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What changed in Custom Truck One Source, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Custom Truck One Source, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+276 added−356 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-14)

Top changes in Custom Truck One Source, Inc.'s 2023 10-K

276 paragraphs added · 356 removed · 206 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

57 edited+21 added−10 removed68 unchanged
Biggest changeThe spend required by the key telecom operators to deploy 5G technology is expected to grow at a 47.6% CAGR from 2022 to 2030, of approximately $198 billion. The Infrastructure Act provided an additional $65 billion to increase access to reliable high-speed internet. Rail End-Market Freight and commuter rail are responsible for transporting products and people across North America.
Biggest changeThe Infrastructure Act provided an additional $65 billion to increase access to reliable high-speed internet. 2 Table of Contents Rail End-Market Freight and commuter rail are responsible for transporting products and people across North America. Our rail mounted equipment is used for a variety of tasks including the installation of new rail and maintenance of the existing rail lines.
We strive to have zero workplace injuries and engage our employees in raising awareness and education through our Safety Ambassador Network, which includes a diverse cross section of employees from multiple work facilities. We have a network of approximately 100 Safety Ambassadors who are provided training and instruction from our Environmental, Health and Safety professionals.
We strive to have zero workplace injuries and engage our employees in raising awareness and education through our Safety Ambassador Network, which includes a cross section of employees from multiple work facilities. We have a network of approximately 100 Safety Ambassadors who are provided training and instruction from our Environmental, Health and Safety professionals.
Sales and Marketing Sales We operate with a nationwide direct sales team to address the specialized needs of our customer base and to cultivate strategic partnerships with key customers. Our more than 100-member sales organization is led by members of our senior management team, including Presidents and Regional Sales Managers.
Sales and Marketing Sales We operate with a nationwide direct sales team to address the specialized needs of our customer base and to cultivate strategic partnerships with key customers. Our more than 100-member sales organization is led by members of our senior management team, including Presidents, Vice Presidents and Regional Sales Managers.
Of our top 20 customers, 16 of them both rent and purchase equipment. We have very strong brand recognition among our industry-leading customers. Our ability to deliver an unmatched value proposition for our customers’ most complex and technical requirements, on a tight deadline, results in long-tenured relationships with premier customers across our different end-markets.
Of our top 20 customers, 14 of them both rent and purchase equipment. We have very strong brand recognition among our industry-leading customers. Our ability to deliver an unmatched value proposition for our customers’ most complex and technical requirements, on a tight deadline, results in long-tenured relationships with premier customers across our different end-markets.
We believe that the following factors have been instrumental in our success and will position us for continued growth: 4 Table of Contents Market Leader with a Differentiated “One-Stop Shop” Platform - Our platform offers our customers a true “one-stop shop” solution for their needs across the specialty equipment market, including rentals, new and used sales, production and customization, aftermarket parts and services, and financing and asset disposal, building upon the successful business model that has been a key source of differentiation for Custom Truck historically.
We believe that the following factors have been instrumental in our success and will position us for continued growth: Market Leader with a Differentiated “One-Stop Shop” Platform – Our platform offers our customers a true “one-stop shop” solution for their needs across the specialty equipment market, including rentals, new and used sales, production and customization, aftermarket parts and services, and financing and asset disposal, building upon the successful business model that has been a key source of differentiation for Custom Truck historically.
Facilities We are headquartered in Kansas City, Missouri where we house executive management, accounting, finance, information technology, human resources, marketing, and procurement professionals, as well as production, assembly, service and distribution operations. We maintain a diverse geographic footprint in the U.S. and Canada, with 35 locations.
Facilities We are headquartered in Kansas City, Missouri where we house executive management, accounting, finance, information technology, human resources, marketing, and procurement professionals, as well as production, assembly, service and distribution operations. We maintain a diverse geographic footprint in the U.S. and Canada, with more than 35 locations.
We use “Custom Truck One Source” and “Truck Utilities” as unregistered trademarks and “Load King” as a registered trademark. Additionally, pursuant to an agreement with Terex, we have a revocable, royalty-free, limited license to use certain Terex trademarks to promote the sale and servicing of Terex products, subject to certain conditions of use.
We use “Custom Truck One Source” as unregistered trademarks and “Load King” as a registered trademark. Additionally, pursuant to an agreement with Terex, we have a revocable, royalty-free, limited license to use certain Terex trademarks to promote the sale and servicing of Terex products, subject to certain conditions of use.
Additionally, our direct-to-customer sales channels drive attractive net resale values that exceed those of our competitors who typically sell used equipment through auctions. Growth Strategy We offer a full suite of specialty equipment services and a broad portfolio of products, which provides us with numerous channels for future growth and opportunities to deepen customer relationships.
Additionally, our direct-to-customer sales channels drive attractive net resale values that exceed those of our competitors who typically sell used equipment through auctions. 5 Table of Contents Growth Strategy We offer a full suite of specialty equipment services and a broad portfolio of products, which provides us with numerous channels for future growth and opportunities to deepen customer relationships.
Products and Services Equipment Rental Solutions and Truck and Equipment Sales Our equipment rental fleet consists of more than 10,000 units, which management believes is among the largest specialty equipment rental fleets in North America.
Products and Services Equipment Rental Solutions and Truck and Equipment Sales Our equipment rental fleet consists of more than 10,300 units, which management believes is among the largest specialty equipment rental fleets in North America.
Our flexibility to meet customers’ capital allocation preferences allow us to develop deeper relationships with our customers and our wide variety of equipment offered enables us to meet more of our customers’ needs than our competitors. Additionally, our national platform and scale provides us the ability to serve both regional and national customers wherever they operate.
Our flexibility to meet customers’ capital allocation preferences allow us to develop deeper relationships with our customers and our wide variety of equipment offered enables us to meet more of our customers’ 4 Table of Contents needs than our competitors. Additionally, our national platform and scale provides us the ability to serve both regional and national customers wherever they operate.
A large percentage of our fleet is insulated, which allows customers to safely work on live electric lines. Our equipment is regularly tested for safety, which includes regulation-mandated dielectric testing of all insulated units to ensure safe operations near 3 Table of Contents electrical wiring.
A large percentage of our fleet is insulated, which allows customers to safely work on live electric lines. Our equipment is regularly tested for safety, which includes regulation-mandated dielectric testing of all insulated units to ensure safe operations near electrical wiring.
The equipment is also often used for working on older infrastructure such as repairing bridges and terminals with more antiquated track and systems that are in need of upgrades with more modern systems like Positive Train Control (“PTC”) and others. The six largest public railroads operating in North America spend more than $10 billion annually in capital expenditures.
The equipment is also often used for working on older infrastructure such as repairing bridges and terminals with more antiquated track and systems that are in need of upgrades with more modern systems like Positive Train Control (“PTC”) and others. The five largest public railroads operating in North America spend more than $12 billion annually in capital expenditures.
Geographical Diversity - We have a large geographic footprint that enables us to provide local service throughout North America. Our more than 35 locations are strategically located to provide access to key high-growth end-markets and have sufficient geographic reach to provide a holistic solution to nationwide accounts. Our footprint is further expanded by over 100 third-party service locations.
Geographical Diversity – We have a large geographic footprint that enables us to provide local service throughout North America. Our more than 35 locations are strategically located to provide access to key high-growth end-markets and have sufficient geographic reach to provide a holistic solution to nationwide accounts. Our footprint is further expanded by over 2,600 third-party service partners.
Attractive Unit Economics Driving High Returns - Our integrated, “one-stop shop” business model results in both lower costs and higher equipment resale values, driving exceptional unit economics. We believe that our ability to purchase equipment components 5 Table of Contents separately with vertically-integrated assembly results in a cost advantage over buying fully completed units.
Attractive Unit Economics Driving High Returns – Our integrated, “one-stop shop” business model results in both lower costs and higher equipment resale values, driving exceptional unit economics. We believe that our ability to purchase equipment components separately with vertically-integrated assembly results in a cost advantage over buying fully completed units.
We operate with a differentiated “one-stop-shop” business model, offering equipment rental, new and used equipment sales, and aftermarket parts and service out of more than 35 locations across the U.S. and Canada. Customers receive additional support throughout the country from Custom Truck’s twenty-four hour, seven-day a week (“24/7”) call center, approximately 80 mobile technicians, and over 100 third-party locations.
We operate with a differentiated “one-stop-shop” business model, offering equipment rental, new and used equipment sales, and aftermarket parts and service out of more than 35 locations across the U.S. and Canada. Customers receive additional support throughout the country from Custom Truck’s twenty-four hour, seven-day a week (“24/7”) call center, approximately 90 mobile technicians, and over 2,600 third-party service partners.
Strategic Account Managers are responsible for establishing and managing these relationships along with direct involvement from senior leadership to create more contact and touch points between the key decision makers and Custom Truck.
Strategic Account Managers are responsible for 6 Table of Contents establishing and managing these relationships along with direct involvement from senior leadership to create more contact and touch points between the key decision makers and Custom Truck.
Although we have an expansive national footprint already, we have identified additional attractive geographic markets for potential expansion. Strong, Diverse Client Relationships and Industry Expertise - We serve more than 3,000 customers, with the top 15 customers representing approximately 25% of total revenue and no single customer representing greater than 4% of total revenue in 2022.
Although we have an expansive national footprint already, we have identified additional attractive geographic markets for potential expansion. Strong, Diverse Client Relationships and Industry Expertise – We serve more than 8,000 customers, with the top 15 customers representing approximately 16% of total revenue and no single customer representing greater than 3% of total revenue in 2023.
We have significant tenure with our top customers, with key relationships spanning more than 16 years.
We have significant tenure with our top customers, with key relationships spanning more than 17 years.
As of December 31, 2022, our fleet is comprised of more than 10,000 units with an average unit age of approximately 3.7 years, which we believe is young by rental fleet standards and compares favorably to the long useful life of the equipment.
As of December 31, 2023, our fleet is comprised of more than 10,300 units with an average unit age of approximately 3.5 years, which we believe is young by rental fleet standards and compares favorably to the long useful life of the equipment.
In addition, we offer an employee assistance program that provides employees and their family members with confidential support on a 8 Table of Contents wide variety of areas to support total well-being—such as mental and emotional health conditions, stress management, dependent/elder care, nutrition, fitness, and legal and financial issues.
In addition, we offer an employee assistance program that provides employees and their family members with confidential support on a wide variety of areas such as mental and emotional health conditions, stress management, dependent/elder care, nutrition, fitness, and legal and financial issues.
Young, Well-Maintained Rental Fleet Comprised of In-Demand Equipment - Our rental fleet consists of more than 10,000 units and is one of the youngest in the industry, with an average age of 3.7 years as of December 31, 2022.
Young, Well-Maintained Rental Fleet Comprised of In-Demand Equipment – Our rental fleet consists of more than 10,300 units and is one of the youngest in the industry, with an average age of 3.5 years as of December 31, 2023.
Our drive, deep expertise, and responsiveness to the specialized needs of our customers set us apart. As of December 31, 2022, we had more than 2,270 employees in 35 locations across North America. 7 Table of Contents Approximately 2.5% of our U.S. employees are covered by a collective bargaining agreement, and management values a strong relationship with our employees.
Our drive, expertise, and responsiveness to the specialized needs of our customers set us apart. Management values a strong relationship with our employees across all our locations. As of December 31, 2023, we had approximately 2,580 employees in more than 35 locations across North America. Approximately 2% of our U.S. employees are covered by a collective bargaining agreement.
Should rules establishing limitations on greenhouse gas emissions or rules imposing fees on entities deemed to be responsible for greenhouse gas emissions become effective, demand for our services could be affected, our vehicle, and/or other, costs could increase, and our business could be adversely affected. Human Capital Our people are a critical component to our success.
Should rules establishing limitations on greenhouse gas emissions or rules imposing fees on entities deemed to be responsible for greenhouse gas emissions become effective, demand for our services could be affected, our vehicle, and/or other, costs could increase, and our business could be adversely affected.
Freight Rail - Freight rail, one of the most cost-effective, energy-efficient modes of transport, and carries a majority of intercity freight as measured by ton-miles, more than any other mode of transportation. Our North American customers are principally Class I railroads and related contractors. These Class I operators accounted for approximately 67% of total railroad route miles in 2019.
Freight Rail – Freight rail, one of the most cost-effective, energy-efficient modes of transport, carries a majority of intercity freight as measured by ton-miles, more than any other mode of transportation. Our North American customers are principally Class I railroads and related contractors. Data indicates that these Class I operators operate approximately 70% of total United States railroad route miles.
In addition to print and online publications, we participate in national and select regional trade shows, which represent important customer touch points for the sales team to both approach new customers and maintain strong relationships with existing customers.
In addition to print and online publications and our digital advertising efforts noted above, we participate in national and select regional trade shows, which represent important customer touch points for the sales team to approach new customers, maintain strong relationships with existing customers and promote new product launches.
Infrastructure End-Market We also serve the general infrastructure end-market, which includes surface transportation, national highway performance, highway safety, metropolitan transit, and other key infrastructure systems, including residential and non-residential waste and water. Total infrastructure capex spend annually exceeds $200 billion, and we believe the infrastructure end-market outlook remains positive.
Infrastructure End-Market We also serve the general infrastructure end-market, which includes surface transportation, national highway performance, highway safety, metropolitan transit, and other key infrastructure systems, including residential and non-residential waste and water. Total infrastructure capex spend in 2023 was estimated to be just under $270 billion, and we believe the infrastructure end-market outlook remains positive.
