are expected to be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more-likely-than-not to be realized in future periods. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. The effect on net deferred tax assets and liabilities resulting from a change in tax rates is recognized as income or expense in the period that the change in tax rates is enacted.
We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments are applied in the calculation of the deferred income tax expense or benefit associated with certain deferred tax assets and liabilities. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.
Our income tax returns are subject to examination by federal, state and foreign tax authorities. There may be differing interpretations of tax laws and regulations, and as a result, disputes may arise with these tax authorities involving the timing and amount of
deductions and allocation of income. With the exception of net operating loss carryforwards, we are generally no longer subject to federal, state, local, and foreign income tax examinations by tax authorities for years ending on or prior to December 31, 2020.
We recognize uncertain income tax positions if it is more-likely-than-not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more-likely-than-not means a likelihood of more than 50%. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Our determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet recognition and measurement standards. Our policy is to record interest and penalties related to unrecognized tax benefits in income tax expense (benefit) on our Consolidated Statements of Operations and Comprehensive Income (Loss). As of December 31, 2025 and 2024, our uncertain income tax positions, unrecognized tax benefits, and accrued interest were not material.
Acquisition Accounting
We have made acquisitions of businesses in the past and may continue to make acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest components of our acquisitions. Rental equipment is valued utilizing either a cost, market or income approach, or a combination of certain of these methods, depending on the asset being valued and the availability of market or income data. The intangible assets that we have acquired are non-compete agreements, customer relationships and trade names and associated trademarks. The estimated fair values of these intangible assets reflect various assumptions about discount rates, revenue growth rates, operating margins, royalty rates, customer attrition rates, terminal values, useful lives and other prospective financial information. Goodwill is calculated as the excess of the cost of the acquired entity over the net of the fair value of the assets acquired and the liabilities assumed. Non-compete agreements, customer relationships and trade names and associated trademarks are valued based on an excess earnings or income approach based on projected cash flows.
Determining the fair value of the assets and liabilities acquired is judgmental in nature and can involve the use of significant estimates and assumptions. The judgments made in determining the estimated fair value assigned to the assets acquired, as well as the estimated life of the assets, can materially impact net income (loss) in periods subsequent to the acquisition because of depreciation and amortization, and in certain instances through impairment charges if the asset becomes impaired in the future. As discussed above, we regularly review long-lived assets for impairments.
When we make an acquisition of business, we also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these other assets and liabilities generally approximate the carrying values on the acquired entities’ balance sheets.
Note 3: Revenue
Revenue Disaggregation
Geographic Areas
The Company had total revenue in the following geographic areas:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in $000s) | 2025 | | 2024 | | 2023 |
| United States | $ | 1,904,355 | | | $ | 1,755,222 | | | $ | 1,816,471 | |
| Canada | 39,602 | | | 47,058 | | | 48,629 | |
| Total Revenue | $ | 1,943,957 | | | $ | 1,802,280 | | | $ | 1,865,100 | |
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 are presented in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Year Ended December 31, | | Year Ended December 31, |
| 2025 | | 2024 | | 2023 |
| (in $000s) | Topic 842 | | Topic 606 | | Total | | Topic 842 | | Topic 606 | | Total | | Topic 842 | | Topic 606 | | Total |
| Rental: | | | | | | | | | | | | | | | | | |
| Rental | $ | 480,594 | | | $ | — | | | $ | 480,594 | | | $ | 422,295 | | | $ | — | | | $ | 422,295 | | | $ | 453,696 | | | $ | — | | | $ | 453,696 | |
| Shipping and handling | — | | | 25,604 | | | 25,604 | | | — | | | 20,658 | | | 20,658 | | | — | | | 25,214 | | | 25,214 | |
| Total rental revenue | 480,594 | | | 25,604 | | | 506,198 | | | 422,295 | | | 20,658 | | | 442,953 | | | 453,696 | | | 25,214 | | | 478,910 | |
| Sales and services: | | | | | | | | | | | | | | | | | |
| Equipment sales | 5,989 | | | 1,298,494 | | | 1,304,483 | | | 9,849 | | | 1,213,187 | | | 1,223,036 | | | 58,064 | | | 1,195,389 | | | 1,253,453 | |
| Parts and services | 10,999 | | | 122,277 | | | 133,276 | | | 10,125 | | | 126,166 | | | 136,291 | | | 22,124 | | | 110,613 | | | 132,737 | |
| Total sales and services | 16,988 | | | 1,420,771 | | | 1,437,759 | | | 19,974 | | | 1,339,353 | | | 1,359,327 | | | 80,188 | | | 1,306,002 | | | 1,386,190 | |
| Total revenue | $ | 497,582 | | | $ | 1,446,375 | | | $ | 1,943,957 | | | $ | 442,269 | | | $ | 1,360,011 | | | $ | 1,802,280 | | | $ | 533,884 | | | $ | 1,331,216 | | | $ | 1,865,100 | |
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. Parts and services revenue includes $31.0 million, $27.2 million and $30.0 million related to services provided to customers for the years ended December 31, 2025, 2024, and 2023, respectively.
Receivables, Contract Assets and Liabilities
As of December 31, 2025 and 2024, the Company had net receivables related to contracts with customers of $96.0 million and $119.9 million, respectively. As of December 31, 2025 and 2024, the Company had net receivables related to rental contracts of $99.5 million and $95.9 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. Concentration of credit risk with respect to the Company's receivables is limited because of a large number of geographically diverse customers who operate in a variety of end user markets. The Company manages credit risk through credit approvals, credit limits, and other monitoring procedures.
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. See Note 2: Summary of Significant Accounting Policies for further information regarding allowance for credit losses.
When customers are billed for rentals in advance of the rental period, the Company defers recognition of revenue. As of December 31, 2025 and 2024, the Company had approximately $3.6 million and $4.8 million, respectively, of deferred rental revenue. All of the $4.8 million deferred rental revenue as of December 31, 2024 was recognized during the year ended December 31, 2025. Additionally, the Company collects deposits from customers for orders placed for equipment and rentals. The Company had approximately $19.9 million and $21.5 million in deposits as of December 31, 2025 and 2024, respectively. All of the $21.5 million deposit liability balance as of December 31, 2024 was recognized as revenue during the year ended December 31, 2025 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 it did not recognize any material impairments of any contract assets.
The primary costs to obtain contracts for new and rental unit sales with the Company's customers are commissions. The Company pays its sales force commissions related to the sale and rental of new and used units. For new unit and rental unit sales, the period benefited by each commission is less than one year. As a result, the Company expenses commissions as incurred.
