Custom Truck One Source Inc.
03/10/2026 | Press release | Distributed by Public on 03/10/2026 05:07
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Custom Truck One Source, Inc., a Delaware corporation, and its wholly owned subsidiaries ("we," "our," "us," or "the Company") are engaged in the business of providing a range of products and services to customers through rentals and sales of specialty equipment, rentals and sales of aftermarket parts and services related to the specialty equipment, and repair, maintenance and customization services related to that equipment.
We are a specialty equipment provider to the electric utility transmission and distribution, telecommunications, rail and other infrastructure-related industries in North America. Our core business relates to our new equipment inventory and rental fleet of specialty equipment that is utilized by service providers in infrastructure development and improvement work. We offer our specialized equipment to a diverse customer base, including utilities and contractors, for the maintenance, repair, upgrade, and installation of critical infrastructure assets, including distribution and transmission electric lines, telecommunications networks and rail systems, as well as for lighting and signage. We rent, produce, sell and service a broad range of new and used equipment, including bucket trucks, digger derricks, dump trucks, cranes, service trucks, and heavy-haul trailers. 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").
Financial and Performance Measures
Financial Measures
Revenue- As a full-service equipment provider, we generate revenue through renting, selling, assembling, upfitting, and servicing new and used heavy-duty trucks and cranes, as well as the sale of related parts. We also sell and rent specialized tools on an individual basis and in kits. Rental revenue is primarily comprised of revenues from rental agreements and freight charges billed to customers. The Company records changes in estimated collectability directly against rental revenue. Equipment sales revenue reflects the value of vocational trucks and other equipment sold to customers as well as upfit services. Parts and service revenue is derived from maintenance and repair services, and parts, tools and accessories sold directly to customers. Rental revenue excludes active rental contracts which qualify to be accounted for as sales-type leases.
Cost of rental revenue - Cost of rental revenue reflects repairs and maintenance costs of rental equipment, parts costs, labor and other overheads related to maintaining the rental fleet, and freight associated with the shipping of rental equipment.
Depreciation of rental equipment - Depreciation of rental equipment is comprised of depreciation expense on the rental fleet. We allocate the cost of rental equipment generally over the rentable life of the equipment. The depreciation allocation is based upon estimated lives ranging from one to seven years. The cost of equipment is depreciated to an estimated residual value using the straight-line method.
Cost of equipment sales- Cost of equipment sales reflects production and inventory costs associated with new units sold, parts costs, labor and other overheads related to production, and freight associated with the shipping and receiving of equipment and parts. Cost of equipment sales also includes the net book value of rental units sold, including active rental contracts which qualify to be accounted for as sales-type leases.
Selling, general and administrative expenses- Selling, general and administrative expenses include sales compensation, fleet licensing fees and corporate expenses, including salaries, stock-based compensation expense, insurance, advertising costs, professional services, fees earned on customer arranged financing, gains or losses resulting from insurance settlements, and information technology costs.
Amortization and non-rental depreciation- Amortization expense relates to intangible assets such as customer lists, trade names, etc. Non-rental depreciation expense reflects the depreciation of property and equipment that is not part of the rental fleet.
Transaction expenses and other- Transaction expenses and other include costs related to acquisitions of businesses; costs associated with closed operations; costs associated with restructuring and business optimization activities (inclusive of systems establishment costs); employee retention and/or severance costs; costs related to start-up/preopenings and openings of locations; reconfiguration or consolidation of facilities and equipment conversion costs.
Financing and other (income) expense- Financing and other expense (income) reflects the financing expense (income) associated with lease agreements qualifying to be accounted for as a sales-type lease, foreign currency gains and losses related to our Canadian operations, as well as other miscellaneous gains or losses from non-operating activities. Also included in financing and other expense (income) are the unrealized remeasurement gains and losses related to derivative financial instruments.
Interest expense- Interest expense consists of contractual interest expense on outstanding debt obligations, floor plan financing facilities, amortization of deferred financing costs and other related financing expenses.
Income Tax Expense (Benefit)- We have net operating loss carryforward and disallowed interest deduction carryforward assets, which are generally available to be used to offset taxable income generated in future years. Due to limitations on the use of these carryforwards under U.S. federal and state income tax regulations, we record valuation allowances to reduce the carryforward assets to amounts that we estimate will be realized. Accordingly, income tax expense or benefit generally is comprised of changes to these valuation allowance estimates and does not reflect taxes on current period income (or tax benefit on current period losses). For these reasons, our effective tax rate differs from the federal statutory tax rate.
Operating Metrics
We consider the following key operational metrics, which are consistent with those defined by the American Rental Association, when evaluating our performance and making day-to-day operating decisions:
Ending OEC- Ending original equipment cost ("OEC") is the original equipment cost of units at the end of the measurement period. OEC represents the original equipment cost, and excludes the effect of adjustments to rental equipment fleet acquired in business combinations. OEC is the basis for calculating certain of the measures set forth below. Additionally, the pricing of our rental contracts and equipment sales prices for our equipment is based upon OEC, and we measure a rate of return from our rentals and sales using OEC. OEC is a widely used industry metric to compare fleet dollar value independent of depreciation.
