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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
_______________________________
FORM 10-Q
_______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 001-38186
_______________________________  
CUSTOM TRUCK ONE SOURCE, INC.
(Exact name of registrant as specified in its charter)
_______________________________
Delaware84-2531628
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
7701 Independence Ave
Kansas City, MO 64125
(Address of principal executive offices, including zip code)
(816) 241-4888
(Registrant’s telephone number, including area code)
_______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueCTOSNew York Stock Exchange
Redeemable warrants, exercisable for Common Stock, $0.0001 par valueCTOS.WTNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No   o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filero Accelerated filer
Non-accelerated filer Smaller reporting company
   Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes       No  
The number of shares of common stock outstanding as of May 10, 2021 was 246,208,229.



Custom Truck One Source, Inc. and Subsidiaries
TABLE OF CONTENTS
PART IFINANCIAL INFORMATIONPage Number
Item 1.Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020
Unaudited Condensed Consolidated Statements of Stockholders' Deficit for the Three Months Ended March 31, 2021 and 2020
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART IIOTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
SIGNATURES
2


PART I – FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Custom Truck One Source, Inc.
(Nesco Holdings, Inc. Standalone - see Note 3)
Condensed Consolidated Balance Sheets (unaudited)
(in $000s, except share data)March 31, 2021December 31, 2020
Assets
Current Assets
Cash$3,191 $3,412 
Accounts receivable, net of allowance of $7,770 and $6,372, respectively
54,415 60,933 
Inventory33,665 31,367 
Prepaid expenses and other13,075 7,530 
Total current assets104,346 103,242 
Property and equipment, net3,756 6,269 
Rental equipment, net323,705 335,812 
Goodwill and other intangibles, net304,878 305,631 
Deferred income taxes13,126 16,952 
Notes receivable433 498 
Total Assets$750,244 $768,404 
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable$27,972 $31,829 
Accrued expenses30,156 31,991 
Deferred rent income776 975 
Current maturities of long-term debt1,111 1,280 
Current portion of capital lease obligations5,059 5,276 
Total current liabilities65,074 71,351 
Long-term debt, net725,677 715,858 
Capital leases4,513 5,250 
Derivative and warrants liabilities23,647 7,012 
Total long-term liabilities753,837 728,120 
Commitments and contingencies (see Note 11)
Stockholders' Deficit
Common stock – $0.0001 par value, 250,000,000 shares authorized, 49,219,383 and 49,156,753 shares issued and outstanding, at March 31, 2021 and December 31, 2020, respectively
5 5 
Additional paid-in capital425,224 434,917 
Accumulated deficit(493,896)(465,989)
Total stockholders' deficit(68,667)(31,067)
Total Liabilities and Stockholders' Deficit$750,244 $768,404 
See accompanying notes to unaudited condensed consolidated financial statements.
3


Custom Truck One Source, Inc.
(Nesco Holdings, Inc. Standalone - see Note 3)
Condensed Consolidated Statements of Operations (unaudited)
Three Months Ended March 31,
(in $000s, except share and per share data)20212020
Revenue
Rental revenue$48,289 $50,994 
Sales of rental equipment10,485 9,093 
Sales of new equipment7,502 7,577 
Parts sales and services12,023 14,079 
Total Revenue78,299 81,743 
Cost of Revenue
Cost of rental revenue16,643 13,786 
Depreciation of rental equipment17,844 20,112 
Cost of rental equipment sales6,740 7,728 
Cost of new equipment sales6,925 6,654 
Cost of parts sales and services9,643 11,360 
Major repair disposals285 700 
Total cost of revenue58,080 60,340 
Gross Profit20,219 21,403 
Operating Expenses
Selling, general and administrative expenses11,339 11,618 
Licensing and titling expenses711 821 
Amortization and non-rental depreciation775 716 
Transaction and other expenses10,448 1,452 
Total Operating Expenses23,273 14,607 
Operating (Loss) Income(3,054)6,796 
Other Expense
Interest expense, net14,906 16,014 
Other (income) expense, net5,857 6,021 
Total other expense20,763 22,035 
Loss Before Income Taxes(23,817)(15,239)
Income Tax Expense4,090 730 
Net Loss$(27,907)$(15,969)
Basic and Diluted Net Loss Per Share$(0.57)$(0.33)
Weighted-Average Common Shares Outstanding48,619,613 49,033,903 
See accompanying notes to unaudited condensed consolidated financial statements.
4


Custom Truck One Source, Inc.
(Nesco Holdings, Inc. Standalone - see Note 3)
Condensed Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31,
(in $000s)20212020
Operating Activities
Net loss$(27,907)$(15,969)
Adjustments to reconcile net loss to net cash flow from operating activities:
Depreciation18,063 20,377 
Amortization - intangibles753 691 
Amortization - financing costs804 711 
Provision for losses on accounts receivable1,383 777 
Share-based compensation698 559 
Gain on sale of rental equipment and parts(4,137)(2,213)
Gain on insurance proceeds - damaged equipment(2)(120)
Major repair disposal285 700 
Change in fair value of derivative and warrants5,846 5,963 
Deferred tax expense (benefit)3,826 652 
Changes in assets and liabilities:
Accounts receivable1,520 1,207 
Inventory(5,081)176 
Prepaid expenses and other(5,545)(34)
Accounts payable(956)(3,352)
Accrued expenses and other liabilities(1,437)(12,427)
Unearned income(199)(517)
Net cash flow from operating activities(12,086)(2,819)
Investing Activities
Purchase of equipment - rental equipment(11,368)(33,347)
Proceeds from sale of rental equipment and parts14,789 9,960 
Insurance proceeds from damaged equipment627 365 
Purchase of other property and equipment(141)(4,168)
Other65  
Net cash flow from investing activities3,972 (27,190)
Financing Activities
Borrowings under revolving credit facilities25,461 35,680 
Repayments under revolving credit facilities(16,431) 
Repayments of notes payable(182) 
Capital lease payments(955)(1,737)
Net cash flow from financing activities7,893 33,943 
Net Change in Cash(221)3,934 
Cash at Beginning of Period3,412 6,302 
Cash at End of Period$3,191 $10,236 
(in $000s)
Supplemental Cash Flow Information
Cash paid for interest$26,287 $24,977 
Cash paid for income taxes122 76 
Non-Cash Investing and Financing Activities
Transfer of inventory to rental equipment2,783 2,087 
Rental equipment and property and equipment purchases in accounts payable6,285 11,861 
Rental equipment sales in accounts receivable1,505 5,627 
See accompanying notes to unaudited condensed consolidated financial statements.
5


Custom Truck One Source, Inc.
(Nesco Holdings, Inc. Standalone - see Note 3)
Condensed Consolidated Statements of Stockholders' Deficit (unaudited)
Additional Paid-in CapitalAccumulated DeficitTotal Stockholders' Deficit
Common Stock
(in $000s, except share data)SharesAmount
Balance, December 31, 202049,156,753 $5 $434,917 $(465,989)$(31,067)
Net loss— — — (27,907)(27,907)
Share-based payments62,630 — 597 — 597 
Warrants liability reclassification (see Note 9)
— — (10,290)— (10,290)
Balance, March 31, 202149,219,383 $5 $425,224 $(493,896)$(68,667)
Additional Paid-in CapitalAccumulated DeficitTotal Stockholders' Deficit
Common Stock
SharesAmount
Balance, December 31, 201949,033,903 $5 $432,577 $(444,712)$(12,130)
Net loss— — — (15,969)(15,969)
Share-based payments— — 559 — 559 
Balance, March 31, 202049,033,903 $5 $433,136 $(460,681)$(27,540)
See accompanying notes to unaudited condensed consolidated financial statements.