Note 4: Sales-Type Leases
Revenue from rental agreements qualifying as sales-type leases was as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| (in $000s) | | | | | 2025 | | 2024 | | 2023 |
| Equipment sales | | | | | $ | 5,989 | | | $ | 9,849 | | | $ | 58,064 | |
| Cost of equipment sales | | | | | 4,789 | | | 9,425 | | | 55,716 | |
| Gross profit | | | | | $ | 1,200 | | | $ | 424 | | | $ | 2,348 | |
As these transactions remained under rental contracts, $7.0 million, $16.3 million and $28.9 million for the years ended December 31, 2025, 2024 and 2023, respectively, were billed under the contracts as rentals. Interest income from financing receivables was $4.6 million, $11.3 million and $16.1 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The Company’s financing receivables are related to sales-type leases and are collateralized by a security interest in the underlying equipment. As of both December 31, 2025 and 2024, financing receivables, net was $8.9 million.
Note 5: Inventory
Inventory consisted of the following:
| | | | | | | | | | | |
| (in $000s) | December 31, 2025 | | December 31, 2024 |
| Whole goods | $ | 810,749 | | | $ | 913,571 | |
| Aftermarket parts and services inventory | 120,190 | | | 135,733 | |
| Inventory | $ | 930,939 | | | $ | 1,049,304 | |
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. See Note 8: Long-Term Debt. As of December 31, 2025, the Company was in compliance with these covenants.
The amounts owed under floor plan payables are summarized as follows:
| | | | | | | | | | | | | |
| (in $000s) | December 31, 2025 | | December 31, 2024 | | |
| Trade | | | | | |
| Daimler Truck Financial | $ | 137,225 | | | $ | 166,409 | | | |
| PACCAR Financial Corp | 140,742 | | | 129,899 | | | |
| Ford Motor Credit Company, LLC | 13,248 | | | 34,190 | | | |
| Trade floor plan payables | $ | 291,215 | | | $ | 330,498 | | | |
| Non-trade | | | | | |
| PNC Equipment Finance, LLC | $ | 366,208 | | | $ | 470,830 | | | |
| Non-trade floor plan payables | $ | 366,208 | | | $ | 470,830 | | | |
Interest on outstanding floor plan payable balances is due and payable monthly. Floor plan interest expense was $52.7 million, $61.2 million and $36.6 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Trade Floor Plan Financing:
Daimler Truck Financial
The Company is party to the Wholesale Financing Agreement with Daimler Truck Financial (the “Daimler Facility”) which bore interest at a rate of the U.S. Prime plus 0.80% after an initial interest free period of up to 150 days. On January 1, 2025, the interest rate was updated to U.S. Prime Rate. The total borrowing capacity under the Daimler Facility is $225.0 million, however, from time to time, Daimler extends credit to the Company in excess of this amount. 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 $225.0 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 the 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.
Ford Motor Credit Company, LLC
The Company is party to the Master Loan and Security Agreement with Ford Motor Credit Company, LLC (the “FMCC Facility”), which allows the Company to enter into individual loan supplements which bear interest based on the bank prime loan rate as reported by the Federal Reserve Board for the Friday preceding the last Monday of a given month. The total borrowing capacity under the FMCC Facility as of December 31, 2025 was $42.0 million. The FMCC agreement is evergreen and is subject to termination by either party through written notice.
References to the U.S. 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, 2025, the Company renewed the Loan Agreement for an additional one year. The Loan Agreement, as of December 31, 2025, provides the Company with a $475.0 million revolving credit facility, which matures on August 25, 2026 and bears interest at a three-month term secured overnight financing rate (“SOFR”) plus 3.00%.
Note 7: Rental Equipment and Property and Equipment
Rental equipment, net consisted of the following:
| | | | | | | | | | | |
| (in $000s) | December 31, 2025 | | December 31, 2024 |
| Rental equipment | $ | 1,664,178 | | | $ | 1,522,710 | |
| Less: accumulated depreciation | (577,500) | | | (521,059) | |
| Rental equipment, net | $ | 1,086,678 | | | $ | 1,001,651 | |
Property and equipment, net consisted of the following:
| | | | | | | | | | | |
| (in $000s) | December 31, 2025 | | December 31, 2024 |
| Buildings and leasehold improvements | $ | 71,210 | | | $ | 68,942 | |
| Vehicles | 40,033 | | | 38,492 | |
| Land and improvements | 29,676 | | | 26,871 | |
| Machinery and equipment | 41,406 | | | 38,470 | |
| Furniture and fixtures | 4,515 | | | 4,416 | |
| Construction in progress | 18,948 | | | 3,667 | |
| Total property and equipment | 205,788 | | | 180,858 | |
| Accumulated depreciation | (63,262) | | | (49,935) | |
| Property and equipment, net | $ | 142,526 | | | $ | 130,923 | |
Note 8: Long-Term Debt
Debt obligations and associated interest rates consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in $000s) | December 31, 2025 | | December 31, 2024 | | December 31, 2025 | | December 31, 2024 |
| ABL Facility | $ | 697,975 | | | $ | 582,900 | | | 6.1% | | 7.1% |
| 2029 Secured Notes | 920,000 | | | 920,000 | | | 5.5% | | 5.5% |
| 2023 Credit Facility | 17,297 | | | 17,648 | | | 5.8% | | 5.8% |
| Notes payable | 25,487 | | | 27,102 | | | 3.1%-7.0% | | 3.1%-7.0% |
| Total debt outstanding | 1,660,759 | | | 1,547,650 | | | | | |
| Deferred financing fees | (15,549) | | | (19,926) | | | | | |
| Total debt, net of deferred financing fees | 1,645,210 | | | 1,527,724 | | | | | |
| Less: current maturities | (25,858) | | | (7,842) | | | | | |
| Long-term debt | $ | 1,619,352 | | | $ | 1,519,882 | | | | | |
ABL Facility
In connection with the Acquisition, we entered into a senior secured asset-based revolving credit agreement (as amended from time to time, the “ABL Credit Agreement”), with Bank of America, N.A., as administrative agent and collateral agent, and certain other lenders party thereto, consisting of a first lien senior secured asset-based revolving credit facility (the “ABL Facility”).
The ABL Facility provides for revolving loans, in an amount equal to the lesser of the then-current borrowing base (described below) and the committed maximum borrowing capacity of $950.0 million, with a $75.0 million swingline sublimit, and letters of credit in an amount equal to the lesser of (a) $50.0 million and (b) the aggregate unused amount of commitments under the ABL Facility then in effect. The ABL Facility permits Nesco Holdings II, Inc., our wholly owned subsidiary (the “Borrower”), to incur additional capacity under the ABL Facility in an aggregate amount equal to the greater of (i) the greater of (x) $250.0 million and (y) 60.0% of Consolidated EBITDA (as defined in the ABL Credit Agreement), and (ii) the Specified Suppressed Availability (as defined in the ABL Credit Agreement).