The most recent federal estimates quantify the backlog of projects required to attain a “state of good repair,” meaning public transit is repaired to an age within its average service life, at $90 billion — projected to grow to $122 billion by 2032.
The most recent Federal estimates quantify the backlog of projects required to attain a “state of good repair,” meaning public transit is repaired to an age within its average service life, at $105 billion, which is projected to grow as high as $290 billion by 2029 if not addressed.
Marketing We utilize targeted advertising, tradeshows, focused email distributions, a comprehensive equipment catalog, and our website for marketing our products and services. Our rental catalog contains detailed technical information and diagrams for all our products, while the website offers easy access to equipment specifications and rental listings. We supplement these materials with 10 to 12 major marketing publications annually.
Marketing We utilize targeted advertising, trade shows, focused email distributions, a comprehensive equipment catalog, and our website for marketing our products and services. Our rental catalog contains detailed technical information and diagrams for all our products, while the website offers easy access to equipment specifications and rental listings.
Additionally, we are subject to environmental regulations governing the discharge of pollutants into the air or water, the management, storage and disposal of, or exposure to, hazardous substances and wastes, the responsibility to investigate and clean up contamination, and occupational health and safety. The Company is not aware of any material instances of non-compliance with respect to the foregoing regulations.
Additionally, we are subject to environmental regulations governing the discharge of pollutants into the air or water, the management, storage and disposal of, or exposure to, hazardous substances and wastes, the responsibility to investigate and clean up contamination, and occupational health and safety.
We consider the waste end-market as part of the general infrastructure industry. Long-term, secular growth in this market is driven by growing waste volumes generated by increasing waste generation per capita. Population and income growth drive municipal solid waste generation. Municipal solid waste revenue is projected to grow at a compounded annual growth rate of 3.3% from 2020 to 2027.
We consider the waste end-market as part of the general infrastructure industry. Long-term, secular growth in this market is driven by growing waste volumes generated by increasing waste generation per capita. Population and income growth drive municipal solid waste generation.
We offer employees tuition assistance to assist our employees with expanding their formal education while working. Our Ethics & Compliance One of our most valuable assets is our integrity, an unwavering commitment to acting honestly and ethically in all that we do. We established a Code of Conduct to ensure our employees understand our commitment and how to report concerns.
Our Ethics & Compliance One of our most valuable assets is our integrity, an unwavering commitment to operating honestly and ethically in all that we do. We established a Code of Conduct to ensure our employees understand our commitment and how to report concerns.
As a result, significant spend for new transmission lines will be required to interconnect these new sources of power with the electrical grid. Increased Outsourcing by Utilities - Utilities are increasingly turning to specialized third-party contractors to fulfill construction and maintenance needs.
Twenty-four states plus the District of Columbia have adopted specific greenhouse gas reduction targets to address climate change. As a result, significant spend for new transmission lines will be required to interconnect these new sources of power with the electrical grid. Increased Outsourcing by Utilities – Utilities are increasingly turning to specialized third-party contractors to fulfill construction and maintenance needs.
This spend is driven by a number of attractive dynamics, demonstrating that the U.S. is potentially in the very early stages of a multi-year electric utility T&D spending cycle.
Capital expenditure spend in the electric utility T&D end-market were estimated to be approximately $88 billion in 2023. This spend is driven by a number of attractive dynamics, demonstrating that the U.S. is potentially in the very early stages of a multi-year electric utility T&D spending cycle.
We are subject to federal, state, and local environmental laws and regulations with respect to the ownership and operation of tanks for the storage of petroleum products, such as gasoline, diesel fuel and motor and waste oils.
The Company is not aware of any material instances of non-compliance with respect to the foregoing regulations. 7 Table of Contents We are subject to federal, state, and local environmental laws and regulations with respect to the ownership and operation of tanks for the storage of petroleum products, such as gasoline, diesel fuel and motor and waste oils.
We offer employees options to create financial security through our 401(k) savings program that includes a Company matching component, health savings account, and pre-tax flexible spending accounts for healthcare and dependent care. We provide employees and their family members 24/7 access to doctors and counselors with telemedicine and virtual counseling.
We offer employees options to enhance their financial security through our 401(k) savings program that includes a Company matching component, health savings account, and pre-tax flexible spending accounts for healthcare and dependent care.
Our comprehensive APS offering expands opportunities to serve our equipment rental and sales customers through the convenience of a single vendor for all their specialty equipment, tools and accessories needs. End-Market Overview Our core end-markets include operators of vocational and specialty trucks and associated parts and services.
Our comprehensive APS offering expands opportunities to serve our equipment rental and sales customers through the convenience of a single vendor for all their specialty equipment, tools and accessories needs. End-Market Overview Our core end-markets include electric utility T&D, telecom, rail and general infrastructure, among others.
This is because small cells only deliver coverage within approximately a quarter mile of their location, compared to approximately five miles for the existing 4G and predecessor macro cells.
This is because small cells only deliver coverage within approximately a quarter mile of their location, compared to approximately five miles for the existing 4G and predecessor macro cells. As a result, approximately 20 times more small cells will need to be installed in order to provide the same level of coverage as the existing macro cells.
The majority of our equipment can be used across a variety of end-markets and many of our customers operate in multiple end-markets. Rental rates vary depending on product type, geography, demand, and other factors.
The majority of our equipment can be used across a variety of end-markets and many of our customers operate in multiple end-markets.
We estimate the addressable market to be approximately $59 billion: $18.5 billion in new sales, $21 billion in aftermarket parts and service, and $19.5 billion in rental and used sales. The new sales addressable market has grown from an estimated $15.6 billion in 2019 to $18.5 billion in 2021.
Based on available industry sources, we estimate the addressable market to be approximately $65 billion: $20.4 billion in new sales, $23.2 billion in aftermarket parts and service, and $21.4 billion in rental and used sales. The new sales addressable market has grown from an estimated $15.6 billion in 2019 to $20.4 billion in 2023.
Waste is generally considered to be a recession-resistant industry given the non-discretionary nature of waste collection and disposal. Ongoing consolidation amongst waste haulers results in increasing market share for large, well-capitalized companies that have the resources to invest in the latest trucks and equipment.
Ongoing consolidation amongst waste haulers results in increasing market share for large, well-capitalized companies that have the resources to invest in the latest trucks and equipment.
Examples of our rental and sales equipment include: Bucket Trucks Trucks equipped with a bucket mounted on an insulated or non-insulated hydraulic lifting aerial device used to maintain and construct utility, rail, or telecommunication lines. Digger Derricks Trucks equipped with a boom and auger used to dig holes and set utility, rail, and telephone poles.
Rental rates vary depending on product type, geography, demand, and other factors. 3 Table of Contents Examples of our rental and sales equipment include: Bucket Trucks Trucks equipped with a bucket mounted on an insulated or non-insulated hydraulic lifting aerial device used to maintain and construct utility, rail, or telecommunication lines.
Roll-Off Trucks Trucks equipped to transport waste containers Knuckleboom Trucks Trucks equipped to lift for utility, construction, and building materials applications Vacuum Trucks Trucks equipped to safely dig holes and transport materials by vacuuming materials or liquids Cranes Equipment made to lift heavy objects utilized in our core markets Pressure Diggers Trucks equipped with a pressure drill used to dig holes for utility poles, structure bases, and foundations through hard materials such as rock.
Roll-Off Trucks Trucks equipped to transport waste containers Knuckleboom Trucks Trucks equipped to lift for utility, construction, and building materials applications Vacuum Trucks Trucks equipped to safely dig holes and transport materials by vacuuming materials or liquids Cranes Equipment made to lift heavy objects utilized in our core markets Underground Equipment Variety of equipment used to place and remove underground utility and telecom lines without disruption to the surface.
Cable placers Equipment used to string new and re-conduct overhead utility, rail, telecom, or cable lines including pole trailers, reel handling trailers, and other material handling trailers. Boom Trucks Trucks equipped with a boom mounted on an insulated or non-insulated hydraulic lifting aerial device used to maintain and construct utility, rail, or telecommunication lines.
Digger Derricks Trucks equipped with a boom and auger used to dig holes and set utility, rail, and telephone poles. Cable placers Equipment used to string new and re-conduct overhead utility, rail, telecom, or cable lines including pole trailers, reel handling trailers, and other material handling trailers.
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.
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.
These operators serve infrastructure-related electric utility T&D, telecom, rail, forestry, and waste management, among others. General End-Market Trends The North American market has, and continues, to experience a secular shift from equipment ownership to rental.
General End-Market Trends The North American market has, and continues, to experience a secular shift from equipment ownership to rental.
Data traffic is at an all-time high and is expected to increase in the future. North America data traffic is expected to grow at a 21% compound annual growth rate (“CAGR”) from 2022 to 2028.
Rapid technological advancements, including advanced digital and video service offerings, continue to increase demand for greater wireline and wireless network capacity and reliability. Data traffic is at an all-time high and is expected to increase in the future. North America data traffic is expected to grow at a 17% compound annual growth rate (“CAGR”) from 2022 to 2029.
Our field sales organization and 24-hour support center have developed “first-call” relationships with several of our largest customers while providing significant expertise in the technical nature of the equipment and projects. 6 Table of Contents For key national or regional accounts, we employ a top to bottom sales approach with a focus on building partnerships at all levels within these key accounts and securing commitments to use us as a preferred supplier.
For key national or regional accounts, we employ a top to bottom sales approach with a focus on building partnerships at all levels within these key accounts and securing commitments to use us as a preferred supplier.
We believe that the rental penetration rate will continue to trend towards the levels 1 Table of Contents observed in the broader market, and we believe there will be significant growth within our specific markets. We purchase the majority of our chassis from several Original Equipment Manufacturers (“OEM”) across our geographic footprint.
We believe that the rental penetration rate will continue to trend towards the levels observed in the broader market, and we believe there will be significant growth within our specific markets. 1 Table of Contents On November 6, 2021, the United States Congress passed, and the President of the United States signed, the Infrastructure Investment and Jobs Act (the “Infrastructure Act”).
We are always striving to enhance our employee experience, seeking feedback from employees through our engagement surveys, which helps us identify areas where we can continuously enhance their experience and sense of belonging. We were honored to receive the accolade of “Best Companies to Work For” in Kansas City by Ingram’s in 2022, highlighting our positive work experience.
We are committed to an inclusive work environment where our employees of all backgrounds and experiences can succeed. We are always striving to enhance our employee experience and seek feedback from employees through our engagement surveys, which helps us identify areas where we can continuously enhance our work experience and sense of belonging.
Our Talent We engage in multiple initiatives focused on identifying, hiring and retaining a diverse range of talent. These include engaging with recruiting firms, utilizing job-posting sites, and collaborating with university and vocational technical programs that specialize in connecting companies like us with a diverse array of candidates.
These include a strong employee referral program, engaging with recruiting firms, utilizing job-posting sites, and collaborating with university and vocational technical programs that specialize in connecting companies like ours with an array of candidates. We will continue to review and refine our initiatives as we seek to grow and further broaden the experience of our workforce.
This amended version included approximately $1.2 trillion in spending in new and reallocated funds with positive impacts to each of our end-markets. Electric Utility T&D End-Market Maintaining safe and effective transmission and distribution lines is critical to national infrastructure, as they carry the electricity that powers the nation.
The Infrastructure Act was amended and renamed to the Infrastructure Investment and Jobs Act. This amended version included approximately $1.2 trillion in spending in new and reallocated funds with positive impacts to each of our end-markets.
There will continue to be an increasing need for grid resiliency projects such as fire mitigation and storm hardening, and substantial renewable energy investments will be required in the electric transmission grid. From 2008 to 2020, compound annual growth rates for capital expenditures relating to transmission, distribution and solar were approximately 9%, 6% and 53%, respectively.
Additionally, as the economy “electrifies,” in pursuit of reducing greenhouse gas emissions, electric reliability has become increasingly important. There will continue to be an increasing need for grid resiliency projects such as fire mitigation and storm hardening, and substantial renewable energy investments will be required in the electric transmission grid.
For example, we partner with Hiring Our Heroes, U.S. Chamber of Commerce Foundation, the U.S. Department of Labor, and Military Transition Assistant Programs to recruit veteran candidates to join our team. Our military veteran employees represent 8% of our U.S. workforce and bring valuable attributes and skills to our organization.
We partner with various organizations to support a range of military recruitment efforts, including Hiring Our Heroes, the U.S. Chamber of Commerce and Military Transition Assistant Programs to recruit veteran candidates to join our team and have a rewarding career following their military service.
Moving forward, we will continue to review and refine our initiatives as we seek to grow and further diversify our workforce. We engage with our Veteran Employee Resource Group as a strategic business partner to foster an inclusive culture and positive work experience for our military/veteran employees. We also partner with various organizations to support a range of recruitment efforts.
Our Women Empowered ERG fosters meaningful connections with its 345 members and 201 allies. • We engage with our Veterans ERG as a strategic business partner to support and foster an inclusive culture and positive work experience for our military and veteran employees.
Our specialty equipment is used for these projects, including the maintenance and repair of live lines and installation of new lines. Capital expenditure spend in the electric utility T&D end-market is approximately $65 billion annually.
From 2008 to 2022, compound annual growth rates for capital expenditures relating to transmission, distribution and solar were approximately 7%, 6% and 50%, respectively. Our specialty equipment is used for these projects, including the maintenance and repair of live lines and installation of new lines.
Transmission lines carry high voltage electricity long distances, while distribution lines carry electricity from local transformers to houses and businesses. Additionally, as the economy “electrifies,” in pursuit of reducing greenhouse gas emissions, electric reliability has become increasingly important.