Average OEC on rent- Average OEC on rent is calculated as the weighted-average OEC on rent during the stated period.
Fleet utilization - Fleet utilization is defined as the total number of days the rental equipment was rented during a specified period of time divided by the total number of days available during the same period and weighted based on OEC. Utilization is a measure of fleet efficiency expressed as a percentage of time the fleet is on rent and is considered to be an important indicator of the revenue generating capacity of the fleet.
OEC on rent yield - OEC on rent yield ("ORY") is a measure of return realized by our rental fleet during a period. ORY is calculated as rental revenue (excluding freight recovery and ancillary fees) during the stated period divided by the average OEC on rent for the same period. For periods less than 12 months, ORY is adjusted to an annualized basis.
Sales order backlog - Sales order backlog consists of purchase orders received for customized and stock equipment. Sales order backlog should not be considered an accurate measure of future net sales.
Operating Segments
Through December 31, 2025, we reported our results under three reportable operating segments: Equipment Rental Solutions, Truck and Equipment Sales and Aftermarket Parts and Services.
Equipment Rental Solutions ("ERS") Segment- We own a broad range of new and used specialty equipment, including truck-mounted aerial lifts, cranes, service trucks, dump trucks, trailers, digger derricks and other machinery and equipment. As of 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 ("RPOs") on a select basis, which provide a buyout option with an established purchase price that decreases over time as rental revenue is collected. Customers are given credit against such purchase price for a portion of the amounts paid over the life of the rental, allowing customers the flexibility of a rental with the option to purchase at any time at a known price. Activities in our ERS segment consist of the rental and sale from the rental fleet of the foregoing products.
Truck and Equipment Sales ("TES") Segment- We offer a broad variety of new equipment for sale to be used across our end-markets, which can be modified to meet our customers' specific needs. We believe that our integrated production capabilities and extensive knowledge gained over a long history of selling equipment have established us as a trusted partner for customers seeking tailored solutions with short lead times. In support of these activities, we primarily employ a direct-to-customer sales model, leveraging our dedicated sales force of industry and product managers, who are focused on driving national and local sales. We also opportunistically engage in the sale of used equipment purchased from third parties or received via trade-ins from new equipment sales customers. In 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 KingTMbrand.
Aftermarket Parts and Services ("APS") Segment- The APS segment includes the sale of specialized aftermarket parts, including captive parts related to our Load KingTMbrand, 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.
Change in Reportable Segments
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. Management expects to provide more information on the new two segments in early April. 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.
Overview of Markets
We continue to focus on six primary end-markets: Electric Utility Transmission and Distribution, or T&D, Telecom, Rail, Forestry, Waste Management, and Infrastructure. In the T&D end-market, we continue to observe demand for new generation assets resulting in the development of new transmission lines as well as repair projects to address advanced-age transmission and distribution grids to replace existing lines and poles. These factors resulted in continued demand from our customers of the Company's products and services. Telecom, specifically the continued expansion of 5G, has seen some positive trends over the last few years. Our existing T&D related contractor customers will continue to deliver the roll-out, and our existing equipment portfolio aligns well with the needs of this market. Rail investment, both in the freight and commuter markets, remains robust. The existing rail infrastructure is aged and in need of maintenance. Infrastructure also provides potential growth opportunities as seen by the major road and bridge maintenance work experienced across the United States.
The Company purchases raw materials, component parts and finished goods to be used in the manufacturing, sale and rental of its products. Uncertainty remains regarding supply chain disruptions, inflationary pressures, public health crises, and geopolitical risks that have led to issues, broadly, in the supply chain. Changes in the Company's relationships with suppliers, shortages in availability of materials, production delays, regulatory restrictions, public health crises, or other supply chain disruptions, whether due to suppliers or customers, could have a material adverse effect on the Company's ability to timely manufacture and market products. Increases in the costs of shipping and transportation, purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or the Company's inability to market products. The Company continues to monitor the impact on its supply chain, including, but not limited to, the commercial vehicle manufacturers that provide the chassis used in the Company's production and manufacturing processes, which could potentially limit the ability of these manufacturers to meet demand in future periods.