Borrowings under the ABL Facility are limited by a borrowing base calculation based on the sum of, without duplication:
(a) 90.0% of book value of eligible accounts of Borrower and certain ABL Guarantors (as defined in the ABL Credit Agreement); plus
(b) the lesser of (i) 75.0% of book value of eligible parts inventory of the Borrower and certain ABL Guarantors (subject to certain exceptions) and (ii) 90.0% of the net orderly liquidation value of eligible parts inventory of Borrower and certain ABL Guarantors; plus
(c) the sum of (i) 95.0% of the net book value of the eligible fleet inventory of the Borrower and certain ABL Guarantors that has not been appraised and (ii) 85.0% of the net orderly liquidation value of the eligible fleet inventory of the Borrower and certain ABL Guarantors that has been appraised; plus
(d) 100.0% of eligible cash of the Borrower and certain ABL Guarantors; minus
(e) any reserves established by the administrative agent from time to time.
As of December 31, 2025, borrowing availability under the ABL Facility was $248.1 million, and outstanding standby letters of credit were $4.0 million.
Borrowings under the ABL Facility bears interest at a floating rate, which, at Borrower’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 Canadian Overnight Repo Rate Average (“CORRA”) rate plus an applicable margin. The applicable margin varies based on Average Availability from (a) with respect to base rate loans, 0.50% to 1.00% and (b) with respect to SOFR loans and CORRA rate loans, 1.50% to 2.00%. In addition, there is a leverage based step-down to the pricing grid otherwise based on Average Availability (as defined in the ABL Credit Agreement). 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 Borrower is required to pay a commitment fee to the lenders under the ABL Facility in respect of the unutilized commitments thereunder at a rate equal to 0.250% per annum based on average daily usage. The Borrower must also pay customary letter of credit and agency fees.
The balance outstanding under the ABL Facility will be due and payable on August 9, 2029, or, if earlier, the date that is 91 days prior to the maturity date of our existing senior notes or any debt that refinances such existing notes. The Borrower may, at any time and from time to time, prepay, without premium or penalty, any borrowing under the ABL Facility and terminate, or from time to time reduce, the commitments under the ABL Facility.
The obligations under the ABL Facility are guaranteed by Capitol Investment Merger Sub 2, LLC, the Borrower and each of the Borrower’s existing and future direct and indirect wholly owned domestic restricted subsidiaries, subject to certain exceptions, as well as certain of the Borrower’s material Canadian subsidiaries (the “ABL Guarantors”). The obligations under the ABL Facility and the guarantees of those obligations are secured by (subject to certain exceptions): (i) a first priority pledge by each ABL Guarantor of all of the equity interests of restricted subsidiaries directly owned by such ABL Guarantors (limited to 65% of voting capital stock in the case of foreign subsidiaries owned directly by a U.S. subsidiary and subject to certain other exceptions in the case of non-wholly owned subsidiaries) and (ii) a first priority security interest in substantially all of the ABL Guarantors’ present and after-acquired assets (subject to certain exceptions).
The ABL Facility contains customary negative covenants for transactions of this type, including covenants that, among other things, limit the Borrower’s and its restricted subsidiaries’ ability to: incur additional indebtedness; pay dividends, redeem stock, or make other distributions; repurchase, prepay or redeem subordinated indebtedness; make investments; create restrictions on the ability of Borrower’s restricted subsidiaries to pay dividends to the Borrower; create liens; transfer or sell assets; consolidate, merge, sell, or otherwise dispose of all or substantially all of the Borrower’s assets; enter into certain transactions with the Borrower’s affiliates; and designate subsidiaries as unrestricted subsidiaries, in each case subject to certain exceptions, as well as a restrictive covenant applicable to each Specified Floor Plan Company (as defined in the ABL Credit Agreement) limiting its ability to own certain assets and engage in certain lines of business. The covenants governing the payment of dividends and making other distributions are based upon a combination of fixed amounts, percentages of Adjusted EBITDA or upon multiple pro forma measures depending on the purpose of any such dividend payments or distributions the Borrower and its restricted subsidiaries are permitted to make. In addition, the ABL Facility contains a springing financial covenant that requires the Borrower and its restricted subsidiaries to maintain a Consolidated Fixed Charge Coverage Ratio (as defined in the ABL Credit Agreement) of at least 1.00 to 1.00; provided that the financial covenant shall only be tested when Specified Excess Availability (as defined in the ABL Credit Agreement) under the ABL Facility is less than the greater of (i) 10.0% of the Line Cap (as defined in the ABL Credit Agreement) and (ii) $60.0 million (the “FCCR Test Amount”), in which case it shall be tested at the end of each succeeding fiscal quarter thereafter until the date on which Specified Excess Availability has exceeded the FCCR Test Amount for 30 consecutive calendar days. As of December 31, 2025, Specified Excess Availability under the ABL Facility exceeded the required threshold and, as a result, this financial covenant was inapplicable.
The ABL Facility provides for a number of customary events of default, including, among others, and in each case subject to an applicable grace period: payment defaults to the lenders; covenant defaults; material inaccuracies of representations and warranties; failure to pay certain other indebtedness after final maturity or acceleration of other indebtedness exceeding a specified amount; voluntary and involuntary bankruptcy proceedings; material judgments for payment of money exceeding a specified amount; and certain change of control events. The occurrence of an event of default could result in the acceleration of obligations and the termination of revolving commitments under the ABL Facility.
2029 Secured Notes
In connection with the Acquisition, the Issuer 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 Nesco Holdings II, Inc., our wholly owned subsidiary (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, commencing on October 15, 2021. Unless earlier redeemed, the 2029 Secured Notes will mature on April 15, 2029.
Ranking and Security
The 2029 Secured Notes are jointly and severally guaranteed on a senior secured basis by Capitol Investment Merger Sub 2, LLC and, subject to certain exceptions, each of the Issuer’s existing and future wholly owned domestic restricted subsidiaries that is an obligor under the ABL Credit Agreement or certain other capital markets indebtedness. Under the terms of the Indenture, the 2029 Secured Notes and the related guarantees rank senior in right of payment to all of the Issuer’s and the guarantors’ subordinated indebtedness
and are effectively senior to all of the Issuer’s and the guarantors’ unsecured indebtedness, and indebtedness secured by liens junior to the liens securing the 2029 Secured Notes, in each case, to the extent of the value of the collateral securing the 2029 Secured Notes. The 2029 Secured Notes and the related guarantees rank equally in right of payment with all of the Issuer’s and the guarantors’ senior indebtedness, without giving effect to collateral arrangements, and effectively equal to all of the Issuer’s and the guarantors’ senior indebtedness secured on the same priority basis as the 2029 Secured Notes. The 2029 Secured Notes and the related guarantees are effectively subordinated to any of the Issuer’s and the guarantors’ indebtedness that is secured by assets that do not constitute collateral for the 2029 Secured Notes to the extent of the value of the assets securing such indebtedness, and indebtedness that is secured by a senior-priority lien, including the ABL Credit Agreement to the extent of the value of the collateral securing such indebtedness, and are structurally subordinated to the liabilities of the Issuer’s non-guarantor subsidiaries.