Electric Utility T&D End-Market Maintaining safe and effective transmission and distribution lines is critical to national infrastructure, as they carry the electricity that powers the nation. Transmission lines carry high voltage electricity long distances, while distribution lines carry electricity from local transformers to houses and businesses.
Rail Trucks Trucks equipped with specialty equipment to drive on rail tracks.
Boom Trucks Trucks equipped with a boom mounted on an insulated or non-insulated hydraulic lifting aerial device used to maintain and construct utility, rail, or telecommunication lines. Rail Trucks Trucks equipped with specialty equipment to drive on rail tracks.
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The majority of our boom and crane components are sourced from selected suppliers. On November 6, 2021, the United States Congress passed, and the President of the United States signed, the Infrastructure Investment and Jobs Act (the “Infrastructure Act”). The Infrastructure Act was amended and renamed to the Infrastructure Investment and Jobs Act.
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On April 1, 2021, Nesco Holdings Inc. completed the acquisition of Custom Truck One Source, L.P. and changed its name to “Custom Truck One Source, Inc.” 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.
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In the last five years, 19 states have adopted greenhouse gas emission goals and renewable portfolio standards. The share of new renewables in the U.S. electricity generation mix has been on an upward trend in the last five years and is estimated to continue to increase through 2028.
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From 2010 to 2022, annual spending by the major U.S. wireline, wireless and cable broadband providers has increased from approximately $68 billion to over $102 billion, a CAGR of approximately 15%.
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As a result, approximately 20 times more small cells will need to be installed in order to provide the same level of coverage as the existing macro cells. 2 Table of Contents Rapid technological advancements, including advanced digital and video service offerings, continue to increase demand for greater wireline and wireless network capacity and reliability.
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Municipal solid waste revenue is projected to grow at a compounded annual growth rate of 4.2% globally from 2024 to 2030. Waste is generally considered to be a recession-resistant industry given the non-discretionary nature of waste collection and disposal.
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Our rail mounted equipment is used for a variety of tasks including the installation of new rail and maintenance of the existing rail lines. Ontario Limited (d/b/a HiRail Leasing), Ontario Inc.
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The average years of experience in the industry of our sales personnel is more than 25 years. Our field sales organization and 24-hour support center have developed “first-call” relationships with several of our largest customers while providing significant expertise in the technical nature of the equipment and projects.
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(d/b/a Heavy Equipment Repairs), and Ontario Limited (d/b/a Northshore Rail Contracting) (collectively “HiRail”) equipment is utilized in projects for both installation and repair of track, electric lines, signal crossings, and signs.
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Our digital advertising efficacy is maximized by the following: • We invest in Search Engine Optimization (“SEO”) to maintain top result ranks for search terms we anticipate our customers would use; • We leverage marketing analytics to measure and adapt campaign performance; • We use social media to connect with customers and prospects across an array of core end-user segments, and to source user-generated content of our equipment excelling in use; • We leverage Search Engine Marketing (“SMO”), and regularly adjust our campaign investments to: i. target peak sales and rental seasonality by segment, ii. align with Company inventory levels, and iii. achieve target revenue goals • We advertise available inventory in select industry online marketplaces.
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Underground Equipment Variety of equipment used to place and remove underground utility and telecom lines without disruption to the surface. Trucks and Miscellaneous Equipment HiRail equipment including HiRail service trucks, grapples, roto-dumps, PTC trucks, etc.
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Human Capital We provide a wide range of quality, customized trucks and equipment to people who are building and rebuilding our nation. We are growing rapidly and we understand that we need to attract and leverage an engaged and talented team of people with specialized expertise to deliver the best products and service to our customers.
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The average years of experience in the industry of our sales personnel is more than 20 years.
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Our Culture Our success is enabled by our core values that guide how we interact with each other and our customers, vendors, suppliers, and key stakeholders in our communities. • Care & Respect - We treat each other with respect and show genuine care for one another, our customers, suppliers, and communities where we live and work. • Solve Problems Like A Mechanic - We relish solving problems, our curiosity and true grit enables us to find lasting solutions that meet our customers’ needs. • Driven to Deliver - We own our work, take initiative and use our determination to make our work better and deliver on our commitments and drive results that matter. • Engage Collaboratively - We help each other, we openly share and listen to each other’s ideas and opinions – even when we disagree because we succeed when we work together. • Spark Innovation - We embrace new ways of working; we challenge the status quo and continue to explore and learn to enhance our skills and work.
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Our Culture We promote our core values of Care & Respect, Solve Problems Like A Mechanic, Driven to Deliver, Engage Collaboratively, and Spark Innovation. These values drive our culture and will enable us to achieve our vision. We are committed to a diverse and inclusive work environment where our employees of all backgrounds and experiences can succeed.
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We have an engaged Culture Champion Network, which is comprised of a cross-section of employees from a diverse range of backgrounds who collaborate to strengthen and celebrate our culture. Our Employee Resource Groups (“ERG”s) create a community for our employees who share similar interests. These employee-led groups encourage meaningful connections, support our employee wellbeing, and enable personal and professional growth.
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Our Veterans Employee Resource Group provides support to current and past service members within our organization and in the communities where we operate. We are also proud to partner with Lyrik’s Institution, a school-based behavior support organization, that serves students from the inner city of Kansas City.
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They make CTOS a better, more inclusive place to work while also positively impacting our communities where we live and work. • In 2023, we launched a women’s ERG called “Women Empowered” to propel personal and professional growth. With Women Empowered, we strive to create the best female talent and top contributors of the future.
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In 2022, we provided 20 paid internship opportunities and hired 11 full-time employees from Lyrik’s program. We value lifelong learning and support our employees’ development through a combination of experiential on-the-job learning and formal education. We provide technical and operational training with special emphasis on safety, quality, and customer service.
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Our military and veteran employees represent approximately 7% of our U.S. workforce and bring valuable attributes and skills to our organization.
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This ERG has over 240 members and allies and provides support to current and past service members within our organization and in the communities where we operate. 8 Table of Contents Our Talent Attraction We engage in multiple initiatives focused on identifying, hiring and retaining a varied range of talent.
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We recruit at universities and provide internships across multiple disciplines to attract the best early-career talent. In 2023, we provided 20 paid internship opportunities to students from various vocational high school and university programs. We recruit extensively for external experienced hires to bring in diverse experience and perspectives.
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CTOS believes in giving everyone, including those with prior criminal histories, valuable skills and a rewarding career with a team who respects and genuinely cares about them as individuals. Throughout our rich history, we have given many people second chances.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

54 edited+15 added−11 removed88 unchanged
Biggest changeOur backlog recently increased due to strong demand, as well as shortages of materials, and labor, and may not remain at 9 Table of Contents such levels in the future. Our reported sales order backlog may not be converted to revenue in any particular period and actual revenue from such orders may not equal our backlog.
Biggest changeOur reported sales order backlog may not be converted to revenue in any particular period and actual revenue from such orders may not equal our backlog. Therefore, our sales order backlog may not be indicative of the level of our future revenues.
The level of our indebtedness could have important consequences, including: • a portion of our cash flows from operations is dedicated to debt service and may not be available for other purposes; • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • limiting our ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes, including acquisitions, and potentially impeding our ability to secure favorable lease terms; 13 Table of Contents • exposing us to the risk of increased interest rates, as borrowings under our ABL Facility are subject to variable rates of interest; • making us more vulnerable to economic downturns and industry conditions and possibly limiting our ability to withstand competitive pressures; • placing us at a competitive disadvantage compared to our competitors with less indebtedness; • making it more difficult for us to satisfy our obligations with respect to our debt; and • increasing our cost of borrowing.
The level of our indebtedness could have important consequences, including: • a portion of our cash flows from operations is dedicated to debt service and may not be available for other purposes; • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • limiting our ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes, including acquisitions, and potentially impeding our ability to secure favorable lease terms; • exposing us to the risk of increased interest rates, as borrowings under our ABL Facility are subject to variable rates of interest; • making us more vulnerable to economic downturns and industry conditions and possibly limiting our ability to withstand competitive pressures; • placing us at a competitive disadvantage compared to our competitors with less indebtedness; • making it more difficult for us to satisfy our obligations with respect to our debt; and • increasing our cost of borrowing.
In addition, because our systems may contain sensitive data and information about individuals and businesses, our failure to maintain the security, integrity or confidentiality of the data we hold, whether the result of our own error or the malfeasance or errors of others, could harm our reputation or give rise to legal liabilities leading to lower revenues, increased costs for compliance and systems remediation, increased costs of liability for litigation (including class actions) and regulatory proceedings as well as fines and penalties, result in the misuse of our systems and networks, manipulation and destruction of data, misappropriation of assets or production stoppages and supply shortages, and other potential material adverse effects on our results of operations.
In addition, because our systems may contain sensitive data and information about individuals and businesses, our failure to maintain the security, integrity or confidentiality of the data we hold, whether the result of our insider malfeasance or errors or the malfeasance or errors of others, could harm our reputation or give rise to legal liabilities leading to lower revenues, increased costs for compliance and systems remediation, increased costs of liability for litigation (including class actions) and regulatory proceedings as well as fines and penalties, result in the misuse of our systems and networks, manipulation and destruction of data, misappropriation of assets or production stoppages and supply shortages, and other potential material adverse effects on our results of operations.
If our operating costs increase as our rental equipment fleet ages and we are unable to pass along such costs, our results of operations will be negatively impacted. As of December 31, 2022, the average age of our rental equipment fleet was less than four years. The costs of maintenance may materially increase in the future.
If our operating costs increase as our rental equipment fleet ages and we are unable to pass along such costs, our results of operations will be negatively impacted. As of December 31, 2023, the average age of our rental equipment fleet was less than four years. The costs of maintenance may materially increase in the future.
As a result, we may be unable to anticipate or prevent future attacks, particularly as the methodologies utilized by attackers change frequently or are not recognized until launched, and we may be unable to identify, investigate or remediate incidents due to the increased use by threat actors of tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.
As a result, we may be unable to anticipate or prevent future attacks, particularly as the methodologies utilized by attackers change frequently or are not recognized until launched, and we may be unable to identify, investigate or remediate incidents due to the increased use by threat actors of tools and techniques—including artificial intelligence— that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.
Competition for skilled technicians in our industry, especially during periods of low unemployment or periods of high demand, could increase our labor costs and hinder our ability to meet customer demand, which could have a material adverse effect on our business, financial condition and results of operations. A number of key personnel are critical to the success of our business.
Competition for skilled technicians in our industry, especially during periods of low unemployment or periods of high demand, could increase our labor costs and hinder our ability to meet customer demand, which could have a material adverse effect on our business, financial condition and results of operations. 11 Table of Contents A number of key personnel are critical to the success of our business.
Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness. The Indenture and the ABL Credit Agreement impose significant operating and financial restrictions on our company and our subsidiaries, which may prevent us from capitalizing on business opportunities.
Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness. 15 Table of Contents The Indenture and the ABL Credit Agreement impose significant operating and financial restrictions on our company and our subsidiaries, which may prevent us from capitalizing on business opportunities.
Further, any compromise or breach of IT systems or data could result in adverse publicity, harm our reputation, lead to claims against us and affect our relationships with our customers and employees, and require significant resources for remediation and compliance purposes, any of which could have a material adverse effect on our business.
Further, any compromise or breach of IT systems or Confidential Information could result in adverse publicity, harm our reputation, lead to claims against us and affect our relationships with our customers and employees, and require significant resources for remediation and compliance purposes, any of which could have a material adverse effect on our business.
As a small portion of our workforce is unionized, we are subject to risk of work stoppages and other labor relations matters. As of December 31, 2022, approximately 2.5% of the U.S. hourly workers of the Company were represented by a labor union and were covered by a collective bargaining agreement.
As a small portion of our workforce is unionized, we are subject to risk of work stoppages and other labor relations matters. As of December 31, 2023, approximately 2% of the U.S. hourly workers of the Company were represented by a labor union and were covered by a collective bargaining agreement.
We currently make, and in future may be required to make additional capital expenditures to comply with environmental and other regulations, such as: • Applicable motor vehicle safety standards established by the National Highway Traffic Safety Administration; 16 Table of Contents • Emissions or other standards related to climate change as established by international, federal, state and local regulatory bodies; • Reclamation and remediation and other environmental protection; and • Standards for workplace safety established by the Occupational Safety and Health Administration.
We currently make, and in future may be required to make additional capital expenditures to comply with environmental and other regulations, such as: • Applicable motor vehicle safety standards established by the National Highway Traffic Safety Administration; • Emissions or other standards related to climate change as established by international, federal, state and local regulatory bodies; • Reclamation and remediation and other environmental protection; and • Standards for workplace safety established by the Occupational Safety and Health Administration.
Our ability to achieve the planned synergies is dependent upon a significant number of factors, many of which are beyond our control, such as our ability to integrate businesses that we acquire (including the integration of Nesco and Custom Truck LP), operating difficulties, increased operating costs, delays in implementing initiatives and general economic, competitive or industry conditions.
Our ability to achieve the planned synergies is dependent upon a significant number of factors, many of which are beyond our control, such as our ability to integrate businesses that we acquire (including the integration of Nesco and Custom Truck LP (each term as defined below)), operating difficulties, increased operating costs, delays in implementing initiatives and general economic, competitive or industry conditions.
Our rental equipment has a long economic life, and managing this equipment is a critical element of our business. We must successfully maintain and repair our equipment in a cost-effective manner to maximize the economic life of our products and the level of proceeds from the sale of such products.