Results of Operations
Year Ended December 31, 2025, Compared to the Year Ended December 31, 2024
Consolidated Results of Operations
| Year Ended December 31, | ||||||||||||||||||||||||||
| (in $000s) | 2025 | % of revenue | 2024 | % of revenue |
$ Change |
% Change | ||||||||||||||||||||
| Rental revenue | $ | 506,198 | 26.0% | $ | 442,953 | 24.6% | $ | 63,245 | 14.3% | |||||||||||||||||
| Equipment sales | 1,304,483 | 67.1% | 1,223,036 | 67.9% | 81,447 | 6.7% | ||||||||||||||||||||
| Parts sales and services | 133,276 | 6.9% | 136,291 | 7.6% | (3,015) | (2.2)% | ||||||||||||||||||||
| Total revenue | 1,943,957 | 100.0% | 1,802,280 | 100.0% | 141,677 | 7.9% | ||||||||||||||||||||
| Cost of revenue, excluding rental equipment depreciation | 1,316,430 | 67.7% | 1,228,557 | 68.2% | 87,873 | 7.2% | ||||||||||||||||||||
| Depreciation of rental equipment | 215,635 | 11.1% | 183,453 | 10.2% | 32,182 | 17.5% | ||||||||||||||||||||
| Gross profit | 411,892 | 21.2% | 390,270 | 21.7% | 21,622 | 5.5% | ||||||||||||||||||||
| Gain on sale leaseback transaction | - | (23,497) | 23,497 | (100.0)% | ||||||||||||||||||||||
| Total other operating expenses | 286,949 | 287,404 | (455) | (0.2)% | ||||||||||||||||||||||
| Total operating expenses | 286,949 | 263,907 | 23,042 | 8.7% | ||||||||||||||||||||||
| Operating income | 124,943 | 126,363 | (1,420) | (1.1)% | ||||||||||||||||||||||
| Total other expense | 153,073 | 155,550 | (2,477) | (1.6)% | ||||||||||||||||||||||
| Income (loss) before income taxes | (28,130) | (29,187) | 1,057 | (3.6)% | ||||||||||||||||||||||
| Income tax expense (benefit) | 2,922 | (532) | 3,454 | (649.2)% | ||||||||||||||||||||||
| Net income (loss) | $ | (31,052) | $ | (28,655) | $ | (2,397) | 8.4% | |||||||||||||||||||
Total Revenue -The increase in revenue for the year ended December 31, 2025, is a result of higher rental revenue driven by higher average OEC on rent as well as strong new and used equipment sales.
Cost of Revenue, Excluding Rental Equipment Depreciation -The increase in cost of revenue, excluding rental equipment depreciation was driven primarily by the increase in equipment sales volume during the year ended December 31, 2025.
Depreciation of Rental Equipment -Depreciation expense of our rental equipment for the year ended December 31, 2025, increased as a result of higher rental equipment levels.
Gain on Sale Leaseback Transaction- During 2024, the Company closed on a sale leaseback transaction with an unrelated third party which resulted in a gain of $23.5 million.
Total Other Operating Expenses - Other operating expenses remained flat for the year ended December 31, 2025.
Total Other Expense - Other expense remained flat for the year ended December 31, 2025.
Income Tax Expense (Benefit) -Our overall effective tax rate 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 (non-taxable income), such as compensation disallowance and mark-to-market adjustments on derivative financial instruments, and changes in the valuation allowance we establish against deferred tax assets. 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. These discrete items may not be consistent from year to year. For the year ended December 31, 2025, the changes in the effective tax rates were primarily due to taxable income in states that do not follow federal deductibility rules and foreign sourced income, resulting in an overall effective tax rate of (10.4)%, with $2.9 million of tax expense being recognized. For the year ended December 31, 2024, pre-tax book loss and the effects of permanent adjustments in the period resulted in an overall effective tax rate of 1.8%, with a $0.5 million tax benefit recognized.
Net Income (Loss) -The increase in net loss for the year ended December 31, 2025, was primarily due to the gain on a sale leaseback transaction that occurred in the fourth quarter of 2024, partially offset by an increase in gross profit as a result of strong new equipment sales as well as higher rental revenue driven by higher average OEC on rent.
Operating Metrics
We believe that our operating model, together with our highly variable cost structure, enables us to sustain high margins, strong cash flow generation and stable financial performance throughout various economic cycles. We are able to generate cash flow through our earnings. Our highly variable cost structure adjusts with the utilization of our equipment, thereby reducing our costs to match our revenue. We principally evaluate operational performance based on the following metrics: ending OEC, average OEC on rent, fleet utilization, and OEC on rent yield. We also report sales order backlog related to our customers' orders as an indicator of the demand environment for our products. The table below presents these key measures.
| Year Ended December 31, | |||||||||||||||||||||||
| (in $000s) | 2025 | 2024 | Change | % Change | |||||||||||||||||||
| Ending OEC (as of period end) | $ | 1,637,115 | $ | 1,515,461 | $ | 121,654 | 8.0 | % | |||||||||||||||
| Average OEC on rent | $ | 1,256,266 | $ | 1,101,417 | $ | 154,849 | 14.1 | % | |||||||||||||||
| Fleet utilization | 79.4 | % | 74.3 | % | 5.1 | % | 6.9 | % | |||||||||||||||
| OEC on rent yield | 38.3 | % | 39.0 | % | (0.7) | % | (1.8) | % | |||||||||||||||
| Sales order backlog (as of period end) | $ | 335,265 | $ | 368,779 | $ | (33,514) | (9.1) | % | |||||||||||||||
Operating Results by Segment
The following segment information compares results by segment for years ended December 31, 2025 and December 31, 2024.