Optional Redemption Provisions and Repurchase Rights
At any time, upon not less than 10 nor more than 60 days’ notice, the Issuer may redeem the 2029 Secured Notes, at its option, in whole or in part, at any time, subject to the payment of a redemption price together with accrued and unpaid interest, if any, to, but not including, the applicable redemption date. The redemption price includes a call premium that varies (from 2.750% to 0.000%) depending on the year of redemption.
Subject to certain exceptions, the holders of the 2029 Secured Notes also have the right to require the Issuer to repurchase their 2029 Secured Notes upon the occurrence of a change in control, as defined in the Indenture, at an offer price equal to 101% of the principal amount of the 2029 Secured Notes plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.
In addition, if the Issuer or any of its restricted subsidiaries sells assets, under certain circumstances, the Issuer is required to use the net proceeds to make an offer to purchase the 2029 Secured Notes at an offer price in cash equal to 100% of the principal amount of the 2029 Secured Notes plus accrued and unpaid interest to, but not including, the repurchase date.
In connection with any offer to purchase all or any of the 2029 Secured Notes (including a change of control offer and any tender offer), if holders of no less than 90% of the aggregate principal amount of the 2029 Secured Notes validly tender their 2029 Secured Notes, the Issuer or a third party is entitled to redeem any remaining 2029 Secured Notes at the price offered to each holder.
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. The covenants governing the payment of dividends and making other distributions are based upon a combination of fixed amounts, percentages of Adjusted EBITDA or upon multiple pro forma measures depending on the purpose of any such dividend payments or distributions the Issuer and its restricted subsidiaries are permitted to make.
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).
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”), the proceeds from which have been used primarily to finance the Company’s purchase of real property, and improvements to that property. 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 financed.
Notes Payable
Our notes payable require the Company to pay monthly and quarterly interest payments and have maturities through 2026. Notes payable include (i) debt assumed from the 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. At December 31, 2025, the Company had notes payable of $25.5 million pursuant to the loan agreement with Security Bank of Kansas City (“SBKC”) that bears interest at a rate of 3.125% per annum, and loan agreement with IPFS Corporation that bears interest at a rate of 6.950%.
Debt Maturities
As of December 31, 2025, the principal payments of debt outstanding over the next five years and thereafter were as follows:
| | | | | | | | | | | |
| (in $000s) | Notes Payable | | Long-Term Debt |
| 2026 | $ | 25,487 | | | $ | 371 | |
| 2027 | — | | | 393 | |
| 2028 | — | | | 16,533 | |
| 2029 | — | | | 1,617,975 | |
| 2030 | — | | | — | |
| Thereafter | — | | | — | |
| Total | $ | 25,487 | | | $ | 1,635,272 | |
| Less unamortized discount and issuance costs | — | | | (15,549) | |
| $ | 25,487 | | | $ | 1,619,723 | |
Note 9: Leases as Lessee
The Company’s operating lease agreements primarily consist of real estate property, such as production facilities, warehouses and office buildings, in addition to personal property, such as vehicles and equipment. The majority of the Company’s lease arrangements are comprised of fixed payments and a limited number of these arrangements include a variable payment component based on certain index fluctuations.
Components of Lease Expense
The components of lease expense are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in $000s) | 2025 | | 2024 | | 2023 |
| Operating lease cost | $ | 17,968 | | | $ | 10,718 | | | $ | 10,149 | |
| Finance lease cost: | | | | | |
| Amortization of lease assets | 23 | | | — | | | 1,748 | |
| Interest on lease liabilities | 6 | | | — | | | 300 | |
| Short-term lease cost | — | | | — | | | 978 | |
| | | | | |
| Sublease income | — | | | — | | | (1,365) | |
| Total lease cost | $ | 17,997 | | | $ | 10,718 | | | $ | 11,810 | |
Supplemental Cash Flow Information
Supplemental cash flow information related to leases is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in $000s) | 2025 | | 2024 | | 2023 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash outflows - payments on operating leases | $ | 23,169 | | | $ | 10,208 | | | $ | 7,891 | |
| Operating cash outflows - interest payments on finance leases | $ | 6 | | | $ | — | | | $ | 300 | |
| Finance cash outflows - payments on finance lease obligations | $ | — | | | $ | — | | | $ | 2,682 | |
| Supplemental disclosure of noncash leasing activities: | | | | | |
| Right-of-use assets obtained in exchange for new operating lease liabilities (1) | $ | 26,148 | | | $ | 65,012 | | | $ | 16,077 | |
(1) Includes lease extension and option exercises.
Future Maturities and Payment Information
Maturities of lease liabilities as of December 31, 2025, are as follows:
| | | | | | | |
| (in $000s) | Operating Leases | | |
| 2026 | $ | 17,408 | | | |
| 2027 | 16,587 | | | |
| 2028 | 16,087 | | | |
| 2029 | 15,474 | | | |
| 2030 | 13,844 | | | |
| Thereafter | 114,076 | | | |
| Total lease payments | 193,476 | | | |
| Less: imputed interest | (78,612) | | | |
| Total present value of lease liabilities | $ | 114,864 | | | |
As of December 31, 2025, the weighted average discount rate and remaining term under operating leases was 8.1% and 12.2 years, respectively.
Note 10: Goodwill and Intangible Assets
Goodwill
The following table summarizes the changes in goodwill by reporting unit:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in $000s) | ERS | | TES | | APS | | Total |
| Balance, December 31, 2023 | $ | 498,808 | | | $ | 167,307 | | | $ | 37,896 | | | $ | 704,011 | |
| Acquisitions | $ | — | | | $ | — | | | $ | 1,439 | | | $ | 1,439 | |
| Currency translation adjustment | (644) | | | — | | | — | | | (644) | |
| Balance, December 31, 2024 | 498,164 | | | 167,307 | | | 39,335 | | | 704,806 | |
| | | | | | | |
| Currency translation adjustment | 361 | | | — | | | — | | | 361 | |
| Balance, December 31, 2025 | $ | 498,525 | | | $ | 167,307 | | | $ | 39,335 | | | $ | 705,167 | |
Intangible Assets
Intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2025 | | December 31, 2024 |
| (in $000s) | Weighted Average Remaining Life (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Definite-lived intangible assets: | | | | | | | | | |
| Trade names | 10.3 | | $ | 179,000 | | | $ | (75,817) | | | $ | 180,780 | | | $ | (67,530) | |
| Customer relationships | 9.3 | | 214,201 | | | (91,659) | | | 214,188 | | | (75,046) | |
| Non-compete agreements and other | 0.0 | | — | | | — | | | 535 | | | (534) | |
| Total | | | $ | 393,201 | | | $ | (167,476) | | | $ | 395,503 | | | $ | (143,110) | |
Amortization expense associated with the intangible assets noted above was $27.0 million, $26.7 million, and $27.1 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Amortization Expense
As of December 31, 2025, estimated amortization expense for intangible assets for each of the next five years and thereafter is estimated to be as follows:
| | | | | |
| (in $000s) | Amortization |
| 2026 | $ | 26,743 | |
| 2027 | 26,743 | |
| 2028 | 26,743 | |
| 2029 | 26,379 | |
| 2030 | 26,258 | |
| Thereafter | 92,859 | |
| Total estimated future amortization expense | $ | 225,725 | |
Note 11: Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted-average number of shares of common stock outstanding. Diluted net earnings (loss) per share includes the effects of potentially dilutive shares of common stock, if dilutive. Potentially dilutive effects include the exercise of warrants, contingently issuable shares, and share-based compensation. On July 31, 2024, all of the Company’s stock purchase warrants expired and were unexercised. Our potentially dilutive shares, which aggregated 4.2 million, 18.8 million, and 28.7 million for years ended December 31, 2025, 2024 and 2023, respectively, were not included in the computation of diluted earnings (loss) per share because they would not be issuable if the end of the reporting period were the end of the contingency period or they would be anti-dilutive.