6


 Custom Truck One Source, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements
Note 1: Business and Organization
Organization
Custom Truck One Source, Inc. (“CTOS Inc.”), formerly Nesco Holdings, Inc., a Delaware corporation, and its wholly owned subsidiaries is engaged in the business of providing a range of services and products to customers through rentals of specialty equipment, sales of parts related to the specialty equipment, and repair and maintenance services related to that equipment. Immediately following the acquisition by Nesco Holdings II, Inc. of Custom Truck One Source, L.P. as discussed in Note 3, Acquisition and Related Financing Transactions, on April 1, 2021 (the “Acquisition”), Nesco Holdings, Inc. (“Nesco Holdings”) changed its name to “Custom Truck One Source, Inc.” and changed The New York Stock Exchange ticker for its shares of common stock (“Common Stock”) from “NSCO” to “CTOS.”
As the Acquisition closed after first quarter 2021, the preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) requires that these Condensed Consolidated Financial Statements and most of the disclosures in these Notes be presented on a historical basis, as of or for the three months ended March 31, 2021 or prior periods. Unless the context otherwise requires, the term “CTOS” as used in these financial statements means Nesco Holdings and its subsidiaries when referring to periods prior to March 31, 2021 (prior to the Acquisition). The term “Company” refers to standalone Nesco Holdings prior to the Acquisition, and to the combined company post Acquisition. We may use terms such as, “we,” “our,” or “us,” to refer to standalone Nesco Holdings prior to the Acquisition, and to the combined company post Acquisition.
We are a specialty equipment rental provider to the electric utility transmission and distribution, telecommunications, and rail industries in North America. Our core business relates to our fleet of specialty rental equipment that is utilized by service providers in infrastructure improvement work. Specifically, we offer our specialized equipment to a diverse customer base, including utilities and primarily contractors, for the maintenance, repair, upgrade, and installation of critical infrastructure assets, including distribution and transmission electric lines, telecommunications networks and rail systems, as well as a small percentage for lighting and signage. We rent and sell a broad range of new and used equipment, including bucket trucks, digger derricks, line equipment, cranes, pressure diggers, and underground equipment, which forms our Equipment Rental and Sales (“ERS”) segment. To complement our fleet, we also provide a one-stop shop for existing and prospective customers in the same end markets of electric lines, telecommunications networks, and rail systems to purchase or rent parts, tools, and accessories needed to outfit their specialty truck fleet. These activities form our Parts, Tools, and Accessories (“PTA”) segment.

Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair statement of these interim statements, have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year or for any other period. These interim statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Use of Estimates
We prepare our consolidated financial statements in conformity with GAAP, which requires us to use judgment to make estimates that directly affect the amounts reported in our consolidated financial statements and accompanying notes. Significant estimates are used for items including, but not limited to, the useful lives and residual values of our rental equipment, business combinations, and determining the valuation allowance related to deferred income taxes. In addition, estimates are used to test both long-lived assets, goodwill, and indefinite-lived assets for impairment, and to determine the fair value of impaired assets, if any impairment exists. These estimates are based on our historical experience and on various other assumptions we believe to be reasonable under the circumstances. We review our estimates on an ongoing basis using information currently available, and we revise our recorded
7


estimates as updated information becomes available, facts and circumstances change, or actual amounts become determinable. Actual results could differ from our estimates.
Recently Issued Accounting Pronouncements
Leases
The Financial Accounting Standards Board's ("FASB") new guidance to account for leases (“Topic 842”) by entities that are lessees, requires (1) recognition of lease assets and lease liabilities on the balance sheet, and (2) disclosure of key information about leasing arrangements. Topic 842 provides two classifications for leases: financing or operating.
Finance leases. The accounting and recognition for leases qualifying as finance leases is similar to the accounting and recognition required under ASC Topic 840, Leases (“Topic 840”), for capital leases. As of March 31, 2021, we have capital lease obligations of approximately $9.6 million. When we make our contractually required payments under the capital leases, we allocate a portion to reduce the capital lease obligation and a portion is recognized as interest expense. The assets leased under the capital leases are included in rental equipment, and depreciation thereon is recognized in cost of rental revenue.
Operating leases. Under Topic 842, operating leases result in the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Under Topic 842, operating lease ROU assets and liabilities are recognized at the lease commencement date and measured based on the present value of lease payments over the lease term. The operating lease ROU assets will also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease that we are reasonably certain to exercise. Lease expense under Topic 842 will be recognized on a straight-line basis over the lease term. Upon adoption of Topic 842, it is expected that operating lease ROU assets and lease liabilities that reflect the present value of these future payments related to Nesco Holdings will be in the range of $7.9 million to $8.9 million.
We will adopt Topic 842 in the second quarter of 2021 as a result of losing emerging growth company status and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. A modified retrospective approach is required for adoption for all leases that exist at or commence after the date of initial application with an option to use certain practical expedients. We expect to use the package of practical expedients that allows us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any expired or existing leases.
Under Topic 842, lessor accounting will remain substantially similar to the current accounting; however, certain refinements were made to conform the standard with the recently issued revenue recognition guidance in ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components. On July 30, 2018, the FASB issued ASU 2018-11, which created a practical expedient that provides lessors an option not to separate lease and non-lease components when certain criteria are met and instead account for those components as a single lease component. We are currently in the process of evaluating whether our lease arrangements will meet the criteria under the practical expedient to account for lease and non-lease components as a single lease component, which would alleviate the requirement upon adoption of Topic 842 that we reallocate or separately present lease and non-lease components.
Measurement of Current Expected Credit Losses
In June 2016, the FASB issued ASU 2016-13 (the “ASU”), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU adds to GAAP an impairment model (known as the current expected credit loss, or “CECL,” model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in the more timely recognition of losses. Under the CECL model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of the financial instrument. Measurement of expected credit losses are to be based on relevant forecasts that affect collectability. The scope of financial assets within the CECL methodology is broad and includes trade receivables from certain revenue transactions and certain off-balance sheet credit exposures. While our review is ongoing, we believe the ASU will only have applicability to our receivables from non-leasing revenue transactions, as the ASU does not apply to receivables arising from operating leases. At the point that non-leasing trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses on receivables over their contractual life will be required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. We are currently evaluating whether the new guidance, while limited to our non-operating lease trade receivables, will have an impact on our consolidated financial statements. ASU 2016-13 must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings (deficit) in the period of adoption. We will adopt the ASU in the second quarter of 2021 as a result of losing emerging growth company status.
8


Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment, intended to simplify the subsequent accounting for goodwill acquired in a business combination. Prior guidance required utilizing a two-step process to review goodwill for impairment. A second step was required if there was an indication that an impairment may exist, and the second step required calculating the potential impairment by comparing the implied fair value of a reporting unit’s goodwill (as if purchase accounting were performed on the testing date) to the carrying amount of the goodwill. The new guidance eliminates the second step from the goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss should not exceed the total amount of goodwill allocated to the reporting unit). We adopted this guidance effective January 1, 2021; however, as discused in Note 5, Goodwill and Intangible Assets, there was no impairment of goodwill in the three months ended March 31, 2021 and 2020. Accordingly, the adoption of this standard did not have a material impact on our consolidated financial statements.

9


Revenue Recognition
We recognize revenue in accordance with two different accounting standards: (1) Topic 606 and (2) Topic 840, which addresses lease accounting, for which we will adopt an update to this standard (Topic 842) using the modified retrospective approach, as described above. For the three months ended March 31, 2021 and 2020, we recognized rental revenue in accordance with Topic 840, Leases, which is the lease accounting standard.
Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A “performance obligation” is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under Topic 606. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services. As reflected below, most of our revenue is accounted for under Topic 840. Our contracts with customers generally do not include multiple performance obligations. The table below presents our revenue types based on the accounting standard used to determine the accounting.
Three Months Ended March 31,Three Months Ended March 31,
20212020
(in $000s)Topic 840Topic 606TotalTopic 840Topic 606Total
Rental:
Rental revenue$46,186 $ $46,186 $48,913 $ $48,913 
Shipping and handling 2,103 2,103  2,081 2,081 
Total rental revenue46,186 2,103 48,289 48,913 2,081 50,994 
Sales and services:
Sales of rental equipment 10,485 10,485  9,093 9,093 
Sales of new equipment 7,502 7,502  7,577 7,577 
Parts and services 12,023 12,023  14,079 14,079 
Total sales and services 30,010 30,010  30,749 30,749 
Total revenue$46,186 $32,113 $78,299 $48,913 $32,830 $81,743 
Rental revenue is primarily comprised of revenues from rental agreements and freight charges billed to customers, as well as charges to customers for damaged equipment, which is assessed and billed at the time a rental asset is returned to the Company.
Inventory
Parts, tools, and accessories inventory is primarily composed of items purchased for resale or rent to customers. During the second quarter ended June 30, 2020, in connection with a new inventory management system, we elected to change our method for these inventories, which were previously valued using the first-in, first-out (“FIFO”) method, to the moving average cost method. We believe the change is preferable because it better reflects movement of the inventory and the corresponding value which provides a better reflection of periodic income from operations. This change was not applied retrospectively to prior periods, as the effect of the change was not material to our consolidated financial statements, including interim periods.
Also included within parts, tools, and accessories inventory are materials and components that we carry to service our rental fleet and new equipment held for sale. These materials and components are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.
Equipment inventory consists of equipment bought specifically for resale to customers. These new purchases are recorded directly to inventory when received. Equipment inventory is stated at the lower of cost or net realizable value, with cost determined on a specific identification basis.
Inventory consisted of the following:
10


(in $000s)March 31, 2021December 31, 2020
Parts, tools, and accessories inventory$30,520 $28,091 
Equipment inventory3,145 3,276 
Inventory$33,665 $31,367 