Equipment Rental Solutions (ERS) Segment
| Year Ended December 31, | |||||||||||
| (in $000s) | 2025 | 2024 | |||||||||
| Rental revenue | $ | 491,790 | $ | 430,167 | |||||||
| Equipment sales | 209,255 | 167,638 | |||||||||
| Total revenue | 701,045 | 597,805 | |||||||||
| Cost of revenue: | |||||||||||
| Cost of rental revenue | 121,357 | 116,790 | |||||||||
| Cost of equipment sales | 157,846 | 123,229 | |||||||||
| Depreciation of rental equipment | 212,725 | 179,508 | |||||||||
| Total cost of revenue | 491,928 | 419,527 | |||||||||
| Gross profit | $ | 209,117 | $ | 178,278 | |||||||
Total Revenue -The increase in total revenue for the ERS segment for the year ended December 31, 2025, compared to the year ended December 31, 2024, was due to an increase in rental revenue as well as rental equipment sales. Rental revenue increased as a result of higher fleet utilization of 5.1%, driven by an increase in average OEC on rent by 14.1%. Rental equipment sales increased due to higher year-end buyout activity of rental contracts with purchase options.
Cost of Rental Revenue - The increase in cost of rental revenue for the year ended December 31, 2025, compared to the year ended December 31, 2024, was largely due to the increase in rental activity.
Cost of Equipment Sales - The increase in cost of equipment sales for the year ended December 31, 2025, compared to the year ended December 31, 2024, was largely due to the increase in equipment sales volume.
Depreciation of Rental Equipment - The increase in depreciation for the year ended December 31, 2025, compared to the year ended December 31, 2024, was a result of higher rental equipment levels.
Gross Profit -The increase in gross profit for the year ended December 31, 2025, compared to the year ended December 31, 2024, was due to the mix of equipment on rent for the period.
Truck and Equipment Sales (TES) Segment
| Year Ended December 31, | |||||||||||
| (in $000s) | 2025 | 2024 | |||||||||
| Equipment sales | $ | 1,095,228 | $ | 1,055,398 | |||||||
| Cost of equipment sales | 927,452 | 876,978 | |||||||||
| Gross profit | $ | 167,776 | $ | 178,420 | |||||||
Equipment Sales -The increase in equipment sales for the year ended December 31, 2025, compared to the year ended December 31, 2024, was due to an increase in new equipment sales, driven by robust demand for vocational vehicles across our end markets, particularly demand from local and regional customers.
Cost of Equipment Sales - The increase in cost of equipment sales for the year ended December 31, 2025, compared to the year ended December 31, 2024, was due to an increase in equipment sales volume.
Gross Profit -The decrease in gross profit for the year ended December 31, 2025, compared to the year ended December 31, 2024, was due to continued pricing pressures on truck sales.
Aftermarket Parts and Services (APS) Segment
| Year Ended December 31, | |||||||||||
| (in $000s) | 2025 | 2024 | |||||||||
| Rental revenue | $ | 14,408 | $ | 12,786 | |||||||
| Parts and services revenue | 133,276 | 136,291 | |||||||||
| Total revenue | 147,684 | 149,077 | |||||||||
| Cost of revenue: | |||||||||||
| Cost of revenue | 109,775 | 111,560 | |||||||||
| Depreciation of rental equipment | 2,910 | 3,945 | |||||||||
| Total cost of revenue | 112,685 | 115,505 | |||||||||
| Gross profit | $ | 34,999 | $ | 33,572 | |||||||
Total Revenue -The decrease in total revenue for the year ended December 31, 2025, compared to the year ended December 31, 2024, was driven by a decrease in parts and services revenue primarily due to softer demand across parts, tools and accessories, and lower service activity.
Cost of Revenue - The decrease in cost of revenue for the year ended December 31, 2025, compared to the year ended December 31, 2024, was driven by the decline in parts purchased.
Gross Profit -The increase in gross profit for the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily driven by the increase in rental revenue which has lower costs associated with it.
For the Year Ended December 31, 2024, Compared to the Year Ended December 31, 2023
For a comparison of our results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission on March 4, 2025, which is incorporated herein by reference.