The following tables set forth the computation of basic and dilutive earnings (loss) per share:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2025 | | Year Ended December 31, 2024 | | Year Ended December 31, 2023 |
| (in $000s, except per share data) | | Net Income (Loss) | | Weighted Average Shares | | Per Share Amount | | Net Income (Loss) | | Weighted Average Shares | | Per Share Amount | | Net Income (Loss) | | Weighted Average Shares | | Per Share Amount |
| Basic earnings (loss) per share | | $ | (31,052) | | | 226,962 | | | $ | (0.14) | | | $ | (28,655) | | | 236,975 | | | $ | (0.12) | | | $ | 50,712 | | | 245,093 | | | $ | 0.21 | |
| Dilutive common share equivalents | | — | | | — | | | | | — | | | — | | | | | — | | | 633 | | |
| Diluted earnings (loss) per share | | $ | (31,052) | | | 226,962 | | | $ | (0.14) | | | $ | (28,655) | | | 236,975 | | | $ | (0.12) | | | $ | 50,712 | | | 245,726 | | | $ | 0.21 | |
Note 12: Equity
Preferred Stock
As of both December 31, 2025 and 2024, 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 both December 31, 2025 and 2024, there were no shares of preferred stock issued or outstanding.
Common Stock
As of December 31, 2025 and 2024, we were authorized to issue 500,000,000 shares of common stock with a par value of $0.0001 per share.
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, which authorization was further increased by $25 million of shares on September 14, 2023, and increased again by $25 million on March 11, 2024, upon exhaustion of prior authorization. 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.
Under the stock repurchase program, during the years ended December 31, 2024 and 2023, respectively, the Company repurchased approximately 5.9 million and 6.4 million shares of its common stock, which are held in treasury, for a total of $28.6 million and $39.0 million including commission fees. The Company made no repurchases under the stock repurchase program during the year ended December 31, 2025. At December 31, 2025, $1.9 million was available under the stock repurchase program.
Energy Capital Partners Stock Repurchase
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 (“ECP”). On January 30, 2025, the Company purchased 8,143,635 shares of the Company’s common stock from affiliates of ECP (“Repurchase from ECP”), at a purchase price of $4.00 per share, which represents an approximately 23% discount from the price of $5.19 per share of Common Stock at the close of trading on January 29, 2025, for an aggregate purchase price of $32.6 million. The transaction was approved by the Company’s Board of Directors and Audit Committee of the Board of Directors and the purchased shares are held in treasury.
Earnout Shares
Pursuant to the Stockholders’ Agreement dated July 31, 2019 (as amended and restated from time to time, the “Stockholders’ Agreement”), certain stockholders agreed to restrictions on approximately 0.3 million of their shares of the Company’s common stock (the “Maximum Target Earnout Shares”). The Maximum Target Earnout Shares shall be automatically forfeited by the holders thereof to the Company for no consideration unless the trading price of the common stock equals or exceeds $19.00 per share for any period of 20 trading days out of 30 consecutive trading days to and including July 31, 2026.
Note 13: Share-Based Compensation
On June 13, 2024, the Company's stockholders approved an amendment to the Amended and Restated 2019 Omnibus Incentive Plan, which increased the total authorized shares of common stock to 20,650,000 (the “Plan”). The purpose of the Plan is to provide the Company and its subsidiaries’ officers, directors, employees and consultants who, by their position, ability and diligence, are able to make important contributions to the Company’s growth and profitability, with an incentive to assist the Company in achieving its long-term corporate objectives, to attract and retain executive officers and other employees and to provide such persons with an opportunity to acquire an equity interest in the Company. To accomplish these objectives, the Plan provides for awards of equity-based incentives through granting of restricted stock units, stock options, stock appreciation rights and other stock or cash-based awards. The Plan provides for share recycling whereby shares underlying expired, lapsed or terminated awards, as well as shares surrendered, repurchased, redeemed, or canceled without having been fully exercised or forfeited in a manner that results in the Company acquiring shares covered by the award, are available for award grants under the Plan. At December 31, 2025, there were approximately 8.4 million shares in the share reserve still available for issuance.
The Company records share-based compensation awards using a fair value method and recognizes compensation expense for an amount equal to the fair value of the share-based payment issued in its financial statements. The Company’s share-based compensation plans include programs for stock options, restricted stock units (“RSUs”), performance share units (“PSUs”) and deferred compensation. Compensation expense for equity awards recognized in selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) was $8.5 million, $11.9 million and $13.3 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Restricted Stock Units and Performance Stock Units
Restricted and performance stock awards vest over a period of one to four years. Performance stock awards may be based on the achievement of specific financial performance metrics and market conditions. Awards based strictly on time-based vesting are valued at the market price on the date of grant. The fair values of the awards that contain market conditions are estimated using a Monte Carlo simulation approach in a risk-neutral framework to model future stock price movements based upon historical volatility (based on the weighted-average combination of the Company’s historic volatility and of the implied volatility of a group of the Company’s peers), risk-free rates of return, and correlation matrix. Restricted and performance stock awards are generally forfeitable in the event of terminated employment prior to vesting.