Our rental equipment has a long economic life, and managing this equipment is a critical element of our business. We must successfully maintain and repair our equipment in a cost-effective manner to maximize the economic life of our products and the level 10 Table of Contents of proceeds from the sale of such products.
If any actual or perceived security or disruptive attacks, breaches or incidents are not detected or deflected by our current security measures, we could also be required to expend additional capital and other resources, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.
If any actual or perceived security or disruptive attacks, breaches or incidents are not detected or deflected by our current security measures, 17 Table of Contents we could also be required to expend additional capital and other resources, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.
The security and integrity, or the perception thereof, of our information technology systems and assets (“IT systems”) are critical to our business and ability to monitor and control our operations, deliver our products and services, and adjust to changing market 15 Table of Contents conditions.
The security and integrity, or the perception thereof, of our information technology systems and assets (“IT systems”) are critical to our business and ability to monitor and control our operations, deliver our products and services, and adjust to changing market conditions.
With respect to the ABL Facility, on any date when Availability (as defined in the ABL Credit Agreement) is less than the greater of (i) 10% of the lesser of (A) the aggregate 14 Table of Contents revolving commitments under the ABL Facility at such time and (B) the borrowing base at such time (such lesser amount, the “Line Cap”) and (ii) $60 million, we will also be required by a springing covenant to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00, tested for the four fiscal quarter period ending on the last day of the most recently ended fiscal quarter for which financials have been delivered, and at the end of each succeeding fiscal quarter thereafter until the date on which Availability has been equal to or greater than the greater of (x) 10% of the Line Cap and (y) $56 million for five consecutive business days.
With respect to the ABL Facility, on any date when Specified Excess Availability (as defined in the ABL Credit Agreement) is less than the greater of (i) 10% of the lesser of (A) the aggregate revolving commitments under the ABL Facility at such time and (B) the borrowing base at such time (such lesser amount, the “Line Cap”) and (ii) $60 million, we will also be required by a springing covenant to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00, tested for the four fiscal quarter period ending on the last day of the most recently ended fiscal quarter for which financials have been delivered, and at the end of each succeeding fiscal quarter thereafter until the date on which Specified Excess Availability has been equal to or greater than the greater of (x) 10% of the Line Cap and (y) $60 million for 30 consecutive calendar days.
Integrating acquired businesses is a complex, costly and time-consuming process, and we cannot assure you that we will be able to successfully integrate them or, if the integration is successfully accomplished, that the integration will not be more costly or take longer than presently contemplated.
Integrating acquired businesses is a complex, costly and time-consuming process, and we cannot assure you that 13 Table of Contents we will be able to successfully integrate them or, if the integration is successfully accomplished, that the integration will not be more costly or take longer than presently contemplated.
Global consumer protection, data privacy and cybersecurity rules, regulations and industry standards are rapidly evolving, including laws like the California Consumer Privacy Act and California Privacy Rights Act, which provide for a private right of action for certain types of data breaches and create compliance obligations around user choice, data subject rights and transparency, among others.
Global consumer protection, data privacy and cybersecurity rules, regulations and industry standards are rapidly evolving, including laws like the California Consumer Privacy Act, as amended by the California Privacy Rights Act (collectively, the “CCPA”), which provide for a private right of action for certain types of data breaches and create compliance obligations around user choice, data subject rights and transparency, among others.
Platinum may also pursue acquisition opportunities that may be complementary to our business and, as a result, these acquisition opportunities may not be available to us. Risks Related to the Company’s Indebtedness We have, and may incur, significant indebtedness and may be unable to service our debt.
Platinum may also pursue acquisition opportunities that may be complementary to our business and, as a result, these acquisition opportunities may not be available to us. 14 Table of Contents Risks Related to the Company’s Indebtedness We have, and may incur, significant indebtedness and may be unable to service our debt.
Any significant decline in the selling prices for used equipment could have a material adverse effect on our business, financial condition and results of operations. Our business is highly dependent on the timely and sufficient delivery of finished goods, such as commercial vehicles, from our suppliers. We depend on the timely and sufficient delivery of finished goods from our suppliers.
Any significant decline in the selling prices for used equipment could have a material adverse effect on our business, financial condition and results of operations. 12 Table of Contents Our business is highly dependent on the timely and sufficient delivery of finished goods, such as commercial vehicles, from our suppliers.
Many of our customers operate in regulated industries (for example, electric utility T&D, telecom, rail, forestry, waste management and infrastructure) and are subject to laws and regulations that can change frequently and without notice.
Many of our customers operate in regulated industries (for example, electric utility T&D, telecom, rail, and general infrastructure) and are subject to laws and regulations that can change frequently and without notice.
These risks and uncertainties could adversely impact our business, financial condition and operating results, and include, among other things: • our ability to complete the timely integration of operations and systems, organizations, standards, controls, procedures, policies and technologies, as well as the harmonization of differences in business cultures; • our ability to minimize the diversion of management attention from ongoing business concerns during the integration process; • our ability to retain the service of key management and other key personnel; • our ability to preserve customer, supplier and other important relationships and resolve potential conflicts that may arise; • the risk that acquired businesses may have liabilities that we failed to discover or fully appreciate in the course of performing due diligence; • difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination; and • difficulties in managing the expanded operations of a larger and more complex combined company. 12 Table of Contents We may encounter additional integration-related costs, fail to realize all of the benefits anticipated or be subject to other factors that adversely affect preliminary estimates of synergies.
These risks and uncertainties could adversely impact our business, financial condition and operating results, and include, among other things: • our ability to complete the timely integration of operations and systems, organizations, standards, controls, procedures, policies and technologies, as well as the harmonization of differences in business cultures; • our ability to minimize the diversion of management attention from ongoing business concerns during the integration process; • our ability to retain the service of key management and other key personnel; • our ability to preserve customer, supplier and other important relationships and resolve potential conflicts that may arise; • the risk that acquired businesses may have liabilities that we failed to discover or fully appreciate in the course of performing due diligence; • difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination; and • difficulties in managing the expanded operations of a larger and more complex combined company.
In addition, in the ordinary course of business, we and/or our service providers generate, collect, process and store sensitive information and data, including intellectual property, our proprietary business data and that of our customers, suppliers and business partners, as well as personally identifiable information.
In addition, in the ordinary course of business, we and/or our service providers generate, collect, process and store sensitive information and data, including intellectual property, our proprietary business data and that of our customers, suppliers and business partners, as well as personal information (collectively, “Confidential Information”).
Any successful or perceived cyberattack, compromise, breach, or disruption involving, or in relation to, our or our service providers’ IT systems or data, or the failure of any IT systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our operations and adjust to changing market conditions.
Any successful or perceived cyberattack, compromise, breach, or disruption involving, or in relation to, our or our service providers’ IT systems or Confidential Information, or the failure of any IT systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our operations, adjust to changing market conditions and maintain the effectiveness of our internal control over financial reporting.
While we may in the future engage in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others) or commitments to improve the ESG profile of our company and/or products, such initiatives or achievements of such commitments may be costly and may not have the desired effect.
In the past year, we have published our inaugural ESG report, and we may in the future engage in additional voluntary ESG initiatives (such as voluntary disclosures, certifications, or goals, among others) or commitments to improve the ESG profile of our company and/or our products; such initiatives or achievements of such commitments may be costly and may not have the desired effect.
If operations at any of these production and manufacturing locations were disrupted as a result of public health concerns, equipment failures, natural disasters, work stoppages, power outages or other reasons, our business, financial condition and results of operations could be adversely affected. Interruptions in production could increase costs and delay delivery of units in production.
We have several significant production and manufacturing locations. If operations at any of these production and manufacturing locations were disrupted as a result of public health concerns, equipment failures, natural disasters, work stoppages, power outages or other reasons, our business, financial condition and results of operations could be adversely affected.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual consolidated financial statements will not be prevented or detected on a timely basis. We have developed and are implementing a plan to remediate the material weakness.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual consolidated financial statements will not be prevented or detected on a timely basis.
This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties and generally materially and adversely impact our business and financial condition. We are subject to a series of risks related to climate change.
This failure could 18 Table of Contents negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties and generally materially and adversely impact our business and financial condition.
In addition, our inventory has increased recently as part of our measures to manage supply chain challenges. 10 Table of Contents Due to changing demands of our customers, the types of equipment we rent or sell to our customers may become obsolete, resulting in a negative impact on our results of operations and financial condition due to, with respect to our rental fleet, increased capital expenditures required to replace the obsolete equipment, and our potential inability to sell the obsolete equipment in the used equipment market.
Due to changing demands of our customers, the types of equipment we rent or sell to our customers may become obsolete, resulting in a negative impact on our results of operations and financial condition due to, with respect to our rental fleet, increased capital expenditures required to replace the obsolete equipment, and our potential inability to sell the obsolete equipment in the used equipment market.
Therefore, our sales order backlog may not be indicative of the level of our future revenues. A small portion of our workforce is unionized, and more of our workforce could become unionized in the future, which could negatively impact the stability of our production, materially reduce our profitability and increase the risk of work stoppages.
A small portion of our workforce is unionized, and more of our workforce could become unionized in the future, which could negatively impact the stability of our production, materially reduce our profitability and increase the risk of work stoppages.
Our sales order backlog represents future production for which we have written orders from our customers for customized and stock equipment. Orders that comprise our backlog may be subject to change in quantities, delivery, specifications and terms, or cancellation.
Our sales order backlog represents future production for which we have written orders from our customers for customized and stock equipment. Orders that comprise our backlog may be subject to change in quantities, delivery, specifications and terms, or cancellation. Our backlog remains strong despite a year-over-year decrease, and may not remain at such levels in the future.
Borrowings under our ABL Facility are at variable rates of interest, which will expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even if the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.
If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even if the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.
The market value of used rental equipment depends on several factors, including: • the market price for new equipment of a like kind; • wear and tear on the equipment relative to its age; • the time of year that it is sold (prices are generally higher during the construction seasons); • worldwide and domestic demand for used equipment; • the supply of used equipment on the market; and • general economic conditions.
The market value of used rental equipment depends on several factors, including: • the market price for new equipment of a like kind; • wear and tear on the equipment relative to its age; • worldwide and domestic demand for used equipment; • the supply of used equipment on the market; and • general economic conditions.
Such increases could materially impact our financial condition and results of operations in future periods if we are not able to pass such cost increases through to our customers in the form of higher prices.
Such increases could materially impact our financial condition and results of operations in future periods if we are not able to pass such cost increases through to our customers in the form of higher prices. In addition, our inventory has increased recently as part of our measures to manage supply chain challenges.
As of December 31, 2022, our total indebtedness was $1,394.4 million, consisting of $920.0 million in aggregate principal amount of the 2029 Secured Notes, $437.7 million of borrowings under our Asset Based Lending (“ABL”) Facility and finance lease and other debt obligations of $36.7 million (excluding approximately $430.2 million of indebtedness under our floorplan financing agreements).
As of December 31, 2023, our total indebtedness was $1,517.8 million, consisting of $920.0 million in aggregate principal amount of the 2029 Secured Notes, $552.4 million of borrowings under our Asset Based Lending (“ABL”) Facility and other debt obligations of $45.4 million (excluding approximately $662.3 million of indebtedness under our floorplan financing agreements).
Moreover, actions or statements that we may take based on expectations, assumptions, or third-party information that we currently believe to be reasonable may subsequently be determined to be erroneous or be subject to misinterpretation.
Moreover, actions or statements that we have taken and may take in the future based on expectations, assumptions, methodologies, or third-party information that we currently believe to be reasonable may subsequently be determined to be erroneous, insufficient, unaligned with stakeholder expectations, or be subject to misinterpretation.
If we fail to retain and recruit the necessary personnel, our business and our ability to retain customers and provide acceptable levels of customer service could suffer. A material disruption to our operation and manufacturing locations could adversely affect our ability to generate revenue. We have several significant production and manufacturing locations.
Competition for experienced managers and skilled technicians in our industry can be intense. If we fail to retain and recruit the necessary personnel, our business and our ability to retain customers and provide acceptable levels of customer service could suffer. A material disruption to our operation and manufacturing locations could adversely affect our ability to generate revenue.
Risks Related to Information Technology, Cybersecurity and Data Privacy Disruptions or security compromises affecting our information technology systems or those of our critical service providers could adversely affect our operating results by subjecting us to liability, and limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, or implement strategic initiatives.
However, we may not maintain interest rate swaps with respect to any of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk. 16 Table of Contents Risks Related to Information Technology, Cybersecurity and Data Privacy Disruptions or security compromises affecting our information technology systems or those of our critical service providers could adversely affect our operating results by subjecting us to liability, and limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, or implement strategic initiatives.
For example, the SEC has proposed a rule that, if finalized, may require us to incur significant costs to assess and disclose on a range of climate-related data and risks.
Reporting expectations are also increasing, with a variety of customers, capital providers, and regulators seeking increased information on climate related risks. For example, the SEC has proposed a rule that, if finalized, may require us to incur significant costs to assess and disclose on a range of climate-related data and risks.
Production capacity limits could cause us to reduce or delay sales efforts until production capacity is available.
Interruptions in production could increase costs and delay delivery of units in production. Production capacity limits could cause us to reduce or delay sales efforts until production capacity is available.
Complying with any new or changing legal and regulatory requirements could force us to incur substantial expenses or require us to change our business practices in a manner that could harm our business.