Liquidity and Capital Resources
For the Year Ended December 31, 2025, Compared to the Year Ended December 31, 2024
Our principal sources of liquidity include cash generated by operating activities and borrowings under revolving credit facilities as described below. We believe that our liquidity sources and operating cash flows are sufficient to address our operating, debt service and capital requirements, including investments in our rental fleet, over the next 12 months and beyond. As of December 31, 2025, we had $6.3 million in cash and cash equivalents compared to $3.8 million as of December 31, 2024. As of December 31, 2025, we had $698.0 million of outstanding borrowings under our ABL Facility compared to $582.9 million of outstanding borrowings as of December 31, 2024. Availability under the ABL Facility was $248.1 million as of December 31, 2025, and based on our borrowing base, we have an additional $200.8 million of suppressed availability that we can potentially utilize by upsizing our existing facility. For further information on the ABL Facility, see Note 8: Long-Term Debt in the Notes to the Consolidated Financial Statements.
Loan Covenants and Compliance
The ABL Facility contains customary negative covenants for transactions of this type, including covenants that, among other things, limit Nesco Holdings II, Inc., our wholly owned subsidiary (the "Borrower" with respect to the ABL Facility, or the "Issuer" with respect to the Indenture) 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 the Borrower's restricted subsidiaries to pay dividends; create liens; transfer or sell assets; consolidate, merge, sell, or otherwise dispose of all or substantially all of 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. Unlimited dividends under the ABL Facility may be permitted so long as, on a pro forma basis, "distribution conditions" (as defined in the ABL Credit Agreement governing the ABL Facility) are satisfied. As of December 31, 2025, the Company's distribution conditions were satisfied and, as a result, the Company determined there were no restrictions on distributions by the Borrower and its restricted subsidiaries by the ABL Credit Agreement.
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'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. Unlimited dividends, under the Indenture, may be made so long as after giving effect to making the dividends, the Consolidated Total Debt Ratio would be no greater than 5.00 to 1.00 on a pro forma basis. As of December 31, 2025, the Company's Consolidated Total Debt Ratio was not greater than 5.00 to 1.00 and, as a result, the Company determined there were no restrictions on distributions by the Issuer and its restricted subsidiaries by the Indenture. For further information on the ABL Facility and Indenture, see Note 8: Long-Term Debt in the Notes to the Consolidated Financial Statements under Part II, Item 8.
The Company presents Adjusted EBITDA calculated in accordance with "Consolidated EBITDA" as that term is used in the ABL Credit Agreement and the Indenture. Adjusted EBITDA is defined as net income, as adjusted for provision for income taxes, interest expense, net, depreciation of rental equipment and non-rental depreciation and amortization, and further adjusted for the impact of the fair value mark-up of acquired rental fleet (the "non-cash purchase accounting impact"), business acquisition and merger-related costs, including integration, the impact of accounting for certain of our rental contracts with customers that are accounted for under GAAP as a sales-type lease and stock compensation expense.
The Company presents Net Leverage Ratio, which is equivalent to Consolidated Total Net Leverage Ratio in our ABL Credit Agreement and Consolidated Total Debt Ratio in the Indenture. Net Leverage Ratio is defined as Net Debt over Adjusted EBITDA for the previous twelve-month period. Net debt is defined as total debt (calculated as current and long-term debt, excluding deferred financing fees, plus current and long-term finance lease obligations) minus cash and cash equivalents.
Our creditors utilize Adjusted EBITDA and Net Leverage Ratio to assess our compliance with the restrictive covenants in the ABL Credit Agreement and the Indenture. Neither Adjusted EBITDA or Net Leverage Ratio is calculated in accordance with GAAP and
may not conform to the calculation of Adjusted EBITDA or Net Leverage Ratio used by other companies. Neither Adjusted EBITDA or Net leverage Ratio should be considered as a substitute for a measure of our financial performance or liquidity prepared in accordance with GAAP.
The following table provides the calculation of Adjusted EBITDA pursuant to the ABL Credit Agreement and the Indenture for the years ended December 31, 2025 and 2024:
| Year Ended December 31, | |||||||||||
| (in $000s) | 2025 | 2024 | |||||||||
| Net income (loss) | $ | (31,052) | $ | (28,655) | |||||||
| Interest expense | 104,882 | 105,895 | |||||||||
| Income tax expense (benefit) | 2,922 | (532) | |||||||||
| Depreciation and amortization | 264,998 | 235,807 | |||||||||
| EBITDA | 341,750 | 312,515 | |||||||||
| Adjustments: | |||||||||||
|
Non-cash purchase accounting impact (1)
|
15,469 | 16,833 | |||||||||
|
Transaction and other costs (2)
|
16,639 | 17,915 | |||||||||
|
Sales-type lease adjustment (3)
|
1,229 | 4,559 | |||||||||
|
Gain on sale leaseback transaction(4)
|
- | (23,497) | |||||||||
|
Share-based payments (5)
|
8,471 | 11,859 | |||||||||
|
Change in fair value of warrants (6)
|
- | (527) | |||||||||
| Adjusted EBITDA | $ | 383,558 | $ | 339,657 | |||||||
(1) Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment and inventory sold. The equipment and inventory acquired received a purchase accounting step-up in basis, which is a non-cash adjustment to the equipment cost pursuant to our ABL Credit Agreement and Indenture.