The following table summarizes the Company’s RSU and PSU award activity:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
| Outstanding, December 31, 2022 | 7,503,618 | | | $ | 6.34 | |
| Granted | 943,003 | | | $ | 6.72 | |
| Forfeited/cancelled/expired | (824,357) | | | $ | 6.66 | |
| Vested | (706,042) | | | $ | 5.25 | |
| Outstanding, December 31, 2023 | 6,916,222 | | | $ | 6.80 | |
| Granted | 503,269 | | | $ | 6.13 | |
| Forfeited/cancelled/expired | (1,960,580) | | | $ | 8.56 | |
| Vested | (1,671,287) | | | $ | 5.61 | |
| Outstanding, December 31, 2024 | 3,787,624 | | | $ | 6.33 | |
| Granted | 2,275,472 | | | $ | 4.20 | |
| Forfeited/cancelled/expired | (199,376) | | | $ | 6.27 | |
| Vested | (1,253,240) | | | $ | 4.20 | |
| Outstanding, December 31, 2025 | 4,610,480 | | | $ | 5.86 | |
At December 31, 2025, unrecognized compensation expense related to these awards was $11.4 million and is expected to be recognized over a remaining period of approximately 2.1 years.
Note 14: 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 | |
| December 31, 2025 | | | | | | | | |
| ABL Facility | $ | 697,975 | | | $ | — | | | $ | 697,975 | | | $ | — | | |
| 2029 Secured Notes | 920,000 | | | — | | | 901,600 | | | — | | |
| 2023 Credit Facility | 17,297 | | | — | | | 17,297 | | | — | | |
| Other notes payable | 25,487 | | | — | | | 25,487 | | | — | | |
| | | | | | | | |
| | | | | | | | |
| December 31, 2024 | | | | | | | | |
| ABL Facility | $ | 582,900 | | | $ | — | | | $ | 582,900 | | | $ | — | | |
| 2029 Secured Notes | 920,000 | | | — | | | 859,050 | | | — | | |
| 2023 Credit Facility | 17,648 | | | — | | | 17,733 | | | — | | |
| Other notes payable | 27,102 | | | — | | | 27,102 | | | — | | |
| | | | | | | | |
The carrying amounts of the ABL Facility, 2023 Credit Facility and other notes payable approximated fair value as of December 31, 2025 and 2024 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.
Note 15: Income Taxes
We are subject to taxation in all jurisdictions in which we operate within the United States and Canada. The provision for income tax expense (benefit), including the amount of domestic and foreign loss before taxes, is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in $000s) | 2025 | | 2024 | | 2023 |
| Components of income (loss) before tax: | | | | | |
| Domestic | $ | (29,992) | | | $ | (31,429) | | | $ | 56,000 | |
| Foreign | 1,862 | | | 2,242 | | | 2,076 | |
| Total income (loss) before tax | (28,130) | | | (29,187) | | | 58,076 | |
| Current tax expense (benefit): | | | | | |
| Federal | — | | | — | | | 62 | |
| Foreign | (40) | | | 40 | | | (6) | |
| State | 750 | | | 875 | | | 3,325 | |
| Total current tax expense (benefit) | 710 | | | 915 | | | 3,381 | |
| Deferred tax expense (benefit): | | | | | |
| Federal | (8,550) | | | (4,967) | | | 12,971 | |
| Foreign | 1,308 | | | (1,266) | | | 523 | |
| State | (3,500) | | | (27) | | | 1,484 | |
| Total deferred tax expense (benefit) | (10,742) | | | (6,260) | | | 14,978 | |
| Expense (benefit) from change in valuation allowance | 12,954 | | | 4,813 | | | (10,995) | |
| Total tax expense (benefit) | $ | 2,922 | | | $ | (532) | | | $ | 7,364 | |
A reconciliation between the federal statutory income tax rate and our actual effective income tax rate is as follows (in $000s):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2025 | | | | 2024 | | | | 2023 |
| Dollars | | Percent | | | | Percent |
| | | | | | | (prior to ASU 2023-09) |
| Income tax expense (benefit) using the statutory rate in effect | $ | (5,907) | | | 21.0% | | | | 21.0% | | | | 21.0% |
| Tax effect of differences: | | | | | | | | | | | |
| | | | | | | | | | | |
| State and local income taxes, net of federal income tax effect (1) | 750 | | | (2.7)% | | | | (6.0)% | | | | 5.6% |
| Foreign operations - Canada | | | | | | | 6.0% | | | | 1.2% |
| Statutory tax rate difference between Canada and United States | 182 | | | (0.6)% | | | | | | | | |
| Foreign exchange gain or loss | 719 | | | (2.6)% | | | | | | | | |
| Change in valuation allowance | 7,193 | | | (25.6)% | | | | (12.8)% | | | | (17.4)% |
| Nondeductible officer compensation | 226 | | | (0.8)% | | | | (5.8)% | | | | 3.4% |
| Other | (241) | | | 0.9% | | | | (0.6)% | | | | (1.1)% |
| Income tax expense (benefit) | $ | 2,922 | | | (10.4)% | | | | 1.8% | | | | 12.7% |
(1) The states that contribute the majority (greater than 50%) of the tax effect in this category for 2025 include Missouri and Texas.
The Company's effective tax rate differs from the U.S. federal statutory tax rate of 21% and is affected by a number of factors, such as the relative amounts of income we earn in differing tax jurisdictions, tax law changes, certain non-deductible expenses, such as compensation disallowance, changes in our valuation allowance, and divergence of state rules from federal rules. The rate is also affected by discrete items that may occur in any given year, such as legislative enactments and changes in our corporate structure that may occur.
The components of the deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| (in $000s) | December 31, 2025 | | December 31, 2024 |
| Deferred tax assets | | | |
| Accounts receivable | $ | 4,508 | | | $ | 3,540 | |
| Inventory | 4,255 | | | 18,877 | |
| Transaction and debt issuance costs | 2,360 | | | 2,274 | |
| Compensation and benefits | 4,543 | | | 4,472 | |
| Net operating loss carryforwards | 284,192 | | | 215,303 | |
| Section 163j interest disallowance carryforwards | 49,421 | | | 58,855 | |
| Operating lease liabilities | 28,879 | | | 24,171 | |
| Foreign tax credits, accrued expenses, and other | 2,246 | | | 2,365 | |
| Total deferred tax assets | 380,404 | | | 329,857 | |
| Less: valuation allowance | (85,372) | | | (72,418) | |
| Total deferred tax assets, net | 295,032 | | | 257,439 | |
| | | |
| Deferred tax liabilities | | | |
| Financing receivable | (2,228) | | | — | |
| Rental equipment and other property and equipment | (238,202) | | | (209,119) | |
| Goodwill and other intangibles | (58,583) | | | (54,265) | |
| Operating lease assets | (27,887) | | | (23,814) | |
| Prepaid expenses and other items | (1,892) | | | (1,642) | |
| Total deferred tax liabilities | (328,792) | | | (288,840) | |
| Net deferred tax liability | $ | (33,760) | | | $ | (31,401) | |
As a result of the Acquisition, the Company expects to be able to amortize for U.S. tax purposes, a portion of the goodwill recognized from the Acquisition. For U.S. income taxes, the Acquisition was partly a taxable acquisition and partly a non-taxable acquisition. Accordingly, the taxable component is expected to give rise to increases in the tax bases for a portion of the net assets acquired, while the non-taxable component will result in a carryforward of pre-acquisition tax bases (referred as, “carryover basis”) for a portion of the net assets acquired. The differential between the fair values of the assets acquired and the carryover basis has been recognized as a net deferred tax liability as of the closing date of the Acquisition (the “Closing Date”). Additionally, certain federal and state net operating loss and interest expense carryforwards were acquired in the Acquisition and the utilization of these is subject to limitations prescribed by U.S. Internal Revenue Code Section 382 (“Section 382”). The aforementioned net deferred tax liabilities recognized in connection with the assignment of the purchase price from the Acquisition include deferred tax assets from the tax deduction carryforwards, and were reduced by a valuation allowance as of the Closing Date.