The requirements of such laws and regulations, as well as their application and interpretation, are constantly evolving and developing. Complying with such new or changing legal and regulatory requirements could force us to incur substantial expenses or require us to change our business practices in a manner that could harm our business.
In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to any of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.
In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility.
For example, expectations around company’s management of ESG matters continues to evolve rapidly, in many instances due to factors that are out of our control. In addition, we may commit to certain initiatives or goals and we may not ultimately be able to achieve such commitments or goals due to factors that are within or outside of our control.
In addition, we have and may continue to commit to certain initiatives or goals and we may not ultimately be able to achieve such commitments or goals due to factors that are within or outside of our control.
An unexpected change in customer financial condition or future economic uncertainty could result in additional requirements for specific reserves, which could have a negative impact on our consolidated financial position. 11 Table of Contents Uncertainty relating to macroeconomic conditions may reduce demand for our products and services, resulting in non-performance of contracts by our lessees, limit our ability to obtain additional capital to finance new investments, or have other unforeseen negative effects.
Uncertainty relating to macroeconomic conditions may reduce demand for our products and services, resulting in non-performance of contracts by our lessees, limit our ability to obtain additional capital to finance new investments, or have other unforeseen negative effects.
There are inherent climate-related risks wherever business is conducted.
We are subject to a series of risks related to climate change. There are inherent climate-related risks wherever business is conducted.
As of December 31, 2022, we have variable rate debt, consisting of $437.7 million outstanding under the ABL Facility. Holding other variables constant, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense on the ABL Facility by approximately $0.5 million per year.
Holding other variables constant, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense on the ABL Facility and floor plan financing arrangements by approximately $1.5 million per year.
Certain market participants, including major institutional investors and capital providers, use third-party benchmarks and scores to assess companies’ ESG profiles in making investment or voting decisions. Unfavorable ESG ratings could lead to increased negative investor sentiment towards us or our industry, which could negatively impact our share price as well as our access to and cost of capital.
Unfavorable ESG ratings could lead to increased negative investor sentiment towards us and/or our industry, which could negatively impact our share price as well as our access to and cost of capital.
In addition, our profit margins would decrease if prices of purchased raw materials, component parts or finished goods increase and we are unable to pass on those increases to our customers. Our sales order backlog may not be indicative of the level of our future revenues.
In addition, our profit margins would decrease if prices of purchased raw materials, component parts or finished goods increase and we are unable to pass on those increases to our customers. The Company is subject to competition, which may have a material adverse effect on the Company’s business by reducing the Company’s ability to increase or maintain revenues or profitability.
We and our service providers have experienced and expect to continue to experience cyberattacks and security incidents that impact our IT systems and data.
We face evolving cybersecurity risks that threaten the confidentiality, integrity, and availability of our IT systems and Confidential Information, and we and our service providers have experienced and expect to continue to experience cyberattacks and security incidents.
Despite various security controls and measures, we and third parties remain vulnerable to cyberattacks and security incidents resulting from malware (e.g., ransomware), computer viruses, software and hardware vulnerabilities, malfeasance by external or internal actors, and/or incidents attributable to human error (e.g., due to social engineering or phishing).
Despite various security controls and measures, we and third parties remain vulnerable to cyberattacks and security incidents resulting from malware (e.g., ransomware), computer viruses, software and hardware vulnerabilities, malfeasance by external or internal actors (including state-sponsored organizations, opportunistic hackers and hacktivists, and insider data misappropriation), and/or incidents attributable to human error (e.g., due to social engineering or phishing), as well as malicious code embedded in open-source software, or misconfigurations, “bugs” or other vulnerabilities in commercial software that is integrated into our (or our third parties’) IT systems, products or services.
Additionally, due to our legacy as a combination of several family-operated businesses, a number of our key employees have family relationships within our organization and our inability to retain those individuals could have a negative impact on our business. Competition for experienced managers and skilled technicians in our industry can be intense.
Additionally, due to our legacy as a combination of several family-operated businesses, a number of our key employees have deep institutional knowledge and family relationships within our organization. An inability to retain these individuals or ensure smooth transitions with timely and effective transfers of knowledge could have a negative impact on our business.
Recorded reserves represent our estimate of current expected credit losses on existing receivables and are determined based on historical customer assessments, current financial conditions, and reasonable and supportable forecasts.
Recorded reserves represent our estimate of current expected credit losses on existing receivables and are determined based on historical customer assessments, current financial conditions, and reasonable and supportable forecasts. An unexpected change in customer financial condition or future economic uncertainty could result in additional requirements for specific reserves, which could have a negative impact on our consolidated financial position.
The material weakness will not be remediated until all necessary internal controls have been implemented, tested and determined to be operating effectively.
We have developed and are implementing a plan to remediate the material weakness and in fiscal year 2023, management concluded that the material weakness related to ITGCs was remediated. The material weakness related to business process level controls will not be remediated until all necessary internal controls have been implemented, tested and determined to be operating effectively.
Additionally, there are several competing alternatives to replace petroleum-based fuels for vehicles, including but not limited to: electricity, hydrogen, and compressed and/or renewable gas.
Additionally, there are several competing alternatives to replace petroleum-based fuels for vehicles, including but not limited to: electricity, hydrogen, and compressed and/or renewable gas. To the extent potential customers prefer technologies different from those used in the vehicles we develop and manufacture, then demand for such vehicles may not develop as quickly as we expect, or at all.
Cybersecurity risks due to work-from-home arrangements at the Company and third parties have presented additional opportunities for threat actors to engage in social engineering (for example, phishing) and to exploit vulnerabilities in non-corporate networks.
Cybersecurity risks due to work-from-home arrangements at the Company and third parties have increased due to the challenges associated with managing remote computing assets and the security vulnerabilities in many non-corporate and home networks.
Removed
Our success depends in large part upon our ability to retain our senior management, the loss of one or more of whom could have a material adverse effect on our business.
Added
The equipment dealership and rental industries are highly competitive and fragmented. Many of the markets in which the Company operates are served by a large number of competitors, ranging from national and multi-regional equipment rental companies to small, independent businesses with a limited number of locations.
Removed
Supply chain disruptions, such as the ongoing semiconductor shortage, have impacted us and in the future could continue to limit the ability of our suppliers to meet demand in future periods.
Added
Some of the Company’s competitors may have significantly greater financial, marketing, and other resources than the Company does, and may be able to reduce rental rates or sales prices in the market and erode customer loyalty, which could negatively impact our business.
Removed
The assumptions and estimates underlying the pro forma cost synergies we report from time to time are inherently uncertain and, although considered reasonable by our management as of the date of this report, are subject to significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the financial projections, including, among others, risks and uncertainties due to general business, economic, regulatory, market and financial conditions, as well as changes to our businesses, financial condition or results of operations, and other risks and uncertainties included in this “Risk Factors” section.
Added
The Company may encounter increased competition from existing competitors or new market entrants in the future, which could have a material adverse effect on the Company’s business, financial condition and results of operations. Our sales order backlog may not be indicative of the level of our future revenues.
Removed
The phase-out of LIBOR, and uncertainty as to its replacement, may adversely affect our business. On July 27, 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR after 2021 after which time it can no longer guarantee its availability.
Added
We depend on the timely and sufficient delivery of finished goods from our suppliers.
Removed
In March 2021, the ICE Benchmark Administration Limited, the administrator of LIBOR, extended the transition dates of certain LIBOR tenors to June 30, 2023, after which LIBOR reference rates will cease to be provided. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. Dollar LIBOR should be entered into after December 31, 2021.
Added
We may encounter additional integration-related costs, fail to realize all of the benefits anticipated or be subject to other factors that adversely affect preliminary estimates of synergies.
Removed
It is unknown whether any banks will continue to voluntarily submit rates for the calculation of LIBOR, or whether LIBOR will continue to be published by its administrator based on these submissions, or on any other basis, after such dates.
Added
Borrowings under our ABL Facility and floor plan financing arrangements are at variable rates of interest, which will expose us to interest rate risk.
Removed
Although alternative reference rates have been proposed, it is unknown at this point which of these alternative reference rates will attain market acceptance as replacements for LIBOR. Certain of our agreements make reference to LIBOR.
Added
As of December 31, 2023, we have variable rate debt, consisting of $1,214.7 million outstanding under the ABL Facility and floor plan financing arrangements.
Removed
To prepare for the phase out of LIBOR, we may need to renegotiate these agreements and may not be able to do so on terms that are favorable to us. It is also currently unknown what impact any contract modification will have on our financial statements.
Added
There can also be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT systems and Confidential Information.
Removed
Further, the financial markets may be disrupted as a result of the phase out of LIBOR if banks fail to execute a smooth transition to an alternate rate.
Added
For example, expectations around company’s management of ESG matters continues to evolve rapidly, in many instances due to factors that are out of our control.
Removed
Disruption in the financial markets or the inability to renegotiate our agreements to remove and replace LIBOR on favorable terms, or a negative impact from any contract modifications, could have an adverse effect on our business, financial condition, and results of operations.
Added
Certain such expectations, assumptions and methodologies are necessarily uncertain due to the long timelines involved and the varying approaches to identifying, assessing, addressing, and reporting on ESG matters.
Removed
To the extent potential customers prefer technologies different from those used in the vehicles we develop and manufacture, then demand for such vehicles may not develop as quickly as we expect, or at all. 17 Table of Contents Reporting expectations are also increasing, with a variety of customers, capital providers, and regulators seeking increased information on climate related risks.
Added
Our disclosures on these matters, a failure to satisfy evolving stakeholder expectations for ESG practices and reporting, or a failure to meet our commitments or targets on our established timeline may potentially harm our reputation and negatively impact relationships with certain investors and other stakeholders.
Added
In addition, various policymakers have adopted, or are considering adopting, requirements for extensive disclosures on climate-related and/or other ESG information, which may require us to incur significant additional costs to comply, including the implementation of significant new internal controls on matters historically not subject to such controls, and impose increased oversight obligations on our management and board.
Added
Simultaneously, there are efforts by some stakeholders to reduce companies’ efforts on certain ESG-related matters. Both advocates and opponents to certain ESG matters are increasingly resorting to a range of activism forms, including media campaigns and litigation, to advance their perspectives.
Added
To the extent we are subject to such activism, it may require us to incur costs or otherwise adversely impact our business. This and other stakeholder expectations will likely lead to increased costs as well as 19 Table of Contents scrutiny that could heighten all of the risks identified in this risk factor.
Added
Additionally, many of our business partners and suppliers may be subject to similar expectations, which may augment or create additional risks, including risks that may not be known to us. Certain market participants, including major institutional investors and capital providers, use third-party benchmarks and scores to assess companies’ ESG profiles in making investment or voting decisions.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur one-stop shop approach focuses on providing the products and services offered by each of our segments at each of our locations. 18 Table of Contents Location Type 7701 Independence Avenue, Kansas City, MO United States Owned 6714 Inverness Way and 7413 Sr 930 E Fort Wayne/New Haven, IN United States Leased 11669 226 St Lot 9, Acheson, AB Canada Leased 9230 51 St SE Calgary, AB Canada Leased 29 Perini RD, Elliot Lake, ON Canada Leased 4045 Hwy 5 and 2665 South Rockwood Cabot, AR United States Leased 655 E 20Th St Yuma, AZ United States Leased 4500 State Rd and 1032 Black Gold Rd Bakersfield, CA United States Leased 14670 Randall Ave Fontana, CA United States Leased 10808 Weaver Ave South El Monte, CA United States Leased 705 W 62Nd Ave Denver, CO and 5455 E 52Nd Ave Commerce City, CO United States Leased 4729 Capital Cir Nw and 4755DI Capital Cir Nw Tallahassee, FL United States Leased 9879 Us Hwy 301 N; 7906 Baseline Ct and 8949 Maislin Rd Tampa, FL United States Leased 3112 E State Rd 124 Bluffton, IN United States Leased 5323 Kansas Ave Kansas City, KS United States Leased 10740 Nall Ave Overland Park, KS United States Leased 9230 Cedar Knoll Dr Grass Lake, MI United States Leased 2370 English St Maplewood and 2384 English St Maplewood, MN United States Leased 2109 Manchester Trafficway and 6501 E.
Biggest changeOur one-stop shop approach focuses on providing the products and services offered by each of our segments at each of our locations. 21 Table of Contents Location Type 7701 Independence Avenue, Kansas City, MO United States Owned 7413 Sr 930 E Fort Wayne/New Haven, IN United States Leased 11102 261 St,, Acheson, AB Canada Leased 9230 51 St SE Calgary, AB Canada Leased 127 Earl Thompson PL, Ayr, ON Canada Leased 29 Perini RD, Elliot Lake, ON Canada Leased 4045 Hwy 5 and 2665 South Rockwood Cabot, AR United States Leased 655 E 20Th St Yuma, AZ United States Leased 4500 State Rd and 1032 Black Gold Rd Bakersfield, CA United States Leased 14670 Randall Ave Fontana, CA United States Leased 5455 E 52nd Ave Commerce City, CO United States Leased 4729 Capital Cir Nw and 4755DI Capital Cir Nw Tallahassee, FL United States Leased 9879 Us Hwy 301 N; 7906 Baseline Ct and 8949 Maislin Rd Tampa, FL United States Leased 3112 E State Rd 124 Bluffton, IN United States Leased 5323 Kansas Ave Kansas City, KS United States Leased 10740 Nall Ave Overland Park, KS United States Leased 9230 Cedar Knoll Dr Grass Lake, MI United States Leased 2370 English St Maplewood; 2450 Maplewood Ave; 2384 English St Maplewood, MN United States Leased 2109 Manchester Trafficway and 6501 E.