(2) Represents transaction and other costs related to acquisitions of businesses; costs associated with closed operations; costs associated with restructuring and business optimization activities (inclusive of systems establishment costs); employee retention and/or severance costs; costs related to start-up/preopenings and openings of locations; reconfiguration or consolidation of facilities or equipment conversion costs. These adjustments are presented as adjustments to net income (loss) pursuant to our ABL Credit Agreement and Indenture
(3) Represents the impact of sales-type lease accounting for certain leases containing RPOs, as the application of sales-type lease accounting is not deemed to be representative of the ongoing cash flows of the underlying rental contracts. The adjustments are made pursuant to our ABL Credit Agreement and Indenture. The components of this adjustment are presented in the table below.
| Year Ended December 31, | |||||||||||
| (in $000s) | 2025 | 2024 | |||||||||
| Equipment sales | $ | (5,989) | $ | (9,849) | |||||||
| Cost of equipment sales | 4,789 | 9,425 | |||||||||
| Gross profit | (1,200) | (424) | |||||||||
| Interest income | (4,580) | (11,285) | |||||||||
| Rental invoiced | 7,009 | 16,268 | |||||||||
| Sales-type lease adjustment | $ | 1,229 | $ | 4,559 | |||||||
(4) During Q4 2024, the Company closed on a sale leaseback transaction with an unrelated third party. The Company sold 8 properties with a combined net book value of $29.0 million for gross proceeds of $53.8 million, which was reduced by transaction costs and other fees of $1.3 million, for net cash proceeds of approximately $52.5 million. Additionally, $3.2 million from the proceeds were used to repay a note payable. The Company recognized a gain of $23.5 million on this transaction.
(5) Represents non-cash share-based compensation expense associated with the issuance of stock options and restricted stock units.
(6) Represents the charge to earnings for the change in fair value of the liability for warrants. On July 31, 2024, all of the Company's stock purchase warrants expired and unexercised.
The following table presents the calculation of Net Debt and Net Leverage Ratio:
| (in $000s) | December 31, 2025 | December 31, 2024 | |||||||||
| Current maturities of long-term debt | $ | 25,858 | $ | 7,842 | |||||||
| Long-term debt, net | 1,619,352 | 1,519,882 | |||||||||
| Deferred financing fees | 15,549 | 19,926 | |||||||||
| Less: cash and cash equivalents | (6,273) | (3,805) | |||||||||
| Net Debt | $ | 1,654,486 | $ | 1,543,845 | |||||||
| Divided by: Adjusted EBITDA | 383,558 | 339,657 | |||||||||
| Net Leverage Ratio | 4.31 | 4.55 | |||||||||
Future Contractual Obligations
Our estimated future obligations as of December 31, 2025 include both short-term (over the next 12 months) and long-term obligations. We expect that our principal short-term (over the next 12 months) and long-term needs for cash relating to our operations will be to fund operating activities and working capital, the purchase of rental equipment and inventories for vocational truck production and parts and accessories products, human capital costs (which are not accurately estimable), payments due under leases, debt service, and acquisitions. We plan to fund such cash requirements from our existing sources of cash. In addition, we may seek additional financing through the use of additional operating leases or other financing sources as market conditions permit.
Our expected material contractual cash requirements over the next twelve months primarily consist of minimum operating lease obligations of $17.4 million, debt principal and interest payments of $25.9 million and $100.2 million, respectively, and the repayment of floor plan borrowings. We enter into purchase agreements with manufacturers and suppliers of chassis, parts and components and attachments, for our rental fleet and inventory. The purchase agreements are cancellable within a specified notification period to the supplier. Such amounts are not estimable as of December 31, 2025.
Operating Lease Payments. We have short-term and long-term minimum cash requirements for operating lease payments of $17.4 million and $176.1 million, respectively. The total amounts do not equal the carrying amount due to imputed interest. See Note 9: Leases as Lessee in the Notes to the Consolidated Financial Statements under Part II, Item 8, for a summary of the estimated future repayment terms for the operating lease amounts.
Floor Plan Financing. We have floor plan payables of $657.4 million at December 31, 2025 that represent financing arrangements to facilitate our purchase of chassis, parts, components and attachments 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 to inventory. See Note 6: Floor Plan Financing in the Notes to the Consolidated Financial Statements under Part II, Item 8, for obligations related to trade and non-trade floor plan financings.
Notes Payable and Loan Principal and Interest Payments. We have short-term and long-term cash requirements of $25.9 million and $1,634.9 million, respectively, for the payment of principal related to notes payable and loans as of December 31, 2025. The total amount does not equal the carrying amount due to unamortized deferred charges. See Note 8: Long-Term Debt in the Notes to the Consolidated Financial Statements under Part II, Item 8 for more information.