Rental and Property and Equipment
Rental equipment consisted of the following:
(in $000s)March 31, 2021December 31, 2020
Rental equipment$648,317 $654,547 
Less: accumulated depreciation(324,612)(318,735)
Rental equipment, net$323,705 $335,812 

Property and equipment consisted of the following:
(in $000s)March 31, 2021December 31, 2020
Property and equipment$12,099 $11,816 
Less: accumulated depreciation(8,356)(8,137)
Construction in progress13 2,590 
Property and equipment, net$3,756 $6,269 

Note 3: Acquisition and Related Financing Transactions
Acquisition of Custom Truck One Source, L.P.
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 One Source, L.P. (“Custom Truck”), 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. In connection with the Acquisition, Nesco Holdings and certain Sellers entered into Rollover and Contribution Agreements (the “Rollover Agreements”), pursuant to which such Sellers agreed to contribute a portion of their equity interests in Custom Truck (the “Rollovers”) with an aggregate value of $100.5 million in exchange for shares of Common Stock, valued at $5.00 per share. We believe the Acquisition creates a leading, one-stop shop for specialty equipment serving highly attractive and growing infrastructure end markets, including transmission and distribution, telecom, rail and other national infrastructure initiatives.
Also on December 3, 2020, Nesco Holdings entered into a Common Stock Purchase Agreement (the “Investment Agreement”) with Platinum, relating to, among other things, the issuance and sale (the “Subscription”) to Platinum of shares of Common Stock, for an aggregate purchase price in the range of $700 million to $763 million, with the specific amount calculated in accordance with the Investment Agreement based upon the total equity funding required to fund the consideration paid pursuant to the terms of the Purchase Agreement. The shares of Common Stock issued and sold to Platinum had a purchase price of $5.00 per share. In accordance with the Investment Agreement, on December 21, 2020, Nesco Holdings entered into Subscription Agreements (the “Subscription Agreements”) with certain investors (the “PIPE Investors”) to finance, in part, the Acquisition. Pursuant to the Subscription Agreements, concurrently with the closing of the transactions contemplated by the Investment Agreement, the PIPE Investors agreed to purchase an aggregate of 28,000,000 shares of Common Stock at $5.00 per share for an aggregate purchase price of $140 million (the “Supplemental Equity Financing”).
On April 1, 2021 (the “Closing Date”), in connection with (i) the Rollovers, CTOS Inc. issued, in the aggregate, 20,100,000 shares of Common Stock to the parties to the Rollover Agreements, (ii) the Subscription, CTOS Inc. issued 148,600,000 shares of Common Stock to Platinum, and (iii) the Supplemental Equity Financing, CTOS Inc. issued, in the aggregate, 28,000,000 shares of Common Stock to the PIPE Investors. Following the completion of these transactions, as of April 1, 2021, CTOS Inc. had 245,919,383 shares of
11


Common Stock issued and outstanding. The trading price of the Common Stock was $9.35 per share on the Closing Date. The preliminary purchase price for the Acquisition is estimated at $1.5 billion and is subject to adjustment pending the finalization of preliminary valuation estimates.
The Acquisition will be accounted for using the acquisition method of accounting, and CTOS Inc. will be treated as the accounting acquirer. Under the acquisition method of accounting, we are required to assign the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the Closing Date. The excess of the purchase price over those fair values will be recorded as goodwill. CTOS Inc. has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair value of the Custom Truck assets acquired or liabilities assumed, including estimates of fair values for inventory, rental equipment and certain intangible assets.
The Company expensed approximately $10.4 million in transaction costs related to the Acquisition within Transaction and other expenses for the three months ended March 31, 2021. Additionally, there were approximately $6.1 million in transaction costs related to the Acquisition that are deferred and recorded within Prepaid expenses and other on the Condensed Consolidated Balance Sheet as of March 31, 2021, which costs will be recognized on the Closing Date.
2029 Secured Notes
On the Closing Date, the Issuer issued $920 million in aggregate principal amount of 5.50% senior secured second lien notes due 2029 (the “2029 Secured Notes”). The 2029 Secured Notes were issued pursuant to an indenture, dated as of April 1, 2021, by and among the Issuer, Wilmington Trust, National Association, as trustee, and the guarantors party thereto (the “Indenture”). The Issuer will pay interest on the Notes semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2021. Unless earlier redeemed, the 2029 Secured Notes will mature on April 15, 2029. The notes were offered pursuant to a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons outside of the United States in reliance on Regulation S under the Securities Act. The proceeds from the issuance and sale of the 2029 Secured Notes were used to consummate the Acquisition and to repay the Senior Secured Notes due 2024 (see Note 4, Debt), repay certain indebtedness of Custom Truck and pay certain fees and expenses related to the Acquisition and financing transactions.
ABL Facility
On the Closing Date, the Buyer, its direct parent, and certain of its direct and indirect subsidiaries entered into a senior secured asset based revolving credit agreement (the “ABL Credit Agreement”) with Bank of America, N.A., as administrative agent and collateral agent, and certain other lenders party thereto, consisting of a $750.0 million first lien senior secured asset based revolving credit facility with a maturity of five years (the “ABL Facility”), which includes borrowing capacity for revolving loans (with a swingline sub-facility) and the issuance of letters of credit. Proceeds from the ABL Facility were used to finance the repayment of certain indebtedness of (i) Custom Truck under that certain Credit Agreement, dated as of April 18, 2017 (the “Custom Truck Credit Facility”), by and among Custom Truck, the other entities party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent, and (ii) Buyer under that certain Credit Agreement, dated as of July 31, 2019 (the “2019 Credit Facility”), by and among Capitol Investment Merger Sub 2, LLC, the other entities party thereto and JPMorgan Chase Bank, N.A., as administrative agent, as well as to pay fees and expenses related to the Acquisition and the financing transactions.

Note 4: Debt
Debt obligations and associated interest rates consisted of the following:
March 31,December 31,March 31,December 31,
(in $000s)2021202020212020
2019 Credit Facility$260,000 $250,971 2.7 %3.4 %
Senior Secured Notes due 2024475,000 475,000 10.0 %10.0 %
Notes payable2,196 2,379 
Total debt outstanding737,196 728,350 
Deferred finance fees(10,408)(11,212)
  Net debt726,788 717,138 
Less current maturities(1,111)(1,280)
Long-term debt$725,677 $715,858 
12