We record a valuation allowance against deferred tax assets when we determine that it is more likely than not that all or a portion of a deferred tax asset will not be realized. The valuation allowance primarily relates to federal and state net operating loss carryforwards. While the Acquisition resulted in a significant increase in deferred tax liabilities, these tax liabilities, which give rise to future taxable income against which tax carryforwards may be applied, are subject to limitations. Federal and state income tax limitation rules are expected to limit the application of our carryforwards and, accordingly, we record a valuation allowance to reduce our deferred tax assets to amounts expected to be realized.
The following presents changes in the valuation allowance:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in $000s) | 2025 | | 2024 | | 2023 |
| Valuation allowance - beginning of year | $ | (72,418) | | | $ | (67,605) | | | $ | (78,600) | |
| | | | | |
| Charged to benefit (expense) | (12,954) | | | (4,813) | | | 10,995 | |
| Valuation allowance - end of year | $ | (85,372) | | | $ | (72,418) | | | $ | (67,605) | |
As discussed above, the Company acquired certain federal and state net operating loss and interest expense carryforwards in connection with the Acquisition, the utilization of which is subject to limitations prescribed by Section 382. Accordingly, a portion of the carryforwards is expected to expire prior to being utilized. As of December 31, 2025, we had net operating loss carryforwards of approximately $1,228.8 million for U.S. federal income tax purposes, $469.0 million for state income tax purposes, and $3.6 million for foreign income tax purposes. As of December 31, 2024, we had net operating loss carryforwards of approximately $911.3 million for U.S. federal income tax purposes, $397.9 million for state income tax purposes and $10.6 million for foreign income tax purposes.
The net operating loss carryforwards expire at various dates commencing during 2034 through 2037 for U.S. federal income tax purposes, 2026 through 2043 for state income tax purposes, and 2038 through 2042 for foreign income tax purposes.
On July 4, 2025, the President signed the One Big Beautiful Bill Act (the “OBBBA”) into law. This act introduces significant changes to tax law and other areas affecting company operations, including items such as extensions of provisions previously enacted under the 2017 Tax Cuts and Jobs Act, changes to business interest deductions, or modifications to depreciation deductions and impacts on energy tax credits. We have included the impacts of the OBBBA in our financial statements, and any additional true-up is not expected to have a material impact.
The Organization for Economic Cooperation and Development (“OECD”) has issued “Pillar Two” model rules introducing a new global minimum tax of 15% intended to be effective on January 1, 2024. While the US has not yet adopted the Pillar Two rules, various other governments around the world are enacting legislation to do so. As currently designed, Pillar Two will ultimately apply to our worldwide operations. Considering we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, these rules are not expected to materially increase our global tax costs. We will continue to monitor US and global legislative activities related to Pillar Two for potential impacts.
Note 16: Concentration Risks
Financial instruments that potentially subject us to significant concentrations of credit risk include cash and cash equivalents and accounts receivable. We maintain certain cash and cash equivalents with federally insured financial institutions and may maintain deposits in excess of financial insured limits or in financial institutions that are not federally insured. However, we believe that we are not exposed to significant credit risks due to the financial position of the depository institutions in which our deposits are held. Additionally, we are subject to risk related to vendor concentrations in purchasing, primarily relating to the purchase of chassis.
Customer and vendor concentrations in each of the years ended December 31, 2025, 2024 and 2023 are presented in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2025 | | December 31, 2024 | | December 31, 2023 |
| Percentage of Revenue/Purchases | | Number of Customers/Vendors | | Percentage of Revenue/Purchases | | Number of Customers/Vendors | | Percentage of Revenue/Purchases | | Number of Customers/Vendors |
| Customers | 10.2% | | 3 | | 10.3% | | 6 | | 10.0% | | 7 |
| Vendors | 55.6% | | 3 | | 15.3% | | 1 | | 31.0% | | 2 |
No customer accounted for more than 10% of consolidated revenues during the years ended December 31, 2025, 2024 and 2023.
Note 17: 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 provide insurance recoveries related to punitive damages. For matters pertaining to the pre-Acquisition activities of Custom Truck LP, certain affiliates of The Blackstone Group (“Blackstone”) and other direct and indirect equity holders (collectively, “Sellers”) of Custom Truck LP have agreed to indemnify Nesco Holdings and Nesco Holdings II, Inc. for losses arising out of the breach of Sellers’ pre-closing covenants in the purchase agreement and certain indemnified tax matters, with recourse limited to a $10.0 million and $5.0 million escrow account, respectively.
From time to time, the Company is 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 18: 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.
Other — The Company has purchased products and aircraft charter services from entities owned by members of the Company’s management and their immediate families. Product purchases and charter services payments related to these transactions are immaterial. Expenses for products and air travel services are recorded in selling, general, and administrative expenses.
Management Fees — The Company entered into the Corporate Advisory Services Agreement with Platinum effective as of the Closing Date, 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).
Repurchase from ECP — On January 30, 2025, the Company purchased 8,143,635 shares of the Company’s common stock from affiliates of ECP. For further information on the stock repurchase, see Note 12: Equity.