Sources and Uses of Cash
The following table summarizes our sources and uses of cash:
| Year Ended December 31, | |||||||||||
| (in $000s) | 2025 | 2024 | |||||||||
| Net cash flow from operating activities | $ | 310,112 | $ | 121,985 | |||||||
| Net cash flow for investing activities | (282,463) | (187,485) | |||||||||
| Net cash flow (for) from financing activities | (25,268) | 58,283 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 87 | 713 | |||||||||
| Net change in cash and cash equivalents | $ | 2,468 | $ | (6,504) | |||||||
As of December 31, 2025, we had cash and cash equivalents of $6.3 million, an increase of $2.5 million from December 31, 2024. Generally, we manage our cash flow by using any excess cash, after considering our working capital and capital expenditure needs, including paying down the outstanding balance under our ABL Facility, and availability under our credit facilities.
Cash Flows from Operating Activities
Net cash from operating activities was $310.1 million for the year ended December 31, 2025, as compared to $122.0 million in 2024. The increase in net cash from operating activities is driven by lower levels of inventory production throughout 2025 compared to 2024.
Cash Flows for Investing Activities
Net cash used in investing activities was $282.5 million for the year ended December 31, 2025, as compared to cash used in investing activities of $187.5 million in 2024. The increase in cash used in investing activities is due to an increase in purchases of rental equipment of $58.7 million and a decrease in proceeds from sale leaseback transaction (net of expenses) of $52.5 million, partially offset by a decrease in purchases of non-rental property and cloud computing arrangements of $8.7 million.
Cash Flows (for) from Financing Activities
Net cash used in financing activities was $25.3 million for the year ended December 31, 2025, as compared to net cash from financing activities of $58.3 million in 2024. The increase in cash used in financing activities is primarily due to an increase in repayments on floorplan liabilities and long-term debt of $45.8 million and lower proceeds from floorplan liabilities and long-term debt of $34.1 million.
Year Ended December 31, 2024, Compared to the Year Ended December 31, 2023
For a comparison of our liquidity and capital resources for the year ended December 31, 2024, compared to the year ended December 31, 2023, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission on March 4, 2025, which is incorporated herein by reference.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). In applying accounting principles it is often required to use estimates. These estimates consider the facts, circumstances, and information available, and may be based on subjective inputs, assumptions, and information known and unknown to us. Material changes in certain of the estimates that we use, could potentially affect, by a material amount, our consolidated financial position and results of operations. Although results may vary, we believe our estimates are reasonable and appropriate. See Note 2: Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof. The following describes certain of our significant accounting policies that involve more subjective and complex judgments where the effect on our consolidated financial position and operating performance could be material.
Useful Lives and Salvage Values of Rental Equipment
Our rentable equipment consists of aftermarket parts and specialized rental equipment. Purchases of our equipment are recorded at cost and we depreciate the cost to an estimated salvage value. We depreciate our aftermarket parts over their estimated useful rentable life of five years. We depreciate our rental equipment over its estimated useful rentable life of one to seven years with an estimated residual value of 0% to 35% of the cost, using the straight-line method. Useful life is estimated based upon the expected period the equipment will be in the fleet as a rentable unit. A salvage value is estimated to approximate the value of the equipment at the end of its useful (i.e., rentable) life, allowing for a reasonable profit margin on the sale of the equipment when we remove the unit from the fleet. In establishing useful lives and salvage values, we consider factors related to customer demand of differing types of equipment in order for us to hold and maintain an optimal mix of equipment types in our fleet. We also continuously evaluate factors related to the condition and serviceability of the equipment in our fleet in order to make estimates of useful life and expected end-of-life value. Depreciation of our equipment is recognized as a component of our cost of revenue. For sold equipment, the carrying value of an item is recognized as cost of equipment sale within cost of revenue. Changes in estimated useful life and/or salvage value would impact our gross profit in our consolidated financial statements. To the extent that the useful lives of our rental equipment were to increase or decrease by one year, we estimate that our annual depreciation expense would increase or decrease by approximately $197.0 million, respectively. Similarly, to the extent the estimated salvage values of our rental equipment were to increase or decrease by one percentage point, we estimate that our annual depreciation expense would change by approximately $4.3 million. Any change in
depreciation expense as a result of a hypothetical change in either useful lives or salvage values would generally result in a proportional increase or decrease in the gross profit we would recognize upon the ultimate sale of the asset.
Business Combinations
We have made acquisitions of businesses in the past and may continue to make acquisitions in the future. We allocate the cost of the acquired enterprise to the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. Goodwill is attributable to the synergies and economies of scale expected from the combination of the businesses. There were no material acquisitions made during the years ended December 31, 2025 and 2024.
In addition to long-lived fixed assets, 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, deferred revenue 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 reflected on the acquired entities' balance sheets. However, when appropriate, we adjust these carrying values for factors such as collectability and existence. The intangible assets that we have acquired included goodwill and customer relationships. Goodwill was calculated as the excess of the cost of the acquired entity over the fair value of the net assets acquired. Customer relationships were valued based on an excess earnings or income approach with consideration to projected cash flows.