In connection with the Acquisition and related financing transactions, on April 1, 2021, the Company entered into the ABL Facility and repaid the Custom Truck Credit Facility and the 2019 Credit Facility as described in Note 3, Acquisition and Related Financing Transactions. Additionally, on April 1, 2021, the Company redeemed all of its Senior Secured Notes due 2024 and paid a make-whole premium of $38.5 million. The terms of the ABL Facility and 2029 Secured Notes are described below.
ABL Facility
In connection with the Acquisition, Buyer, as borrower, and the ABL Guarantors (as defined below) entered into the ABL Credit Agreement. The ABL Facility provides for revolving loans, in an amount equal to the lesser of the then-current borrowing base (described below) and the committed maximum borrowing capacity of $750.0 million, with a $75.0 million swingline sublimit, and letters of credit in an amount equal to the lesser of (a) $50.0 million and (b) the aggregate unused amount of commitments under the ABL Facility then in effect. The ABL Facility permits the Buyer to incur additional capacity under the ABL Facility in an aggregate amount equal to the greater of (x) $200.0 million and (y) 60.0% of Consolidated EBITDA (as defined in the ABL Credit Agreement) in additional commitments. As of the Closing Date, Buyer had no commitments from any lender to provide incremental commitments.
Borrowings under the ABL Facility are limited by a borrowing base calculation based on the sum of, without duplication:
(a) 90.0% of book value of eligible accounts of Buyer and certain ABL Guarantors; plus
(b) the lesser of (i) 75.0% of book value of eligible parts inventory of Buyer and certain ABL Guarantors (subject to certain exceptions) and (ii) 90.0% of the net orderly liquidation value of eligible parts inventory of Buyer and certain ABL Guarantors; plus
(c) the sum of (i) 95.0% of the net book value of the eligible fleet inventory of Buyer and certain ABL Guarantors that has not been appraised and (ii) 85.0% of the net orderly liquidation value of the eligible fleet inventory of Buyer and certain ABL Guarantors that has been appraised; plus
(d) 100.0% of eligible cash of Buyer and certain ABL Guarantors; minus
(e) any reserves established by the administrative agent from time to time.
Borrowings under the ABL Facility will bear interest at a floating rate, which, at Buyer’s election, will be (a) in the case of U.S. dollar denominated loans, either (i) LIBOR plus an applicable margin or (ii) the base rate plus an applicable margin; or (b) in the case of Canadian dollar denominated loans, the CDOR rate plus an applicable margin. The applicable margin varies based on Average Availability (as defined in the ABL Credit Agreement) from (a) with respect to base rate loans, 0.50% to 1.00% and (b) with respect to LIBOR loans and CDOR rate loans, 1.50% to 2.00%. The ability to draw under the ABL Facility or issue letters of credit thereunder is conditioned upon, among other things, delivery of prior written notice of a borrowing or issuance, as applicable, the ability to reaffirm the representations and warranties contained in the ABL Credit Agreement and the absence of any default or event of default under the ABL Facility.
Buyer is required to pay a commitment fee to the lenders under the ABL Facility in respect of the unutilized commitments thereunder at a rate equal to 0.375% per annum, which may be reduced following the first full fiscal quarter to 0.250% per annum based on average daily usage. Buyer must also pay customary letter of credit and agency fees.
The balance outstanding under the ABL Facility will be due and payable on April 1, 2026. Buyer may at any time and from time to time to prepay, without premium or penalty, any borrowing under the ABL Facility and to terminate, or from time to time reduce, the commitments under the ABL Facility.
The obligations under the ABL Facility are guaranteed by Capitol Investment Merger Sub 2, LLC, Buyer and each of Buyer’s existing and future direct and indirect wholly owned domestic restricted subsidiaries, subject to certain exceptions, as well as certain of Buyer’s material Canadian subsidiaries (the “ABL Guarantors”). The obligations under the ABL Facility and the guarantees of those obligations are secured by (subject to certain exceptions): (i) a first priority pledge by each ABL Guarantor of all of the equity interests of restricted subsidiaries directly owned by such ABL Guarantors (limited to 65% of voting capital stock in the case of foreign subsidiaries owned directly by a U.S. subsidiary and subject to certain other exceptions and subject to certain exceptions in the case of non-wholly owned subsidiaries) and (ii) a first priority security interest in substantially all of the ABL Guarantors’ present and after-acquired assets (subject to certain exceptions).
The ABL Facility contains customary negative covenants for transactions of this type, including covenants that, among other things, limit Buyer’s and its restricted subsidiaries’ ability to: incur additional indebtedness; pay dividends, redeem stock, or make other
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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 certain to subject 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. In addition, the ABL Facility contains a springing financial covenant that requires Buyer and its restricted subsidiaries to maintain a Consolidated Fixed Charge Coverage Ratio (as defined in the ABL Credit Agreement) of at least 1.00 to 1.00; provided that the financial covenant shall only be tested when Specified Excess Availability (as defined in the ABL Credit Agreement) under the ABL Facility is less than the greater of (i) 10.0% of the Line Cap (as defined in the ABL Credit Agreement) and (ii) $60.0 million (the “FCCR Test Amount”), in which case it shall be tested at the end of each succeeding fiscal quarter thereafter until the date on which Specified Excess Availability has exceeded the FCCR Test Amount for 30 consecutive calendar days.
The ABL Facility provides for a number of customary events of default, including, among others, and in each case subject to an applicable grace period: payment defaults to the lenders; covenant defaults; material inaccuracies of representations and warranties; failure to pay certain other indebtedness after final maturity or acceleration of other indebtedness exceeding a specified amount; voluntary and involuntary bankruptcy proceedings; material judgments for payment of money exceeding a specified amount; and certain change of control events. The occurrence of an event of default could result in the acceleration of obligations and the termination of revolving commitments under the ABL Facility.
2029 Secured Notes
On the Closing Date, the Issuer issued $920 million in aggregate principal amount of 5.50% senior secured second lien notes due 2029. The 2029 Secured Notes were issued pursuant to an indenture, dated as of April 1, 2021, between the Issuer, Wilmington Trust, National Association, as trustee and the guarantors party thereto. The Issuer will pay interest on the 2029 Secured Notes semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2021. Unless earlier redeemed, the 2029 Secured Notes will mature on April 15, 2029.
Ranking and Security
The 2029 Secured Notes are jointly and severally guaranteed on a senior secured basis by Capitol Investment Merger Sub 2, LLC and, subject to certain exceptions, each of the Issuer’s existing and future wholly owned domestic restricted subsidiaries that is an obligor under the ABL Credit Agreement or certain other capital markets indebtedness. Under the terms of the Indenture, the 2029 Secured Notes and the related guarantees rank senior in right of payment to all of the Issuer’s and the guarantors’ subordinated indebtedness and are effectively senior to all of the Issuer’s and the guarantors’ unsecured indebtedness, and indebtedness secured by liens junior to the liens securing the 2029 Secured Notes, in each case, to the extent of the value of the collateral securing the 2029 Secured Notes. The 2029 Secured Notes and the related guarantees rank equally in right of payment with all of the Issuer’s and the guarantors’ senior indebtedness, without giving effect to collateral arrangements, and effectively equal to all of the Issuer’s and the guarantors’ senior indebtedness secured on the same priority basis as the 2029 Secured Notes. The 2029 Secured Notes and the related guarantees are effectively subordinated to any of the Issuer’s and the guarantors’ indebtedness that is secured by assets that do not constitute collateral for the 2029 Secured Notes to the extent of the value of the assets securing such indebtedness, and indebtedness that is secured by a senior-priority lien, including the ABL Credit Agreement to the extent of the value of the collateral securing such indebtedness, and are structurally subordinated to the liabilities of the Issuer’s non-guarantor subsidiaries.
Optional Redemption Provisions and Repurchase Rights
At any time, upon not less than 10 nor more than 60 days’ notice, the 2029 Secured Notes are redeemable at the Issuer’s option, in whole or in part, at a price equal to 100% of the principal amount of the 2029 Secured Notes redeemed, plus a make-whole premium as set forth in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. Beginning April 15, 2024, the Issuer may redeem the 2029 Secured Notes, at its option, in whole or in part, at any time, subject to the payment of a redemption price together with accrued and unpaid interest, if any, to, but not including, the applicable redemption date. The redemption price includes a call premium that varies (from 2.750% to 0.000%) depending on the year of redemption.
In addition, at any time prior to April 15, 2024, the Issuer may redeem up to 40% of the aggregate principal amount of the 2029 Secured Notes, at a redemption price equal to 105.5% of the principal amount thereof, together with accrued and unpaid interest, if any, to, but not including, the applicable redemption date, with the net cash proceeds of sales of one or more equity offerings by the Issuer or any direct or indirect parent of the Issuer, subject to certain exceptions.
In addition, at any time prior to April 15, 2024, the Issuer may redeem during each calendar year up to 10% of the aggregate principal amount of the 2029 Secured Notes at a redemption price equal to 103% of the aggregate principal amount of the 2029 Secured Notes to be redeemed, together with accrued and unpaid interest, if any, to, but not including, the applicable redemption date; provided that,
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in any given calendar year, any amount not previously utilized in any calendar year may be carried forward to subsequent calendar years.
Subject to certain exceptions, the holders of the 2029 Secured Notes also have the right to require the Issuer to repurchase their 2029 Secured Notes upon the occurrence of a change in control, as defined in the Indenture, at an offer price equal to 101% of the principal amount of the 2029 Secured Notes plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.
In addition, if the Issuer or any of its restricted subsidiaries sells assets, under certain circumstances, the Issuer is required to use the net proceeds to make an offer to purchase the 2029 Secured Notes at an offer price in cash equal to 100% of the principal amount of the 2029 Secured Notes plus accrued and unpaid interest to, but not including, the repurchase date.
In connection with any offer to purchase all or any of the 2029 Secured Notes (including a change of control offer and any tender offer), if holders of no less than 90% of the aggregate principal amount of the 2029 Secured Notes validly tender their 2029 Secured Notes, the Issuer or a third party is entitled to redeem any remaining 2029 Secured Notes at the price offered to each holder.
Restrictive Covenants
The Indenture contains covenants that limit the Issuer’s (and certain of its subsidiaries’) ability to, among other things: (i) incur additional debt or issue certain preferred stock; (ii) pay dividends, redeem stock, or make other distributions; (iii) make other restricted payments or investments; (iv) create liens on assets; (v) transfer or sell assets; (vi) create restrictions on payment of dividends or other amounts by the Issuer to the Issuer’s restricted subsidiaries; (vii) engage in mergers or consolidations; (viii) engage in certain transactions with affiliates; or (ix) designate the Issuer’s subsidiaries as unrestricted subsidiaries.
Events of Default
The Indenture provides for customary events of default, including non-payment, failure to comply with covenants or other agreements in the Indenture, and certain events of bankruptcy or insolvency. If an event of default occurs and continues with respect to the 2029 Secured Notes, the trustee or the holders of at least 30% in aggregate principal amount of the outstanding 2029 Secured Notes of such series may declare the entire principal amount of all the 2029 Secured Notes to be due and payable immediately (except that if such event of default is caused by certain events of bankruptcy or insolvency, the entire principal of the 2029 Secured Notes will become due and payable immediately without further action or notice).