Commerce Ave, Suite 200 Kansas City, MO United States Leased 2770 5Th Ave S Fargo, ND United States Leased 6 Sutton Cir and Unit 2 Sutton Cir Condominium Hooksett, NH United States Leased 1400 Union Lndg Rd and 1850 Union Lndg Rd Cinnaminson, NJ United States Leased 6708 Townline Rd Syracuse, NY United States Leased 3522 Middlebranch Rd NE Canton, OH United States Leased 3205 Davinion Rd El Reno, OK United States Leased 300 Johnson St and 370 Johnson St Wilkes Barre, PA United States Leased 1400 E Hwy 67 Alvarado, TX United States Leased 2801 N Earl Rudder FWY, Bryan TX United States Leased 7200 Jack Newell Blvd S and 7525 Pebble Dr Bldg 24 Fort Worth, TX United States Leased 18725 Mckay Blvd Humble, TX United States Leased 12519 W I-20 Odessa, TX United States Leased 9775 E Lynchburg Salem Tpke Forest, VA United States Leased 26109 & 26119 United Rd NE and 26129 Calvary Kingston, WA United States Leased 5734 Minder Rd Ste A-1 Poulsbo, WA United States Leased 11139 W Becher St West Allis, WI United States Leased 2900 Rissler Rd Sedalia, MO United States Owned 4334 Snapfinger Woods Dr Atlanta, GA United States Owned 1700 Leider Dr Union Grove, WI United States Owned 12660 E Lycshburg Salem Turnpike Lynchburgh, VA United States Owned 702 East Rose St Elk Point, SD United States Owned We believe that all of our properties are in good operating condition and are suitable to adequately meet our current needs. 19 Table of Contents
Commerce Ave, Suite 200 Kansas City, MO United States Leased 2770 5th Ave S Fargo, ND United States Leased 6 Sutton Cir and Unit 2 Sutton Cir Condominium Hooksett, NH United States Leased 1400 Union Lndg Rd and 1850 Union Lndg Rd Cinnaminson, NJ United States Leased 6708 Townline Rd Syracuse, NY United States Leased 3522 Middlebranch Rd NE Canton, OH United States Leased 3205 Davinion Rd El Reno, OK United States Leased 300 Johnson St and 370 Johnson St Wilkes Barre, PA United States Leased 1400 E Hwy 67 Alvarado, TX United States Leased 2801 N Earl Rudder FWY, Bryan TX United States Leased 7200 Jack Newell Blvd S and 7525 Pebble Dr Bldg 24 Fort Worth, TX United States Leased 18725 Mckay Blvd Humble, TX United States Leased 12519 W I-20 Odessa, TX United States Leased 9775 E Lynchburg Salem Tpke Forest, VA United States Leased 26109 & 26119 United Rd NE and 26129 Calvary Kingston, WA United States Leased 5734 Minder Rd Ste A-1 Poulsbo, WA United States Leased 11139 W Becher St West Allis, WI United States Leased 5065 140th Ave NW, Williston, ND United States Leased 2900 Rissler Rd Sedalia, MO United States Owned 4334 Snapfinger Woods Dr Atlanta, GA United States Owned 21209 & 21115 Durand Ave; 4601 Haag Dr, Union Grove, WI United States Leased 1700 Leider Dr Union Grove, WI United States Owned 12660 E Lycshburg Salem Turnpike Lynchburgh, VA United States Owned 702 East Rose St Elk Point, SD United States Owned We believe that all of our properties are in good operating condition and are suitable to adequately meet our current needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeIn the opinion of management, there are no pending litigations, disputes or claims against the Company that, if decided adversely, would have a material adverse effect on its consolidated financial condition, cash flows or results of operations.
Biggest changeIn the opinion of management, there are no pending litigations, disputes or claims against the Company that, if decided adversely, would have a material adverse effect on its consolidated financial condition, cash flows or results of operations. 22 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−0 removed4 unchanged
Biggest changeThe following table contains information regarding our purchases of our common stock during the three months ended December 31, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in $000s) October 1, 2022 to October 31, 2022 680,754 $ 6.28 680,423 $ 23,977 November 1, 2022 to November 30, 2022 381,855 $ 6.33 381,855 $ 21,562 December 1, 2022 to December 31, 2022 381,188 $ 6.37 288,401 $ 19,721 1,443,797 $ 6.31 1,350,679
Biggest changeThe following table contains information regarding our purchases of our common stock during the three months ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in $000s) October 1, 2023 to October 31, 2023 963,210 $ 5.64 963,210 $ 47,813 November 1, 2023 to November 30, 2023 1,172,997 $ 5.22 1,172,997 $ 41,692 December 1, 2023 to December 31, 2023 1,124,938 $ 6.83 1,071,885 $ 34,339 Total 3,261,145 $ 5.90 3,208,092
Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases depending on market conditions and corporate needs. We purchased and held in treasury 93,118 shares for tax withholding purposes related to our equity compensation plans during the fourth quarter of 2022.
Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases depending on market conditions and corporate needs. We purchased and held in treasury 53,053 shares for tax withholding purposes related to our equity compensation plans during the fourth quarter of 2023.
As of March 8, 2023, there were approximately 68 holders of record of our common stock and 14 holders of record of warrants. Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities There were no sales of unregistered securities by the Company during the year ended December 31, 2022.
As of March 1, 2024 , there were approximately 67 holders of record of our common stock and 14 holders of record of warrants. Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities There were no sales of unregistered securities by the Company during the year ended December 31, 2023.
Issuer Purchases of Equity Securities On August 2, 2022, our Board of Directors authorized a stock repurchase program for up to $30.0 million of the Company’s common stock. This authorization does not have an expiration date.
Issuer Purchases of Equity Securities On August 2, 2022, our Board of Directors authorized a stock repurchase program for up to $30.0 million of the Company’s common stock.
It is presently intended that we will retain our earnings for use in business operations and, accordingly, it is not anticipated that our board of directors will declare dividends in the foreseeable future. In addition, the terms of our ABL and the Indenture include restrictions on our ability to issue dividends.
It is presently intended that we will retain our earnings for use in business operations and, accordingly, it is not anticipated that our board of directors will declare dividends in the foreseeable future.
Added
The Company exhausted this program during 2023 and on September 14, 2023, the Board of Directors approved a stock repurchase program that authorizes additional repurchases of up to $25 million of shares of the Company’s common stock. The authorization does not have an expiration date.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

82 edited+32 added−128 removed48 unchanged
Biggest changeConsolidated Results of Operations Year Ended December 31, (in $000s) 2022 % of revenue 2021 % of revenue $ Change % of change Rental revenue $ 464,039 29.5% $ 370,067 31.7% $ 93,972 25.4% Equipment sales 982,341 62.4% 695,334 59.6% 287,007 41.3% Parts sales and services 126,706 8.1% 101,753 8.7% 24,953 24.5% Total revenue 1,573,086 100.0% 1,167,154 100.0% 405,932 34.8% Cost of revenue, excluding rental equipment depreciation 1,017,635 64.7% 800,031 68.5% 217,604 27.2% Depreciation of rental equipment 171,703 10.9% 157,110 13.5% 14,593 9.3% Gross profit 383,748 24.4% 210,013 18.0% 173,735 82.7% Total operating expenses 280,440 251,980 28,460 Operating income (loss) 103,308 (41,967) 145,275 Total other expense 56,576 135,109 (78,533) Income (loss) before income taxes 46,732 (177,076) 223,808 Income tax expense (benefit) 7,827 4,425 3,402 Net income (loss) $ 38,905 $ (181,501) $ 220,406 Total Revenue - The increase in revenue for the year ended December 31, 2022, both in total and for each of our individual revenue streams, was driven by the addition of Custom Truck LP’s revenues to our operating results and strong customer demand for equipment sales, rental equipment and for parts sales and service.
Biggest changeThe 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. 27 Table of Contents Results of Operations Year Ended December 31, 2023, Compared to the Year Ended December 31, 2022 Consolidated Results of Operations Year Ended December 31, (in $000s) 2023 % of revenue 2022 % of revenue $ Change % change Rental revenue $ 478,910 25.7% $ 464,039 29.5% $ 14,871 3.2% Equipment sales 1,253,453 67.2% 982,341 62.4% 271,112 27.6% Parts sales and services 132,737 7.1% 126,706 8.1% 6,031 4.8% Total revenue 1,865,100 100.0% 1,573,086 100.0% 292,014 18.6% Cost of revenue, excluding rental equipment depreciation 1,240,176 66.5% 1,017,635 64.7% 222,541 21.9% Depreciation of rental equipment 170,664 9.2% 171,703 10.9% (1,039) (0.6)% Gross profit 454,260 24.4% 383,748 24.4% 70,512 18.4% Total operating expenses 283,312 280,440 2,872 Operating income 170,948 103,308 67,640 Total other expense 112,872 56,576 56,296 Income before income taxes 58,076 46,732 11,344 Income tax expense 7,364 7,827 (463) Net income $ 50,712 $ 38,905 $ 11,807 Total Revenue - The increase in revenue for the year ended December 31, 2023, was primarily due to strong customer demand for new equipment and used rental equipment.
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 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 ABL Facility contains customary negative covenants for transactions of this type, including covenants that, among other things, limit Buyer’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 Buyer’s restricted subsidiaries to pay dividends to Buyer; create liens; transfer or sell assets; consolidate, merge, sell, or otherwise dispose of all or substantially all of Buyer’s assets; enter into certain transactions with Buyer’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.
Loan Covenants and Compliance The ABL Facility contains customary negative covenants for transactions of this type, including covenants that, among other things, limit Buyer’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 Buyer’s restricted subsidiaries to pay dividends to Buyer; create liens; transfer or sell assets; consolidate, merge, sell, or otherwise dispose of all or substantially all of Buyer’s assets; enter into certain transactions with Buyer’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 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 and Property and Equipment Our rentable equipment consists of aftermarket parts and specialized rental equipment.
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.
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.
Income Tax Expense — We have net operating loss carryforward and disallowed interest deduction carryforward assets, which are generally available to be used to offset taxable income generated in future years.
Purchases of our equipment are recorded at cost, the OEC, and we depreciate OEC to an estimated salvage value. We depreciate our aftermarket parts over their estimated useful rentable life of five years.
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.
In all of these cases, we will sell used equipment directly to customers, rather than relying on auctions. Activities in our TES segment consist of the production and sale of new and used specialty equipment and vocational trucks, which includes equipment from leading original equipment manufacturers (“OEMs”) across our end-markets, as well as our Load King TM brand.
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 King TM brand.
While we remain in a financial reporting loss position based on a cumulative pre-tax loss for the three-year period ended December 31, 2022, 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.
While we remain in a financial reporting loss position based on a cumulative pre-tax loss for the three-year period ended December 31, 2023, 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.
Activities in our ERS segment consist of the rental and sale from the rental fleet, of the foregoing products. 24 Table of Contents 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.
Activities in our ERS segment consist of the rental and sale from the rental fleet of the foregoing products. 26 Table of Contents 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.
These expenses generally are comprised of travel and out-of-pocket expenses and legal, accounting and valuation or appraisal fees 23 Table of Contents incurred in connection with pre- and post-closure activities. We also include costs and expenses associated with post-acquisition integration activities related to the acquired businesses.
These expenses generally are comprised of travel and out-of-pocket expenses and legal, accounting and valuation or appraisal fees 25 Table of Contents incurred in connection with pre- and post-closure activities. We also include costs and expenses associated with post-acquisition integration activities related to the acquired businesses.
See Note 10: 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 and finance lease amounts. Floor Plan Financing.
See Note 10: 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.
The rate was 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. These discrete items may not be consistent from year to year.
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. These discrete items may not be consistent from year to year.
OEC represents the original equipment cost, exclusive of the effect of adjustments to rental equipment fleet acquired in business combinations, and is the basis for calculating certain of the measures set forth below.
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.
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, 2022. Operating Lease and Finance Lease Payments.
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, 2023. Operating Lease Payments.
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 all of our federal NOLs do not have expirations.
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.
Year Ended December 31, 2021, Compared to the Year Ended December 31, 2020 For a comparison of our liquidity and capital resources for the year ended December 31, 2021, compared to the year ended December 31, 2020, see “ Part II, Item 7.
Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021 For a comparison of our liquidity and capital resources for the year ended December 31, 2022, compared to the year ended December 31, 2021, see “ Part II, Item 7.
For the Year Ended December 31, 2021, Compared to Year Ended December 31, 2020 For a comparison of our results of operations for the year ended December 31, 2021, compared to the year ended December 31, 2020, see “ Part II, Item 7.
For the Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021 For a comparison of our results of operations for the year ended December 31, 2022, compared to the year ended December 31, 2021, see “ Part II, Item 7.
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 38 Table of Contents from the fleet.
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.
For the year ended December 31, 2022, the impact of discrete items, such as derivative mark-to-market adjustments, transaction and integration expenses, our foreign operations and changes in the valuation allowance, resulted in an overall effective tax rate in the period of 16.7% and $7.8 million of tax expense being recognized in the year ended December 31, 2022.
For the year ended December 31, 2022, the impact of discrete items, including derivative mark-to-market adjustments, transaction and integration expenses, our foreign operations and changes in the valuation allowance, resulted in an overall effective tax rate in the period of 16.7%, $7.8 million of tax expense recognized.
Such charges are adjustments pursuant to our ABL Credit Agreement. (4) 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.
(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.