A summary of the transactions with the foregoing related parties included in the Consolidated Statements of Operations and Comprehensive Income (Loss) is as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| (in $000s) | | | | | 2025 | | 2024 | | 2023 |
| Total revenues from transactions with related parties | | | | | $ | 44,579 | | | $ | 33,895 | | | $ | 26,400 | |
| Expenses incurred from transactions with related parties included in cost of revenue | | | | | $ | 488 | | | $ | 1,379 | | | $ | 1,506 | |
| Expenses incurred from transactions with related parties included in operating expenses | | | | | $ | 2,665 | | | $ | 7,324 | | | $ | 5,652 | |
Amounts receivable from/payable to related parties included in the Consolidated Balance Sheets are as follows:
| | | | | | | | | | | |
| (in $000s) | December 31, 2025 | | December 31, 2024 |
| Accounts receivable from related parties | $ | 6,473 | | | $ | 3,688 | |
| Accounts payable to related parties | $ | 208 | | | $ | 211 | |
Note 19: Segments
Our operations are primarily organized and managed by operating segment. Operating segment performance and resource allocations are primarily based on gross profit. Depending on gross profit levels, the measure aids the Chief Operating Decision Maker (“CODM”) in managing the inventory levels and rental fleet, entering into significant revenue contracts, expanding into new markets or launching new products, making capital expenditures, designing and implementing key marketing strategies, making personnel changes, and approving operating budgets. Significant expense categories that are regularly reviewed by the operating segments’ CODM are disclosed below. The CODM for all segments is the Company’s Chief Executive Officer. The accounting policies of the reportable segments are consistent with those described in Note 2: Summary of Significant Accounting Policies to the financial statements. Through December 31, 2025, we managed the business in three reporting segments: Equipment Rental Solutions (“ERS”),
Truck and Equipment Sales (“TES”) and Aftermarket Parts and Services (“APS”). Transactions between our segments consist of equipment produced by TES that is sold to ERS for inclusion in its fleet of rental equipment. Additionally, TES and APS provide repair and maintenance services to ERS for maintenance of its rental fleet. Transactions between segments are at book value and intersegment sales and purchases are eliminated in consolidation. The segment operations are described in Note 1: Business and Organization to these financial statements. The revenue by geography is disclosed in Note 3: Revenue. Segment information is presented below.
The Company’s segment results are presented in the tables below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2025 |
| (in $000s) | ERS | | TES | | APS | | Total |
| Revenue: | | | | | | | |
| Rental | $ | 491,790 | | | $ | — | | | $ | 14,408 | | | $ | 506,198 | |
| Equipment sales | 209,255 | | | 1,095,228 | | | — | | | 1,304,483 | |
| Parts and services | — | | | — | | | 133,276 | | | 133,276 | |
| Total revenue from external customers | 701,045 | | | 1,095,228 | | | 147,684 | | | 1,943,957 | |
| Cost of revenue: | | | | | | | |
| Rentals/parts and services | 121,357 | | | — | | | 109,775 | | | 231,132 | |
| Equipment sales | 157,846 | | | 927,452 | | | — | | | 1,085,298 | |
| Depreciation of rental equipment | 212,725 | | | — | | | 2,910 | | | 215,635 | |
| Total cost of revenue from external customers | 491,928 | | | 927,452 | | | 112,685 | | | 1,532,065 | |
| Gross profit | $ | 209,117 | | | $ | 167,776 | | | $ | 34,999 | | | $ | 411,892 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 |
| (in $000s) | ERS | | TES | | APS | | Total |
| Revenue: | | | | | | | |
| Rental | $ | 430,167 | | | $ | — | | | $ | 12,786 | | | $ | 442,953 | |
| Equipment sales | 167,638 | | | 1,055,398 | | | — | | | 1,223,036 | |
| Parts and services | — | | | — | | | 136,291 | | | 136,291 | |
| Total revenue from external customers | 597,805 | | | 1,055,398 | | | 149,077 | | | 1,802,280 | |
| Cost of revenue: | | | | | | | |
| Rentals/parts and services | 116,790 | | | — | | | 111,560 | | | 228,350 | |
| Equipment sales | 123,229 | | | 876,978 | | | — | | | 1,000,207 | |
| Depreciation of rental equipment | 179,508 | | | — | | | 3,945 | | | 183,453 | |
| Total cost of revenue from external customers | 419,527 | | | 876,978 | | | 115,505 | | | 1,412,010 | |
| Gross profit | $ | 178,278 | | | $ | 178,420 | | | $ | 33,572 | | | $ | 390,270 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 |
| (in $000s) | ERS | | TES | | APS | | Total |
| Revenue: | | | | | | | |
| Rental | $ | 463,139 | | | $ | — | | | $ | 15,771 | | | $ | 478,910 | |
| Equipment sales | 263,028 | | | 990,425 | | | — | | | 1,253,453 | |
| Parts and services | — | | | — | | | 132,737 | | | 132,737 | |
| Total revenue from external customers | 726,167 | | | 990,425 | | | 148,508 | | | 1,865,100 | |
| Cost of revenue: | | | | | | | |
| Rentals/parts and services | 118,236 | | | — | | | 105,791 | | | 224,027 | |
| Equipment sales | 198,510 | | | 817,639 | | | — | | | 1,016,149 | |
| Depreciation of rental equipment | 167,199 | | | — | | | 3,465 | | | 170,664 | |
| Total cost of revenue from external customers | 483,945 | | | 817,639 | | | 109,256 | | | 1,410,840 | |
| Gross profit | $ | 242,222 | | | $ | 172,786 | | | $ | 39,252 | | | $ | 454,260 | |
Total assets by operating segment are not disclosed herein because asset by operating segment data is not reviewed by the 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 (loss) before income taxes:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in $000s) | 2025 | | 2024 | | 2023 |
| Gross Profit | $ | 411,892 | | | $ | 390,270 | | | $ | 454,260 | |
| Selling, general and administrative expenses | 230,082 | | | 229,544 | | | 231,403 | |
| Amortization | 26,956 | | | 26,653 | | | 27,110 | |
| Non-rental depreciation | 13,272 | | | 13,292 | | | 10,656 | |
| Transaction expenses and other | 16,639 | | | 17,915 | | | 14,143 | |
| Gain on sale leaseback transaction | — | | | (23,497) | | | — | |
| | | | | |
| Interest expense, net | 157,619 | | | 167,105 | | | 131,315 | |
| Financing and other (income) expense | (4,546) | | | (11,555) | | | (18,443) | |
| Income (Loss) Before Income Taxes | $ | (28,130) | | | $ | (29,187) | | | $ | 58,076 | |
The following table presents total assets by country: | | | | | | | | | | | |
| (in $000s) | December 31, 2025 | | December 31, 2024 |
| Assets: | | | |
| United States | $ | 3,344,032 | | | $ | 3,385,786 | |
| Canada | 97,422 | | | 116,181 | |
| $ | 3,441,454 | | | $ | 3,501,967 | |
Recently, our Chief Executive Officer reevaluated how he assesses performance and allocates resources across our business. This review resulted in a change in the reporting of management’s internal financial information. As a result, beginning in the three months ending March 31, 2026, we will report our results under two reportable segments: (1) Specialty Equipment Rentals (“SER”) and (2) Specialty Truck Equipment and Manufacturing (“STEM”). Upon implementation, the new SER segment will consist of our historical ERS segment and a portion of our historical APS segment, and the new STEM segment will consist of our historical TES segment and a portion of our historical APS segment. We will also begin reflecting intercompany activity between the two segments, which will ultimately be eliminated in consolidation. This new segment reporting reflects how CTOS’s business is managed and how resources are allocated in 2026, and management believes this new presentation better reflects the positioning of CTOS’s strategies and operations portfolio. We believe our new segment realignment will better reflect key economic drivers, capital intensity, and margin profiles of the respective new segments, as well as align our external reporting with how management allocates capital and evaluates performance.