Note 5: Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following:
(in $000s)March 31, 2021December 31, 2020
Goodwill$238,052 $238,052 
Nesco trade name28,000 28,000 
Other intangible assets:
 Trade names1,780 1,780 
 Non-compete agreements520 520 
 Customer relationships52,170 52,170 
82,470 82,470 
 Less: accumulated amortization(15,644)(14,891)
Intangible assets, net66,826 67,579 
Goodwill and intangible assets$304,878 $305,631 
Goodwill related to our ERS segment and PTA segment was $229.1 million and $9.0 million, respectively, as of March 31, 2021 and December 31, 2020.
We perform our annual goodwill and indefinite-lived intangible assets impairment testing as of October 1 each year. In addition to the annual impairment test, we regularly assess whether a triggering event has occurred that would require interim impairment testing. During the three months ended March 31, 2020, due to the global health pandemic and related economic uncertainty, we identified interim impairment indicators. From a qualitative assessment completed at that time, we determined that goodwill and indefinite-lived
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intangible assets were not impaired. During the three months ended March 31, 2021, there were no triggering events necessitating an interim impairment test.

Note 6: Equity and Earnings per Share
Diluted net loss per share includes the effects of potentially dilutive shares of common stock. Potentially dilutive effects include the exercise of warrants, contingently issuable shares, and share-based compensation, all of which have been excluded from the calculation of diluted net loss per share because earnings are at a net loss and therefore, the potentially dilutive effect would be anti-dilutive. The share amounts of our potentially dilutive shares excluded aggregated 28.0 million and 27.3 million for the three months ended March 31, 2021 and 2020, respectively.
The following table sets forth the computation of basic and dilutive loss per share:
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
(in $000s, except share and per share data)Net LossWeighted Average SharesPer Share AmountNet LossWeighted Average SharesPer Share Amount
Basic loss per share$(27,907)48,619,613 $(0.57)$(15,969)49,033,903 $(0.33)
Dilutive common share equivalents    
Diluted loss per share$(27,907)48,619,613 $(0.57)$(15,969)49,033,903 $(0.33)

Note 7: Share-Based Compensation
During the second quarter ended June 30, 2019, the Company’s stockholders approved the 2019 Omnibus Incentive Plan, which authorizes up to 3,150,000 shares of Common Stock for issuance in accordance with the plan’s terms, subject to certain adjustments. On June 11, 2020, the Company's stockholders approved the Amended and Restated 2019 Omnibus Incentive Plan, which increased the total authorized shares of Common Stock to 6,150,000 (the “Plan”). The purpose of the Plan is to provide the Company’s and its subsidiaries’ officers, directors, employees and consultants who, by their position, ability and diligence, are able to make important contributions to the Company’s growth and profitability, with an incentive to assist the Company in achieving its long-term corporate objectives, to attract and retain executive officers and other employees of outstanding competence and to provide such persons with an opportunity to acquire an equity interest in the Company. To accomplish these objectives, the Plan provides for awards of equity-based incentives through granting of restricted stock units, stock options, stock appreciation rights and other stock or cash based awards. At March 31, 2021, there were approximately 2,605,000 shares in the share reserve still available for issuance.
The Company records share-based compensation awards using a fair value method and recognizes compensation expense for an amount equal to the fair value of the share-based payment issued in its financial statements. The Company’s share-based compensation plans include programs for stock options, restricted stock units (“RSUs”), performance share units (“PSUs”) and deferred compensation.
Share-based compensation expense was $0.7 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively, and is included in Selling, general, and administrative expenses within the unaudited condensed consolidated statements of operations. As of March 31, 2021, there was approximately $7.2 million of total unrecognized compensation cost related to stock-based compensation arrangements under the Plan. That cost is expected to be recognized over a weighted average period of 2.7 years. There were no share-based payment awards granted in the three months ended March 31, 2021. On the Closing Date, restricted stock awards of approximately 93,000 shares were granted to certain of the Company’s non-employee directors. Additionally, on the Closing Date in connection with the Acquisition, approximately 284,000 and 678,000 restricted stock awards and stock options, respectively, became immediately vested.

Note 8: Fair Value Measurements
FASB accounting standards provide a comprehensive framework for measuring fair value and sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. Levels within the hierarchy are defined as follows:
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Level 1 – Unadjusted quoted prices for identical assets and liabilities in active markets;
Level 2 – Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable for the asset or liability, either directly or indirectly; and
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The following table sets forth the carrying values (exclusive of deferred financing fees) and fair values of our financial liabilities:
Carrying ValueFair Value
(in $000s)Level 1Level 2Level 3
March 31, 2021
2019 Credit Facility$260,000 $ $260,000 $ 
Senior Secured Notes due 2024475,000  521,517  
Notes Payable2,196  2,196  
Derivative and warrant liabilities23,647  5,232 18,415 
December 31, 2020
2019 Credit Facility$250,971 $ $250,971 $ 
Senior Secured Notes due 2024475,000  519,379  
Notes Payable2,379  2,379  
Derivative and warrant liabilities7,012  7,012  
The Level 3 fair value presented above consists of the fair value of the Non-Public Warrants (as defined in Note 9, Financial Instruments). The Company estimated the fair value using the Black-Scholes option-pricing model based on the market value of the underlying common stock, the remaining contractual term of the warrant, risk-free interest rates and expected dividends, and expected volatility of the price of the underlying common stock.