Future realization of deferred income tax assets (meaning, items that may provide tax deductions in future periods) requires 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.
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.
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.
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 provided by operating activities was $46.0 million for the year ended December 31, 2022, as compared to $138.9 million in the same period of 2021. The use of cash in the current period is the result of our increased levels of inventory purchases and production.
Cash Flows from Operating Activities Net cash used in operating activities was $30.9 million for the year ended December 31, 2023, as compared to $46.0 million provided by operating activities in the same period of 2022. The use of cash in the current period is the result of our increased levels of inventory purchases and production.
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 $2.9 million.
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 $3.4 million.
We have floor plan payables of $293.5 million at December 31, 2022 that represent financing arrangement 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.
We have floor plan payables of $662.3 million at December 31, 2023 that represent financing arrangement 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.
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 $110.5 million, respectively.
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 $149.6 million, respectively.
At December 31, 2022, our deferred tax asset valuation allowance was $78.6 million. 40 Table of Contents 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.
At December 31, 2023, our deferred tax asset valuation allowance was $67.6 million. 36 Table of Contents 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.
At December 31, 2022, a 100 basis point increase to our credit loss estimate would increase our allowance for doubtful accounts by approximately $1.0 million.
At December 31, 2023, a 100 basis point increase to our credit loss estimate would increase our allowance for doubtful accounts by approximately $0.9 million.
Rental revenue is primarily comprised of revenues from rental agreements and freight charges billed to customers. For periods after January 1, 2021, 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.
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.
Income Tax Expense (Benefit) - Our overall effective tax rate for the year ended December 31, 2022 was 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.
Income Tax Expense - 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.
See Note 7: 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.
See Note 7: 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.
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, 2021 , filed with the Securities and exchange Commission on March 16, 2022, which is incorporated herein by reference. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with U.S.
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, 2022 , filed with the Securities and exchange Commission on March 14, 2023, which is incorporated herein by reference. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with U.S.
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. As of December 31, 2022, we had $14.4 million in cash and cash equivalents compared to $35.9 million as of December 31, 2021.
We believe that our liquidity sources and operating cash flows are sufficient to address our operating, debt service 30 Table of Contents and capital requirements, including investments in our rental fleet, over the next 12 months. As of December 31, 2023, we had $10.3 million in cash and cash equivalents compared to $14.4 million as of December 31, 2022.
Our expected material contractual cash requirements over the next twelve months primarily consist of minimum operating lease obligations of $6.9 million, finance lease obligations of $2.0 million, debt principal and interest payments of $6.9 million and $79.0 million, respectively, and the repayment of floor plan borrowings.
Our expected material contractual cash requirements over the next twelve months primarily consist of minimum operating lease obligations of $8.8 million, debt principal and interest payments of $8.0 million and $101.8 million, respectively, and the repayment of floor plan borrowings.
Financing and other expense (income) — Financing and other expense (income) reflects the financing expense (income) associated with sales-type lease activity, foreign currency gains and losses related to our Canadian operations, as well as other miscellaneous gains or losses from non-operating activities.
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.
We depreciate our rental equipment over its estimated useful rentable life of five to seven years with an estimated residual value of 15% to 35% of the OEC, 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.
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 34 Table of Contents equipment will be in the fleet as a rentable unit.
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.
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.
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. Rental equipment generally represents the largest component and was 39% of total assets acquired over the three years ended December 31, 2022, followed by goodwill at 29% and other intangible assets at 19%.
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. Rental equipment generally represents the largest component and was 37% of total assets acquired during the two years ended December 31, 2022, followed by goodwill at 30% and other intangible assets at 20%.
Cash Flows from Financing Activities Net cash provided by financing activities was $153.9 million for the year ended December 31, 2022, as compared to $1,323.0 million in 2021.
Cash Flows from Financing Activities Net cash provided by financing activities was $202.9 million for the year ended December 31, 2023, as compared to $153.9 million in 2022.
We have short-term and long-term cash requirements of $6.9 million and $1,382.5 million, respectively, for the payment of principal related to notes payable and loans as of December 31, 2022 . The total amount does not equal the carrying amount due to unamortized deferred charges.
We have short-term and long-term cash requirements of $8.0 million and $1,509.8 million, respectively, for the payment of principal related to notes payable and loans as of December 31, 2023. The total amount does not equal the carrying amount due to unamortized deferred charges.
We have short-term and long-term minimum cash requirements for operating lease payments of $6.9 million and $31.8 million, respectively. We have short-term and long-term minimum cash requirements for finance lease payments of $2.0 million and $3.7 million, respectively. The total amounts do not equal the carrying amount due to imputed interest.
We have short-term and long-term minimum cash requirements for operating lease payments of $8.8 million and $41.6 million, respectively. The total amounts do not equal the carrying amount due to imputed interest.
Our highly variable cost structure adjusts with the utilization of our equipment, thereby reducing our costs to match our revenue. We principally evaluate financial performance based on the following measurements: ending OEC, average OEC on rent, fleet utilization, and OEC on rent yield.
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.
These expenses are comprised of professional consultancy, legal, tax and accounting fees. Also included are expenses associated with the integration of acquired businesses. These expenses are presented as adjustments to net income (loss) pursuant to our ABL Credit Agreement. (3) Loss on extinguishment of debt represents special charges, which are not expected to recur.
These expenses are comprised of professional consultancy, legal, tax and accounting fees. Also included are expenses associated with the integration of acquired businesses. These expenses are presented as adjustments to net income pursuant to our ABL Credit Agreement.
Cost of Equipment Sales - The increase in cost of equipment sales for the year ended December 31, 2022 compared to the year ended December 31, 2021 was due to an increase in supply chain costs and an increase in equipment sales for the period.
Cost of Equipment Sales - The increase in cost of equipment sales for the year ended December 31, 2023, compared to the year ended December 31, 2022, was due to an increase in equipment sales.
Performance Measures We consider the following key operational measures when evaluating our performance and making day-to-day operating decisions: Ending OEC — Ending original equipment cost (“OEC”) is the original equipment cost of units at the end of the measurement period.
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.
No impairment loss was recorded as a result of the annual impairment test on October 1, 2022. 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.
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.
Significant management judgment is involved in estimating these factors, and they 39 Table of Contents include inherent uncertainties. The estimates of future cash flow require us to establish expectations about customer demand, investments in maintaining or expanding infrastructure for the markets each reporting unit serves, and the supply and capacity of equipment in the rental market, among others.
The estimates of future cash flow require us to establish expectations about customer demand, investments in maintaining or expanding infrastructure for the markets each reporting unit serves, and the supply and capacity of equipment in the rental market, among others.
Sales order backlog should not be considered an accurate measure of future net sales. Operating Segments Following the Acquisition, we modified our management structure and expanded from two reportable operating segments to three: Equipment Rental Solutions, Truck and Equipment Sales and Aftermarket Parts and Services.
Sales order backlog should not be considered an accurate measure of future net sales. Operating Segments We operate in three reportable operating segments: Equipment Rental Solutions, Truck and Equipment Sales and Aftermarket Parts and Services.
Year Ended December 31, (in $000s) 2022 2021 Equipment sales $ (41,525) $ (16,274) Cost of equipment sales 37,582 16,532 Gross (profit) loss (3,943) 258 Interest (income) expense (12,130) (5,898) Rentals invoiced 21,277 12,670 Sales-type lease adjustment $ 5,204 $ 7,030 (5) Represents non-cash share-based compensation expense associated with the issuance of stock options and restricted stock units.
Year Ended December 31, (in $000s) 2023 2022 Equipment sales $ (58,064) $ (41,525) Cost of equipment sales 55,716 37,582 Gross profit (2,348) (3,943) Interest income (16,065) (12,130) Rental invoiced 28,871 21,277 Sales-type lease adjustment $ 10,458 $ 5,204 (4) Represents non-cash share-based compensation expense associated with the issuance of stock options and restricted stock units.
Changes in these estimates, many of which fall under Level 3 within the fair value measurement hierarchy, 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.
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.
Increases in the costs of shipping and transportation, purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or the Company’s inability to market products. The unprecedented nature of the supply chain disruptions continues to make it difficult to predict the Company’s future business and financial performance.
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.
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.
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.
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.
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. Overview of Markets We continue to focus on four primary end-markets: Electric Utility Transmission and Distribution, or T&D, Telecom, Rail, Forestry, Waste Management, and Infrastructure.
However, to estimate the values of intangible assets we utilize income methods that involve forecasting future cash flow related to the acquired businesses.
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.
Parts and service revenue is derived from maintenance and repair services, light upfit services, and parts, tools and accessories sold directly to customers.
Parts and service revenue is derived from maintenance and repair services, light upfit services, and parts, tools and accessories sold directly to customers. Rental revenue excludes active rental contracts which qualify to be accounted for as sales-type leases.
Cash Flows from Investing Activities Net cash used in investing activities was $218.9 million for the year ended December 31, 2022, as compared to cash used in investing activities of $1,429.5 million in 2021. The decrease is attributable to the cash paid to acquire Custom Truck LP on April 1, 2021.
Cash Flows from Investing Activities Net cash used in investing activities was $176.6 million for the year ended December 31, 2023, as compared to cash used in investing activities of $218.9 million in 2022.
Acquisition of Custom Truck LP On December 3, 2020, Nesco Holdings and Nesco Holdings II, Inc., a subsidiary of Nesco Holdings (the “Buyer” or the “Issuer”), entered into a Purchase and Sale Agreement (as amended, the “Purchase Agreement”) with certain affiliates of The Blackstone Group (“Blackstone”) and other direct and indirect equity holders (collectively, “Sellers”) of Custom Truck LP, Blackstone Capital Partners VI-NQ L.P., and PE One Source Holdings, LLC, an affiliate of Platinum Equity, LLC (“Platinum”), pursuant to which Buyer agreed to acquire 100% of the partnership interests of Custom Truck LP.
Acquisition of Custom Truck LP On December 3, 2020, Nesco Holdings Inc. (“Nesco” or “Nesco Holdings”) and Nesco Holdings II, Inc., a subsidiary of Nesco Holdings (the “Buyer” or “Issuer”), entered into a purchase and sale agreement with certain affiliates of The Blackstone Group and other direct and indirect equity holders of Custom Truck One Source, L.P.
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, 2021 , filed with the Securities and Exchange Commission on March 16, 2022, which is incorporated herein by reference. 33 Table of Contents Liquidity and Capital Resources For the Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021 Our principal sources of liquidity include cash generated by operating activities and borrowings under revolving credit facilities as described below.
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, 2022 , filed with the Securities and Exchange Commission on March 14, 2023, which is incorporated herein by reference.
Cost of Revenue, Excluding Rental Equipment Depreciation - Consistent with the increase in revenue versus the prior year period, the increase in cost of revenue, excluding rental equipment depreciation, was driven by the addition of Custom Truck LP’s cost of revenue to our operating results.
Cost of Revenue, Excluding Rental Equipment Depreciation - Consistent with the increase in revenue versus the prior year, the increase in cost of revenue, excluding rental equipment depreciation, was driven primarily by the increase in new and rental equipment sales volume.
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.
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.
Gross Profit - The increase in gross profit for the year ended December 31, 2022 compared to the year ended December 31, 2021 is reflective of an increase in equipment sales and a positive pricing environment for our products. 30 Table of Contents Aftermarket Parts and Services (APS) Segment Year Ended December 31, (in $000s) 2022 2021 Rental revenue $ 14,931 $ 15,510 Parts and services revenue 126,706 101,753 Total revenue 141,637 117,263 Cost of revenue 105,185 86,943 Depreciation of rental equipment 3,741 5,156 Total cost of revenue 108,926 92,099 Gross profit $ 32,711 $ 25,164 Total Revenue - Total revenue increased for the year ended December 31, 2022 compared to the year ended December 31, 2021, driven by growth in demand for parts, tools and accessories (“PTA”) sales, partially offset by reduced tools and accessories rentals in the PTA division.
Aftermarket Parts and Services (APS) Segment Year Ended December 31, (in $000s) 2023 2022 Rental revenue $ 15,771 $ 14,931 Parts and services revenue 132,737 126,706 Total revenue 148,508 141,637 Cost of revenue: Cost of revenue 105,791 105,185 Depreciation of rental equipment 3,465 3,741 Total cost of revenue 109,256 108,926 Gross profit $ 39,252 $ 32,711 Total Revenue - Total revenue increased for the year ended December 31, 2023, compared to the year ended December 31, 2022, driven by growth in demand for parts, tools and accessories sales, augmented by increased tools and accessories rentals in the Parts, Tools and Accessories (“PTA”) division.
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.
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).
Cost of Revenue - The increase in total cost of revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021 was driven by the addition of Custom Truck LP’s cost of revenue to our operating results.
Cost of Revenue - The increase in total cost of revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily driven by the increase in cost of equipment sales, resulting from an increase in demand for rental equipment purchases by our customers.
Segment information provided within this Annual Report on Form 10-K has been adjusted for all prior periods consistent with the current reportable segment presentation. 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.
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, 2023, this equipment (the “rental fleet”) is comprised of more than 10,300 units.
The rental revenue reflects our continued expansion of our rental fleet, higher utilization and pricing gains. Equipment sales increased as an improvement in supply chain challenges allowed for greater order fulfillments.
Equipment sales increased as the continuing improvement in supply chain challenges allowed for greater order fulfillments and our ability to replenish inventory.
See Note 9: Long-Term Debt in the Notes to the Consolidated Financial Statements under Part II, Item 8 for more information. ABL Facility In connection with the Acquisition on the Closing Date, the Buyer, as borrower, and the ABL Guarantors (as defined in the ABL Credit Agreement) entered into the ABL Credit Agreement.