Our estimates of the values of tangible assets from our business combinations, principally rental equipment, utilize data that reflect quoted prices for similar assets available in active markets (such as the used equipment market). For this reason, estimates of the fair values of these items is not considered to be highly subjective or complex. However, to estimate the values of intangible assets we utilize income methods that involve forecasting future cash flow related to the acquired businesses. The estimates of future cash flow require us to establish expectations about customer demand, investments in maintaining or expanding infrastructure for the markets the businesses serve, and the supply and capacity of equipment in the rental market, among others. Additionally, we are required to establish expectations for the businesses' cost of capital and ability to acquire and maintain equipment in the future. Critical estimates utilized in valuing intangible assets acquired include, but are not limited to, free cash flows, taxes, amortization, customer attrition rates, discount rates and long-term growth rates. Changes in these assumptions would have an impact to the amount of intangible assets recorded and the resulting amortization expense.
Goodwill and the Evaluation of Goodwill Impairment
Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired, and goodwill is assigned to each of our reporting units, which are ERS, TES and APS. Refer to Note 10: Goodwill and Intangible Assets to the consolidated financial statements included in this Form 10-K 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.
Accounts Receivable and Allowance for Doubtful Accounts
Allowance for doubtful accounts represents our estimate of current expected credit losses on our trade accounts receivable. Accounts receivable from customers are generated from our leasing, sales and service businesses. We make judgments regarding our expected credit losses, which are based on an assessment of historical credit losses, ability of customers to pay, current financial conditions of customers, as well as forecasts of collections and losses. Other factors that could lead to credit losses include adverse trends in the end-market industries that we serve and macroeconomic trends, each of which is considered in our forecasts. Estimated credit losses related to accounts receivable generated through leasing activities are recorded as a reduction to rental revenue. Estimated credit losses related to accounts receivable generated through sales and service activities are recorded within selling, general and administrative expense. The allowance for doubtful accounts represents our estimate of credit losses expected on our trade receivables. Although we believe that our estimates and judgments are reasonable, actual results may differ from these estimates. At December 31, 2025, a 100 basis point increase to our credit loss estimate would increase our allowance for doubtful accounts by approximately $0.9 million.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences (meaning, inclusions of income and deductions in income tax returns to be filed in future periods) of events that have been included in the financial statements. These items may be referred to as "temporary differences." Under this method, deferred tax assets and liabilities are determined based on the differences between their financial statement carrying amount (or, basis) and the carrying amount for taxes (or, tax basis) using enacted tax rates in effect for the year in which the differences are expected to affect income in the future tax filings. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record deferred tax assets to the extent we believe that it is more likely than not that these assets will be realized in the future. Future realization of deferred income tax assets (meaning, items that may provide tax deductions in future periods) requires evidence that there will be sufficient taxable income in those future periods, or within any carryback periods available under tax law. We evaluate the realizability of our deferred tax assets on a quarterly basis. To be realized, there must be an objective and verifiable basis for the expectation of taxable income in future periods to offset, or "consume," the deferred tax assets. The evaluation includes the consideration of all available factors, both positive and negative, regarding (i) the estimated future reversals of existing taxable temporary differences (that is, deferred tax liabilities), (ii) forecasted future taxable income, exclusive of those reversing temporary differences and carryforwards, (iii) historical taxable income in prior carryback periods, if carryback is permitted, and (iv) potential tax planning strategies that may be employed to prevent an operating loss or tax credit carryforward from expiring unused. The verifiable evidence, such as future reversals of existing temporary differences and the ability to carryback, are considered before estimated future taxable income (exclusive of temporary differences and tax planning strategies) is considered because future taxable
income estimates are more subjective. The majority of our deferred tax assets are comprised of income tax carryforwards, including federal and state net operating loss carryforwards ("NOLs") and non-deductible interest expense carryforwards. Some of these carryforwards are subject to annual usage limitations and expiration, while other state NOLs and a portion of federal NOLs do not have expirations.
While we no longer remain in a financial reporting loss position based on a cumulative pre-tax loss for the three-year period ended December 31, 2025, the determination of the valuation allowance is based on our evaluation of the periods over which future taxable items are expected to be utilized to offset tax loss and deduction carryforward items in those future periods. That is, future forecasts of our taxable income are not considered in the evaluation of realizability of our deferred tax assets. Therefore, changes in our deferred tax asset valuation allowances will primarily be affected by changes in the estimates of the time periods over which those future taxable items will occur. At December 31, 2025, our deferred tax asset valuation allowance was $85.4 million.
Recent Accounting Pronouncements
See Note 2: Summary of Significant Accounting Policies, to our Annual Report on Form 10-K for a discussion of recently issued and adopted accounting pronouncements.
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