Note 9: Financial Instruments
In the normal course of business, the Company uses various financial instruments, including derivative instruments, to manage the risks associated with interest rate exposure. These financial instruments are not used for trading or speculative purposes.
Derivatives Not Designated as Hedges
On July 17, 2019, we entered into an interest rate collar (the "Collar") agreement to mitigate the risk of changes in the interest rate paid during the contract period for $170.0 million of the Company’s variable rate loans. Under the Collar, we are required to pay the counterparty to the agreement an amount equal to the difference between a monthly LIBOR-based interest rate and a defined interest rate floor; conversely, we are entitled to receive from the counterparty an amount equal to the excess of a LIBOR-based interest rate and a defined interest rate cap. The required payments due to or due from the counterparty are calculated by applying the interest rate differential to the notional amount ($170.0 million) and are determined monthly through July 31, 2024. The Collar expires in July 2024 and has not been designated as a cash flow hedge. The Collar is carried at fair value and reported in Derivative and warrant liabilities on the Company's consolidated balance sheets ($5.2 million and $7.0 million as of March 31, 2021 and December 31, 2021, respectively) as a Level 2 measurement (see Note 8, Fair Value Measurements). The change in fair value of the Collar is recognized in Other expense (income), net in our Consolidated Statements of Operations (($1.8 million) and $6.0 million in the three months ended March 31, 2021 and 2020, respectively).
The counterparty to the Collar is an investment grade major international financial institution. The Company could be exposed to losses in the event of nonperformance by the counterparty; however, the credit rating and the concentration of risk in this financial institution are monitored on a continuous basis and present no significant credit risk to the Company.
Warrants
During the quarter ended March 31, 2021, the Company identified an immaterial error in its historical accounting for certain of its issued and outstanding warrants, as further described below.
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In connection with the Company’s predecessor, Capitol Investment Corp. IV, an entity formed on May 1, 2017, as a special purpose acquisition company (“Capitol” or the “SPAC”), warrants for the purchase of approximately 7.5 million shares of the Company’s common stock were issued pursuant to a private placement agreement (the “Non-Public Warrants”). In connection with the SPAC’s initial public offering, warrants for the purchase of approximately 13.4 million shares of the Company’s common stock were issued to public investors (the “Public Warrants”). The Public Warrants together with the Non-Public Warrants may hereafter collectively be referred to as the “Warrants.”
The Warrants provide for the purchase of approximately 20.9 million shares of the Company’s common stock. Each Warrant entitles the holder to purchase one common stock at a price of $11.50 per share, subject to certain adjustments. The Warrants are currently exercisable and terminate on the earlier to occur of (i) July 31, 2024, and (ii) the redemption date. The Company may redeem the Public Warrants at a price of $0.01 per Public Warrant upon providing 30-days’ notice, only in the event that the last sale price of the common stock is at least $18.00 per share for any 20 trading days within a 30-trading day period ending on the third day prior to the date on which notice of redemption is given. If the Company elects to redeem the Public Warrants as described above, the Public Warrant may be exercised on a “cashless basis.” The redemption rights do not apply to the Non-Public Warrants if at the time of the redemption such Non-Public Warrants continue to be held by the initial holders as of July 31, 2019, or their affiliates or permitted transferees; however, once such Non-Public Warrants are transferred (other than to an affiliate or permitted transferee), the Company may redeem those Non-Public Warrants that have been transferred in a manner similar to any Public Warrants. In periods prior to the quarter ended March 31, 2021, the Company accounted for both the Public and Non-Public Warrants as freestanding equity-classified instruments.
On April 12, 2021, the Commission issued Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies ("SPACs") (the “Statement”). The Statement indicated that, if warrant agreements can provide for potential changes to the settlement amounts that depend on the characteristics of the holder of the warrant, such provisions would preclude the warrants from being indexed to the entity’s stock, and, therefore, result in classification of the warrants as a liability measured at fair value, with changes in fair value each period reported in earnings. The Company’s warrant agreement provides for a different settlement amount in a cashless exercise for holders of the Non-Public Warrants upon exercise at any time as compared to holders of the Public Warrants upon the Company's election to redeem; therefore, the Non-Public Warrants are precluded from being indexed to the Company’s stock and should have been classified as liabilities.
The Public Warrants continue to be accounted for as freestanding equity-classified instruments because the Company has the ability to settle with holders of the Public Warrants either by net-share or physical settlement. Because the Non-Public Warrants do not meet the “indexed to the entity’s stock” condition, they should have been accounted for as a derivative liability and remeasured at their estimated fair value each period. The change in fair value each period should have been reported in the Company’s consolidated statement of operations. The effect of correcting the accounting for the Non-Public Warrants from an equity-classified instrument to a liability instrument resulted in the reclassification of $10.3 million from Additional paid-in capital to Derivative and warrant liabilities on the Company’s consolidated balance sheet as of January 1, 2021, which represents the initial value of the Non-Public Warrants that should have been recognized on July 31, 2019, the date on which the Company merged with the SPAC. For the three months ended March 31, 2021, the Company recognized an expense of $7.6 million in Other (income) expense in its consolidated statement of operations related to the fair value remeasurement. Included in the first quarter 2021 remeasurement amount is an income amount of $1.4 million representing the net change in the fair value of the Non-Public Warrants from July 31, 2019 (the issue date of the Non-Public Warrants) to December 31, 2019, of $6.1 million in income, offset by $4.7 million in expense from the change in fair value for the year ended December 31, 2020. In evaluating whether the Company’s previously issued consolidated financial statements were materially misstated for the interim or annual periods prior to January 1, 2021, the Company applied the guidance of ASC 250, Accounting Changes and Error Corrections, SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, Assessing Materiality and SAB Topic 1.N, E, and concluded that the effect of the error on prior period financial statements was not material. The Company also evaluated if the cumulative effect of correcting the prior period misstatement in its consolidated financial statements would be material to either the quarter, or annual period, in the three months ended March 31, 2021, and the forecasted year ending December 31, 2021, respectively. The guidance states that prior-year misstatements which, if corrected in the current year would materially misstate the current year’s financial statements, must be corrected by adjusting prior year financial statements, even though such correction previously was and continues to be immaterial to the prior-year financial statements. The Company concluded the impact of correcting the accounting for the Non-Public Warrants on the Company’s consolidated statement of operations for the three-months ending March 31, 2021, and the forecasted year ending December 31, 2021, is immaterial.

Note 10: Income Taxes
Income tax expense was $4.1 million for the three months ended March 31, 2021 as compared to $0.7 million for the same period of the prior year. Income tax expense for the current period reflects the Company's estimated overall tax rate from of the Company's
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estimate of full-year taxable income arising from disallowed interest expense. The Company's effective tax rate for the current period, (17.2)%, differs from the U.S. federal statutory tax rate due primarily to the valuation allowance for deferred tax assets.

Note 11: Commitments and Contingencies
We record a liability when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
Legal Matters
In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. At this time, no claims of these types, certain of which are covered by insurance policies, have had a material effect on the Company.
From time to time, the Company is audited by state and local taxing authorities. These audits typically focus on the Company’s withholding of state-specific sales tax and rental-related taxes.
Custom Truck’s withholdings of federal excise taxes for each of the four quarterly periods during 2015 are currently under audit by the Internal Revenue Service (the “IRS”). The IRS issued an assessment on October 28, 2020 in an aggregate amount of $2.4 million for the 2015 periods, alleging that certain types of sold equipment are not eligible for the Mobile Machinery Exemption set forth in the Internal Revenue Code (the “IRC”). An appeal was filed on January 28, 2021. Based on management’s understanding of the facts and circumstances, including the relevant provisions of the IRC, and historical precedent, including previous successful appeals of similar assessments in prior years, management does not believe the likelihood of a loss resulting from the IRS assessment to be probable at this time.
While it is not possible to predict the outcome of the foregoing matters with certainty, it is the opinion of management, that the final outcome of these matters will not have a material effect on the Company’s consolidated financial condition, results of operations and cash flows.
Purchase Commitments
We enter into purchase agreements with manufacturers and suppliers of equipment for our rental fleet and inventory. All of these agreements are cancellable within a specified notification period to the supplier.

Note 12: Segments
We have two reportable business segments, Equipment Rental and Sales (“ERS”) and Parts, Tools, and Accessories (“PTA”). ERS provides rental solutions to utilities and contractors serving multiple infrastructure end-markets, including electric transmission and distribution, telecom, rail, lighting and signage. We rent and sell specialized equipment to utilities and utility contractors that build and maintain critical transmission and distribution infrastructure. Utilizing our national platform and rental fleet, we expanded our focus on equipment rental to the telecom, rail, lighting and signage end-markets. The majority of our existing equipment can be used across multiple end-markets and many of our customers operate in these multiple end-markets. We rent and sell a broad range of new and used equipment including bucket trucks, digger derricks, line equipment, cranes, pressure diggers, rail mounted equipment and underground equipment. Our PTA segment offers customers sale and rental solutions for parts, tools, and accessories to complement our specialty equipment line.
Our reportable segments align with the information our chief operating decision maker (“CODM”) receives on a regular basis to evaluate the performance of the business and to allocate resources. The accounting principles applied at the operating segment level in determining gross profit are generally the same as those applied at the consolidated financial statement level. Inter-segment revenues, and cost allocations to operating segment cost of revenue are minimal; that is, revenue, cost of equipment and parts sold or rented, depreciation of rental equipment and gross profit are directly attributed to each of the operating segments. The following tables present our financial information by segment:
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Three Months Ended March 31,Three Months Ended March 31,
20212020
(in $000s)ERSPTATotalERSPTATotal
Rental revenue$44,730 $3,559 $48,289 $47,053 $3,941 $50,994 
Sales of rental equipment10,485  10,485 9,093  9,093 
Sales of new equipment7,502  7,502 7,577  7,577 
Parts sales and services 12,023 12,023  14,079 14,079 
Total revenues62,717 15,582 78,299 63,723 18,020 81,743 
Cost of revenue29,202 11,034 40,236 27,320 12,908 40,228 
Depreciation of rental equipment16,885 959 17,844 18,976 1,136 20,112 
Gross Profit$16,630 $3,589 $20,219 $17,427 $3,976 $21,403 
Total assets by segment are not disclosed herein because asset by operating segment data is not reviewed by the CODM to assess performance and allocate resources.
Gross profit is the primary operating result whereby our segments are evaluated for performance and resource allocation. The following table presents a reconciliation of consolidated gross profit to consolidated loss before income taxes:
Three Months Ended March 31,
(in $000s)20212020
Gross profit$20,219 $21,403 
Selling, general and administrative expenses11,339 11,618 
Licensing and titling expenses711 821 
Amortization and non-rental depreciation775 716 
Transaction expenses and other10,448 1,452 
Other (income) expense5,857 6,021 
Interest expense, net14,906 16,014 
Loss before income taxes$(23,817)$(15,239)