See Note 9: Long-Term De bt in the Notes to the Consolidated Financial Statements under Part II, Item 8 for more information. The Company presents Adjusted EBITDA calculated in accordance with “Consolidated EBITDA” as that term is used in the ABL Credit Agreement and the Indenture.
Borrowings are secured by the real property and improvements. 37 Table of Contents Historical Cash Flows The following table summarizes our sources and uses of cash: Year Ended December 31, (in $000s) 2022 2021 Net cash flow from operating activities $ 45,968 $ 138,926 Net cash flow from investing activities (218,936) (1,429,480) Net cash flow from financing activities 153,896 1,323,044 Effect of exchange rate changes on cash and cash equivalents (2,470) — Net change in cash and cash equivalents $ (21,542) $ 32,490 As of December 31, 2022, we had cash and cash equivalents of $14.4 million, a decrease of $21.5 million from December 31, 2021.
See Note 9: Long-Term Debt in the Notes to the Consolidated Financial Statements under Part II, Item 8 for more information. 33 Table of Contents Sources and Uses of Cash The following table summarizes our sources and uses of cash: Year Ended December 31, (in $000s) 2023 2022 Net cash flow from operating activities $ (30,883) $ 45,968 Net cash flow from investing activities (176,598) (218,936) Net cash flow from financing activities 202,876 153,896 Effect of exchange rate changes on cash and cash equivalents 554 (2,470) Net change in cash and cash equivalents $ (4,051) $ (21,542) As of December 31, 2023, we had cash and cash equivalents of $10.3 million, a decrease of $4.1 million from December 31, 2022.
Goodwill is attributable to the synergies and economies of scale expected from the combination of the businesses. 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.
There were no acquisitions made during the year ended December 31, 2023. Goodwill is attributable to the synergies and economies of scale expected from the combination of the businesses. In addition to long-lived fixed assets, we also acquire other assets and assume liabilities.
As of December 31, 2022, we had $437.7 million of outstanding borrowings under our ABL Facility compared to $394.9 million of outstanding borrowings as of December 31, 2021. Future Contractual Obligations Our estimated future obligations as of December 31, 2022 include both short-term (over the next 12 months) and long-term obligations.
As of December 31, 2023, we had $552.4 million of outstanding borrowings under our ABL Facility compared to $437.7 million of outstanding borrowings as of December 31, 2022.
As previously noted, Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for revenue, operating income/loss, net income/loss, earnings/loss per share or any other comparable operating measure prescribed by GAAP. 28 Table of Contents Year Ended December 31, (in $000s) 2022 2021 $ Change % Change Net income (loss) $ 38,905 $ (181,501) $ 220,406 121.4 % Interest expense 76,265 67,610 8,655 12.8 % Income tax expense (benefit) 7,827 4,425 3,402 76.9 % Depreciation and amortization 223,483 209,073 14,410 6.9 % EBITDA 346,480 99,607 246,873 247.8 % Adjustments: Non-cash purchase accounting impact (1) 23,069 33,954 (10,885) (32.1) % Transaction and integration costs (2) 26,218 51,993 (25,775) (49.6) % Loss on extinguishment of debt (3) — 61,695 (61,695) (100.0) % Sales-type lease adjustment (4) 5,204 7,030 (1,826) (26.0) % Share-based payments (5) 12,297 17,313 (5,016) (29.0) % Change in fair value of derivative and warrants (6) (20,290) 6,192 (26,482) (427.7) % Adjusted EBITDA $ 392,978 $ 277,784 $ 115,194 41.5 % (1) Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment and inventory sold.
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. 31 Table of Contents The following table provides the calculation of Adjusted EBITDA pursuant to the ABL Credit Agreement and the Indenture for the years ended December 31, 2023 and 2022: Year Ended December 31, (in $000s) 2023 2022 $ Change % Change Net income $ 50,712 $ 38,905 $ 11,807 30.3 % Interest expense 94,694 76,265 18,429 24.2 % Income tax expense 7,364 7,827 (463) (5.9) % Depreciation and amortization 218,993 223,483 (4,490) (2.0) % EBITDA 371,763 346,480 25,283 7.3 % Adjustments: Non-cash purchase accounting impact (1) 19,742 23,069 (3,327) (14.4) % Transaction and integration costs (2) 14,143 26,218 (12,075) (46.1) % Sales-type lease adjustment (3) 10,458 5,204 5,254 101.0 % Share-based payments (4) 13,309 12,297 1,012 8.2 % Change in fair value of derivative and warrants (5) (2,485) (20,290) 17,805 (87.8) % Adjusted EBITDA $ 426,930 $ 392,978 $ 33,952 8.6 % (1) Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment and inventory sold.
Year Ended December 31, (in $000s) 2022 2021 Change % Change Ending OEC (as of period end) $ 1,455,820 $ 1,363,451 $ 92,369 6.8 % Average OEC on rent $ 1,187,950 $ 960,203 $ 227,747 23.7 % Fleet utilization 83.9 % 81.2 % 2.7 % 3.3 % OEC on rent yield 39.1 % 38.0 % 1.1 % 2.9 % Sales order backlog (as of period end) $ 754,142 $ 411,636 $ 342,506 83.2 % Ending OEC - The increase in Ending OEC for the year ended December 31, 2022 compared to the same period in 2021 was driven by positive net rental fleet additions in the current period and the acquisition of HiRail in the first quarter of 2022.
Year Ended December 31, (in $000s) 2023 2022 Change % Change Ending OEC (as of period end) $ 1,455,708 $ 1,455,820 $ (112) — Average OEC on rent $ 1,183,253 $ 1,187,950 $ (4,697) (0.4) % Fleet utilization 80.4 % 83.9 % (3.5) % (4.2) % OEC on rent yield 40.4 % 39.1 % 1.3 % 3.3 % Sales order backlog (as of period end) $ 688,559 $ 754,142 $ (65,583) (8.7) % Operating Results by Segment The following segment information compares results by segment for years ended December 31, 2023 and December 31, 2022.
Refer to the Supplemental Pro Forma Information section in this filing that presents the consolidated results of the Company and Custom Truck LP for the year ended December 31, 2021. 29 Table of Contents Equipment Rental Solutions (ERS) Segment Year Ended December 31, (in $000s) 2022 2021 Rental revenue $ 449,108 $ 354,557 Equipment sales 212,146 105,435 Total revenue 661,254 459,992 Cost of rental revenue 106,598 94,644 Cost of equipment sales 158,167 90,420 Depreciation of rental equipment 167,962 151,954 Total cost of revenue 432,727 337,018 Gross profit $ 228,527 $ 122,974 Total Revenue - The increase in total revenue for the ERS segment for the year ended December 31, 2022 compared to the year ended December 31, 2021 was driven by the addition of Custom Truck LP’s revenues to our operating results and strong customer demand for rental equipment and equipment sales.
Equipment Rental Solutions (ERS) Segment Year Ended December 31, (in $000s) 2023 2022 Rental revenue $ 463,139 $ 449,108 Equipment sales 263,028 212,146 Total revenue 726,167 661,254 Cost of revenue: Cost of rental revenue 118,236 106,598 Cost of equipment sales 198,510 158,167 Depreciation of rental equipment 167,199 167,962 Total cost of revenue 483,945 432,727 Gross profit $ 242,222 $ 228,527 Total Revenue - The increase in total revenue for the ERS segment for the year ended December 31, 2023, compared to the year ended December 31, 2022, was driven by an increase in rental revenues and equipment sales revenue.
Total Other Expense - The decrease in other expense for the year ended December 31, 2022 was largely driven by mark-to-market gains related to our private warrants, which are accounted for as a liability derivative instrument, partially offset by increases in interest expense.
Total Other Expense - The increase in other expense for the year ended December 31, 2023, was primarily due to an increase in interest expense from variable rate debt and floor plan financing liabilities, as well as a decrease in mark-to-market income from the private warrants liability (accounted for as a derivative financial instrument) to $2.5 million in 2023, from $20.3 million in 2022.
Changes in these assumptions would have an impact to the amount of intangible assets recorded and the resulting amortization expense. On January 14, 2022, we acquired HiRail for $49.8 million, net of cash acquired. We allocated the cost of the acquired enterprise to the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition.
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.
Truck and Equipment Sales (TES) Segment Year Ended December 31, (in $000s) 2022 2021 Equipment sales $ 770,195 $ 589,899 Cost of equipment sales 647,685 528,024 Gross profit $ 122,510 $ 61,875 Equipment Sales - Equipment sales increased for the year ended December 31, 2022 compared to the year ended December 31, 2021, as an improvement in supply chain challenges allowed for greater order fulfillments.
Gross Profit - The increase in gross profit for the year ended December 31, 2023, compared to the year ended December 31, 2022, was due to the increase in rental revenues and equipment sales for the period, partially offset by increased cost of revenue driven by factors discussed above. 29 Table of Contents Truck and Equipment Sales (TES) Segment Year Ended December 31, (in $000s) 2023 2022 Equipment sales $ 990,425 $ 770,195 Cost of equipment sales 817,639 647,685 Gross profit $ 172,786 $ 122,510 Equipment Sales - Equipment sales increased for the year ended December 31, 2023, compared to the year ended December 31, 2022, due to the continued supply chain improvements related to the segment's inventory suppliers, which allowed for greater order fulfillments and sustained strong customer demand.
Key Performance Measures We believe that our operating model, together with our highly variable cost structure, enables us to sustain high margins, strong cash flow generation and stable financial performance throughout various economic cycles. We are able to generate cash flow through our earnings.
Net Income - The change in net income for the year ended December 31, 2023, was primarily the result of gross profit expansion, partially offset by higher interest expense on variable-rate debt and variable-rate floor plan liabilities. 28 Table of Contents 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.
Gross Profit - The increase in gross profit for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to growth in demand, partially offset by increased supply chain costs and product mix.
Gross Profit - The increase in gross profit for the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily volume driven, as well as the Company’s success in cutting costs to improve gross profit.
We review goodwill for impairment at least annually or more frequently as warranted by triggering events that indicate potential impairment. As of October 1, 2022, our annual impairment test date, we performed a Step 1 quantitative goodwill impairment test. Goodwill was tested for impairment at the reporting unit level, which we have determined to be ERS, TES, and APS.
We review goodwill for impairment at least annually or more frequently as warranted by triggering events that indicate potential impairment.
We continue to see strong customer demand for our products, as evidenced by the growth in our sales order backlog for the year ended December 31, 2022 versus the year ended December 31, 2021, and a positive pricing environment for our products.
Gross Profit - The increase in gross profit for the year ended December 31, 2023, compared to the year ended December 31, 2022, is reflective of the positive demand and pricing environment for our products.
The income approach utilized assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. These cash flows consider factors regarding expected future operating income and historical trends. Factors that management must estimate when performing impairment tests include rental and sales volumes and prices, inflation, discount rates, tax rates and capital spending.
Factors that management must estimate when performing impairment tests include rental and sales volumes and prices, inflation, discount rates, tax rates and capital spending. Significant management judgment is involved in estimating these factors, and they 35 Table of Contents include inherent uncertainties.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeEach 100 basis point increase or decrease in the average Canadian dollar to U.S. dollar exchange rate for the year would have correspondingly changed our revenues by approximately $0.1 million. We do not currently hedge our exchange rate exposure. 41 Table of Contents
Biggest changeForeign currency exchange rate risk During the year ended December 31, 2023, we generated $48.6 million of revenue in Canadian dollars. Each 100 basis point increase or decrease in the average Canadian dollar to U.S. dollar exchange rate for the year would have correspondingly changed our revenues by approximately $0.5 million.
Interest rate changes generally impact the amount of our interest payments and, therefore, our future net income and cash flows, assuming other factors are held constant. As of December 31, 2022, we had $437.7 million aggregate principal amount of variable rate debt, consisting of the balance outstanding under the ABL Facility.
Interest rate changes generally impact the amount of our interest payments and, therefore, our future net income and cash flows, assuming other factors are held constant. As of December 31, 2023, we had $1,214.7 million aggregate principal amount of variable rate debt, consisting of the balance outstanding under the ABL Facility and floor plan financing arrangements.
Holding other variables constant, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense on the ABL Facility by approximately $0.5 million on an annual basis.
Holding other variables constant, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense under the ABL Facility and floor plan financing arrangements by approximately $1.5 million on an annual basis.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest rate risk We are subject to interest rate market risk in connection with our long-term debt. Our principal interest rate exposure relates to outstanding amounts under our asset-based revolving credit facility.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest rate risk We are subject to interest rate market risk in connection with our long-term debt. Our principal interest rate exposure relates to outstanding amounts under our ABL facility and our floor plan financing arrangements.
We, from time to time, may manage a portion of our risks from exposures to fluctuations in interest rates as part of our risk management program through the use of derivative financial instruments.
We, from time to time, may manage a portion of our risks from exposures to fluctuations in interest rates as part of our risk management program through the use of derivative financial instruments. The objective of controlling these risks is to limit the impact on earnings and cash flows caused by fluctuations in the interest rates of our variable-rate debt.
Removed
The objective of controlling these risks is to limit the impact on earnings and cash flows caused by fluctuations, and our primary exposure is from our variable-rate debt. Exchange rate risk During the year ended December 31, 2022, we generated $43.9 million of revenue in Canadian dollars.
Added
We do not currently hedge our exchange rate exposure. 37 Table of Contents

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