We are positioned to serve all 50 U.S. states and 13 Canadian provinces and territories using our network of locations in North America. The following tables present revenue by country and total assets by country:
Three Months Ended March 31,
(in $000s)20212020
Revenue:
United States$77,466 $79,702 
Canada833 1,369 
Mexico 672 
$78,299 $81,743 
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(in $000s)March 31, 2021December 31, 2020
Assets:
United States$744,922 $762,696 
Canada5,260 5,447 
Mexico62 261 
$750,244 $768,404 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Throughout this section, unless otherwise noted “we,” “us,” “our” or “Company” refers to Nesco Holdings, Inc. (“Nesco”) and its consolidated subsidiaries prior to the acquisition of Custom Truck One Source, L.P. (“Custom Truck”) on April 1, 2021 (the “Acquisition”), and to the combined company, Custom Truck One Source, Inc. (“CTOS Inc.”) subsequent to the Acquisition. Immediately following the Acquisition, Nesco Holdings, Inc. changed its name to “Custom Truck One Source, Inc.” and also changed The New York Stock Exchange ticker symbol for its shares of common stock (“Common Stock”) from “NSCO” to “CTOS.”
The discussion of results of operations in this Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is presented on a historical basis, as of or for the three months ended March 31, 2021 or prior periods.
Disclosure Regarding Forward-Looking Statements
Any statements made in this report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimates,” “targets,” “projects,” “should,” “could,” “would,” “may,” “will,” “forecast,” and other similar expressions. We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this report, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Below is a summary of risk factors applicable to us that may materially affect such forward-looking statements and projections:
difficulty in integrating Nesco and Custom Truck businesses and fully realizing the anticipated benefits of the Acquisition;
public health crisis such as the COVID-19 pandemic;
the cyclicality of demand for our products and services and our vulnerability to industry, regional and national downturns;
fluctuation of our revenue and operating results;
our inability to obtain raw materials, component parts and/or finished goods in a timely and cost-effective manner;
competition, which may have a material adverse effect on our business by reducing our ability to increase or maintain revenues or profitability;
any further increase in the cost of new equipment that we purchase for use in our rental fleet or for our sales inventory;
uncertainties in the success of our future acquisitions or integration of companies that we acquire;
our inability to recruit and retain the experienced personnel we need to compete in our industries;
further unionization of our workforce;
disruptions in our information technology systems or a compromise of our system security, limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, and implement strategic initiatives;
unfavorable conditions in the capital and credit markets and our inability to obtain additional capital as required;
our inability to renew our leases upon their expiration;
our failure to keep pace with technological developments;
our dependence on a limited number of manufacturers and suppliers and on third-party contractors to provide us with various services to assist us with conducting our business;
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material disruptions to our operation and manufacturing locations as a result of public health concerns, equipment failures, natural disasters, work stoppages, power outages or other reasons;
changes to international trade agreements, tariffs, import and excise duties, taxes or other governmental rules and regulations;
our exposure to various risks related to legal proceedings or claims, and our failure to comply with relevant laws and regulations, including those related to occupational health and safety, environment and government contract;
significant transaction and transition costs that we will continue to incur following the Acquisition and related financing transactions;
the interest of our majority shareholder, which may not be consistent with the other shareholders;
our significant indebtedness, which may adversely affect our financial position, limit our available cash and our access to additional capital, prevent us from growing our business and increase our risk of default;
significant operating and financial restrictions imposed by the Indenture (as defined below) and the ABL Credit Agreement (as defined below); and
uncertainties related to our variable rate indebtedness.
These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and in this report, for additional risks.
Overview of Markets and Related Industry Performance
Beginning in late March 2020, the Company began to be negatively impacted by the COVID-19 pandemic, which continued into the second quarter of 2020. We began to see a normal seasonal uptick in demand starting in late August and our original equipment cost (“OEC”) on rent also started to improve in late August. While we are encouraged by the trend, the Company’s results of operations have not yet fully recovered to the same levels prior to the pandemic, and we remain cautious about the continuing impact of the COVID-19 pandemic.
The Company serves critical infrastructure sectors that have been identified by the United States Cybersecurity and Infrastructure Security Agency (“CISA”) as vital to the U.S. Accordingly, we have continued to meet the needs of our customers during the pandemic. We continue to adhere to protocols designed to maintain the health and safety of our employees and their families, as well as our customers, vendors and communities. These protocols have allowed the Company to keep all business and service locations operational throughout the pandemic with little to no disruption.
In late March 2020, we saw a decline in demand from customers as planned projects were delayed in response to the uncertainty caused by the onset of the COVID-19 pandemic. These delays were most pronounced in electric distribution customers close to population centers in efforts to promote social distancing. Electric transmission customers also delayed planned new project starts. This led to a decline in OEC on rent during the second quarter of 2020 and into the beginning of the third quarter of 2020. As projects ended or were delayed, equipment was returned and there was little offsetting demand from new projects. This trend began to reverse starting in late August 2020 as “shelter-in-place” restrictions were relaxed across the country. Electric distribution and transmission customers continue to have large backlogs of projects that must be undertaken to maintain an aged grid, to harden the grid against the impact of severe weather events, to ensure the uninterrupted supply of electricity and to meet growing electricity demands from increased household usage and vehicle electrification. We have experienced relative stability in the rail and telecom sectors. Telecom end-customers have announced intentions to continue to invest in 5G infrastructure and additional network enhancements designed to address deficiencies that became apparent with increased traffic during pandemic stay-at-home orders.
The unprecedented nature of the COVID-19 pandemic continues to make it difficult to predict our future business and financial performance. However, our customers continue to reiterate record or near-record backlogs and capital investment plans. We are not aware of any significant project cancellations by our customers during the pandemic at this time. Customer projects that we are aware of were merely delayed. Many projects that were previously delayed have now been rescheduled. Following the project delays discussed above, we are now experiencing an increase in demand as customers work to fulfill backlogs. Like us, our customers have become more adept at working safely within the pandemic environment.
At the onset of the pandemic, our focus was on delivering upon the needs of our customers, managing costs and cash flows, and preparing for a future recovery. We reduced our capital spending, our working capital balances and undertook cost reduction efforts
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including limited headcount reductions in 2020. As part of these efforts we reduced our service costs through most of 2020 by limiting repairs on equipment coming off-rent to those to be re-deployed based on customer orders. This will drive up service cost through second quarter 2021 as we seek to rapidly deploy equipment to meet customer demand.
Acquisition of Custom Truck One Source, L.P.
On December 3, 2020, Nesco and Nesco Holdings II, Inc., a subsidiary of Nesco (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, 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. In connection with the Acquisition, Nesco and certain Sellers entered into Rollover and Contribution Agreements (the “Rollover Agreements”), pursuant to which such Sellers agreed to contribute a portion of their equity interests in Custom Truck (the “Rollovers”) with an aggregate value of $100.5 million in exchange for shares of Common Stock, valued at $5.00 per share.
Also on December 3, 2020, Nesco entered into a Common Stock Purchase Agreement (the “Investment Agreement”) with Platinum, relating to, among other things, the issuance and sale (the “Subscription”) to Platinum of shares of Common Stock, for an aggregate purchase price in the range of $700 million to $763 million, with the specific amount calculated in accordance with the Investment Agreement based upon the total equity funding required to fund the consideration paid pursuant to the terms of the Purchase Agreement. The shares of Common Stock issued and sold to Platinum had a purchase price of $5.00 per share. In accordance with the Investment Agreement, on December 21, 2020, Nesco entered into Subscription Agreements (the “Subscription Agreements”) with certain investors (the “PIPE Investors”) to finance in part the Acquisition. Pursuant to the Subscription Agreements, concurrently with the closing of the transactions contemplated by the Investment Agreement, the PIPE Investors agreed to purchase an aggregate of 28,000,000 shares of Common Stock at $5.00 per share for an aggregate purchase price of $140 million (the “Supplemental Equity Financing”).
On April 1, 2021 (the “Closing Date”), in connection with (i) the Rollovers, CTOS Inc. issued, in the aggregate, 20,100,000 shares of Common Stock to the parties to the Rollover Agreements, (ii) the Subscription, CTOS Inc. issued 148,600,000 shares of Common Stock to Platinum, and (iii) the Supplemental Equity Financing, CTOS Inc. issued, in the aggregate, 28,000,000 shares of Common Stock to the PIPE Investors. Following the completion of these transactions, as of April 1, 2021, CTOS Inc. had 245,919,383 shares of Common Stock issued and outstanding. The trading price of the Common Stock was $9.35 per share on the Closing Date. The preliminary purchase price for the Acquisition is estimated at $1.5 billion and is subject to adjustment pending the finalization of preliminary valuation estimates.
On the Closing Date, the Issuer issued $920 million in aggregate principal amount of 5.50% senior secured second lien notes due 2029 (the “2029 Secured Notes”) and, together with its direct parent, and certain of its direct and indirect subsidiaries, entered into a senior secured asset based revolving credit agreement (the “ABL Credit Agreement”) with Bank of America, N.A., as administrative agent and collateral agent, and certain other lenders party thereto, consisting of a $750.0 million first lien senior secured asset based revolving credit facility with a maturity of five years (the “ABL Facility,” together with the offering of the 2029 Secured Notes, the Acquisition, the Rollover, the Subscription and the Supplemental Equity Financing, the “Acquisition and related financing transactions”). For more detail regarding the 2029 Secured Notes and the ABL Facility, see “Liquidity and Capital Resources” below.
FINANCIAL OVERVIEW
We use a variety of operational and financial metrics, including non-GAAP financial measures, such as Adjusted EBITDA, to enable us to analyze our performance and financial condition. We utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance. Some of these measures are commonly used in our industry to evaluate performance. We believe these non-GAAP measures provide expanded insight to assess performance, in addition to the standard GAAP-based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, our non-GAAP financial measures may not be comparable to measures used by other companies within the industry.
The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. You should read this discussion and analysis of our results of operations and financial condition together with the consolidated financial statements and the related notes thereto also included within.
Measures Related to our Fleet
We consider the following key operational measures when evaluating our performance and making day-to-day operating decisions:
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Average OEC on rent — Original equipment cost (“OEC”) on rent is the original equipment cost of units rented to customers at a given point in time. Average OEC on rent is calculated as the weighted-average OEC on rent during the stated period. OEC represents the original equipment cost, exclusive of the effect of adjustments to rental equipment fleet acquired in business combinations, and is the basis for calculating certain of the measures set forth below. This adjusted measure of OEC is used by our creditors pursuant to our credit agreements, wherein this is a component of the basis for determining compliance with our financial loan covenants. Additionally, the pricing of our rental contracts and equipment sales prices for our equipment is based upon OEC, and we measure a rate of return from our rentals and sales using OEC. OEC is a widely used industry metric to compare fleet dollar value independent of depreciation.
Fleet utilization — Fleet utilization is defined as the total numbers of days the rental equipment was rented during a specified period of time divided by the total number of days available during the same period and weighted based on OEC. Utilization is a measure of fleet efficiency expressed as a percentage of time the fleet is on rent and is considered to be an important indicator of the revenue generating capacity of the fleet.
OEC on rent yield — OEC on rent yield (“ORY”) is a measure of return realized by our rental fleet during a period. ORY is calculated as rental revenue (excluding freight recovery and ancillary fees) during the stated period divided by the average OEC on rent for the same period. For periods less than 12 months, ORY is adjusted to an annualized basis.
Gross Profit
Gross profit is a financial performance measure that we use to monitor our results from operations.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial performance measure that the Company uses to monitor its results from operations, to measure performance against debt covenants and performance relative to competitors. The Company believes Adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of operating performance when compared to peers, without regard to financing methods or capital structures. The Company excludes the items identified in the reconciliations of Net loss to Adjusted EBITDA because these amounts are either non-recurring or can vary substantially within the industry depending upon accounting methods and book values of assets, capital structures, including the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, Net loss determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historical costs of depreciable assets, none of which are reflected in Adjusted EBITDA. The Company's presentation of Adjusted EBITDA should not be construed as an indication that results will be unaffected by the items excluded from Adjusted EBITDA. The Company’s computation of Adjusted EBITDA may not be identical to other similarly titled measures of other companies.
The Company defines Adjusted EBITDA as Net loss before interest expense, income taxes, depreciation and amortization, equity-based compensation, and other items that The Company does not view as indicative of ongoing performance. Additionally, the Company’s Adjusted EBITDA includes an adjustment to exclude the effects of purchase accounting adjustments when calculating the cost of inventory and used equipment sold. When inventory or equipment is purchased in connection with a business combination, the assets are revalued to their current fair values for accounting purposes. The consideration transferred (i.e., the purchase price) in a business combination is allocated to the fair values of the assets as of the acquisition date, with amortization or depreciation recorded thereafter following applicable accounting policies; however, this may not be indicative of the actual cost to acquire inventory or new equipment that is added to product inventory or the rental fleets apart from a business acquisition. Additionally, the pricing of rental contracts and equipment sales prices for equipment is based on OEC, and the Company measures a rate of return from rentals and sales using OEC. As indicated above, the agreements governing the Company’s indebtedness define this adjustment to EBITDA, as such, this metric is an indication of the cost of equipment sales from the removal of the purchase accounting adjustments.

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Operating Results
(in $000s)Three Months Ended March 31, 2021% of revenueThree Months Ended March 31, 2020% of revenue
Rental revenue$48,289 61.7%$50,994 62.4%
Sales of rental equipment10,485 13.4%9,093 11.1%
Sales of new equipment7,502 9.6%7,577 9.3%
Parts sales and services12,023 15.4%14,079 17.2%
Total revenue78,299 100.0%81,743 100.0%
Cost of revenue40,236 51.4%40,228 49.2%
Depreciation of rental equipment17,844 22.8%20,112 24.6%
Gross profit20,219 25.8%21,403 26.2%
Operating expenses23,273 14,607 
Operating (loss) income(3,054)6,796 
Other expense20,763 22,035 
Loss before income taxes(23,817)(15,239)
Income tax expense4,090 730 
Net loss$(27,907)$(15,969)

Total Revenue. Total revenue for the first quarter of 2021, decreased by $3.4 million, or 4.2%, compared to the first quarter of 2020. Rental revenue for the first quarter of 2021 decreased $2.7 million, or 5.3%, compared to the same period in 2020 as a result of rental fleet mix. Sales of rental equipment, which can vary from quarter to quarter, increased $1.4 million, or 15.3%, as we continued to selectively divest underutilized and aging equipment. Sales of new equipment, which also varies from quarter to quarter, held flat decreasing $0.1 million, or 1%, compared to the same period in 2020. Parts sales and service revenue decreased $2.1 million, or 14.6%, compared to the same period in 2020 as a result of a decline in upfit work under the PTA segment.
Cost of Revenue. Cost of revenue, excluding depreciation of $17.8 million, for the three months ended March 31, 2021, was flat compared to the same period in 2020 ($2.3 million, or 3.7%, including depreciation).
Operating Expenses. Operating expenses for the three months ended March 31, 2021 increased $8.7 million, or 59.3%, compared to the same period in 2020. The increase in the first quarter is a result of transaction expenses related to the Acquisition.
Other Expense. Other expense for the three months ended March 31, 2021 decreased $1.3 million, or 5.8%, compared to the same period in 2020. The decrease is attributable to the change in fair value of an interest rate collar, which is an undesignated hedging instrument, which resulted in income in the current quarter of approximately $1.8 million ($6.0 million expense for the first quarter ended March 31, 2020), coupled with reduced interest expense as a result of lower borrowings from the revolving credit facility (net interest expense in the current quarter decreased by $1.1 million). The decrease was offset by a charge for the change in fair value of the liability for warrants of $7.6 million during the period.
Income Tax Expense. Income tax expense was $4.1 million for the three months ended March 31, 2021 as compared to $0.7 million for the same period of the prior year. Income tax expense for the current period reflects the Company's estimated overall tax rate from of the Company's estimate of full-year taxable income arising from disallowed interest expense. The Company's effective tax rate for the current period, (17.2)%, differs from the U.S. federal statutory tax rate due primarily to the valuation allowance for deferred tax assets.
Net Loss. Net loss was $27.9 million for the three months ended March 31, 2021 compared to net loss of $16.0 million for the same period of the prior year. The Company recognized transaction expenses related to the Acquisition of approximately $10.4 million, as well as a non-cash charge of $7.6 million related to privately placed warrants stemming from its 2019 merger with Capitol Investment Corp. IV.
Financial Performance
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 free cash flow through our earnings, as well as sales of used equipment. Our highly variable cost structure adjusts with the utilization of our equipment,
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thereby reducing our costs to match our revenue. We principally evaluate financial performance based on the following measurements: Adjusted EBITDA, OEC on rent, fleet utilization, and OEC on rent yield. The following table summarizes these operating metrics.
The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Three Months Ended March 31,
(in $000s)20212020change(%)
Adjusted EBITDA(a)
$27,531 $32,061 $(4,530)(14.1)%
Average OEC on rent(b)
$499,725 $499,756 $(31)— %
Fleet utilization(c)
78.5 %77.3 %1.2 %1.6 %
OEC on rent yield(d)
35.0 %36.5 %(1.5)%(4.1)%
(a)    EBITDA represents Net loss before interest, provision for income taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA as further adjusted for (1) non-cash purchase accounting impact, (2) transaction and process improvement costs, including the effect of the cessation of operations in Mexico, (3) major repairs, (4) share-based payments, and (5) the change in fair value of derivative instruments. These metrics are subject to certain limitations. See Financial Overview – Adjusted EBITDA” and the reconciliation of Adjusted EBITDA to U.S. GAAP Net loss below.
(b)    Average OEC on rent is the average original equipment cost of units on rent during the period. The measure provides a value dimension to the fleet utilization statistics. This metric has been adjusted to exclude Mexico, which the Company commenced exit activities in the third quarter of 2019.