On April 1, 2021 (the "Closing Date"), Nesco Holdings II, Inc., a subsidiary of
Custom Truck One Source, Inc. (formerly Nesco Holdings, Inc.), completed the
acquisition of Custom Truck One Source, L.P. in a series of transactions
described below. On April 1, 2021, 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," and the ticker of its redeemable warrants from "NSCO.WS" to
"CTOS.WS."
Throughout this section, unless otherwise noted, terms such as "we," "our,"
"us," or "the Company" refer to Nesco Holdings prior to the acquisition by Nesco
Holdings II, Inc. of Custom Truck One Source, L.P. ("Custom Truck LP") on April
1, 2021 (the "Acquisition"), and to the combined company after the Acquisition.
Unless the context otherwise requires, the terms "Nesco" or "Nesco Holdings"
mean Nesco Holdings and its consolidated subsidiaries prior to the Acquisition,
and the term "Custom Truck LP" means Custom Truck LP and its consolidated
subsidiaries prior to the Acquisition.

Acquisition of Custom Truck LP
On December 3, 2020, Nesco Holdings and Nesco Holdings II, Inc., a subsidiary of
Nesco Holdings (the "Buyer" or the "Issuer"), entered into a Purchase and Sale
Agreement (as amended, the "Purchase Agreement") with certain affiliates of The
Blackstone Group ("Blackstone") and other direct and indirect equity holders
(collectively, "Sellers") of Custom Truck LP, Blackstone Capital Partners VI-NQ
L.P., and PE One Source Holdings, LLC, an affiliate of Platinum Equity, LLC
("Platinum"), pursuant to which Buyer agreed to acquire 100% of the partnership
interests of Custom Truck LP. 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 LP (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 Holdings entered into a Common Stock Purchase
Agreement (the "Investment Agreement") with Platinum, relating to, among other
things, the issuance and sale to Platinum (the "Subscription") 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 the Closing Date, in connection with (i) the Rollovers, the Company issued,
in the aggregate, 20,100,000 shares of Common Stock to the parties to the
Rollover Agreements, (ii) the Subscription, the Company issued 148,600,000
shares of Common Stock to Platinum, and (iii) the Supplemental Equity Financing,
the Company 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, the Company 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.

Presentation of Financial Condition and Results of Operations
Custom Truck LP became a wholly owned subsidiary of the Company on April 1,
2021. The Company's condensed consolidated financial statements prepared under
United States generally accepted accounting principles ("GAAP") include Custom
Truck LP as of
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June 30, 2021 and for the period from April 1, 2021 to June 30, 2021.
Accordingly, information presented for the three months ended June 30, 2021
represents the consolidated financial results of Custom Truck LP and its
subsidiaries and Nesco Holdings and its subsidiaries, while information for the
six months ended June 30, 2021 represents the financial results of Nesco
Holdings and its subsidiaries for that entire period and the financial results
of Custom Truck LP and its subsidiaries only from April 1, 2021 to June 30,
2021. Further, for the three and six months ended June 30, 2020, the financial
results are those of Nesco Holdings and its subsidiaries (that is, prior to the
Acquisition and inclusion of Custom Truck LP). Accordingly, the financial
information presented under GAAP for the current periods is not comparable to
those of corresponding prior periods. As a result, we have included information
on a "pro forma" basis as further described below, which we believe provides for
more meaningful year-over-year comparability. 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 and six months ended June 30, 2021 and the corresponding prior
periods.

Pro Forma Financial Information
The unaudited pro forma combined financial information presented in the section
entitled "Supplemental Pro Forma Information," give effect to the Company's
acquisition of Custom Truck LP, as if the Acquisition had occurred on January 1,
2020, and are presented to facilitate comparisons with our results following the
acquisition. This information has been prepared in accordance with Securities
and Exchange Commission Article 11 of Regulation S-X. Such unaudited pro forma
combined financial information also uses the estimated fair value of assets and
liabilities on the Closing Date, and makes the following assumptions: (1)
removes acquisition-related costs and charges that were recognized in the
Company's condensed consolidated financial statements in the three and six
months ended June 30, 2021 and applies these costs and charges to the three and
six months ended June 30, 2020, as if the Acquisition and Related Financing
Transactions had occurred on January 1, 2020; (2) removes the loss on the
extinguishment of debt that was recognized in the Company's condensed
consolidated financial statements in the three and six months ended June 30,
2021 and applies the charge to the three and six months ended June 30, 2020, as
if the debt extinguishment giving rise to the loss had occurred on January 1,
2020; (3) adjusts for the impacts of purchase accounting in the three and six
months ended June 30, 2021 and 2020; (4) adjusts interest expense, including
amortization of debt issuance costs, to reflect borrowings on the ABL Facility
and issuance of the 2029 Secured Notes, as if the funds had been borrowed on
January 1, 2020 and used to repay pre-acquisition debt; and (5) adjusts for the
income tax effect using a tax rate of 25%.

Financial and Performance Measures
Financial Measures
Revenues - As a full-service equipment provider, we generate revenue through
renting, selling, assembling, upfitting, and servicing new and used heavy-duty
trucks and cranes, as well as the sale of related parts. We also sell and rent
specialized tools on an individual basis and in kits. Rental revenue is
primarily comprised of revenues from rental agreements and freight charges
billed to customers. For periods after January 1, 2021, the Company records
changes in estimated collectability directly against rental revenue. Equipment
sales revenue reflects the value of vocational trucks and other equipment sold
to customers. Parts and service revenue is derived from maintenance and repair
services, light upfit services, and parts, tools and accessories sold directly
to customers.
Cost of Rental Revenue - Cost of rental revenue reflects repairs and maintenance
costs of rental equipment, parts costs, labor and other overheads related to
maintaining the rental fleet, and freight associated with the shipping of rental
equipment.
Depreciation of Rental Equipment - Depreciation of rental equipment is comprised
of depreciation expense on the rental fleet. We allocate the cost of rental
equipment generally over the rentable life of the equipment. The depreciation
allocation is based upon estimated lives ranging from five to seven years. The
cost of equipment is depreciated to an estimated residual value using the
straight-line method.
Cost of Equipment Sales - Cost of equipment sales reflects production and
inventory costs associated with new units sold, parts costs, labor and other
overheads related to production, and freight associated with the shipping and
receiving of equipment and parts. Cost of equipment sales also includes the net
book value of rental units sold.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses include sales compensation, fleet licensing fees and
corporate expenses, including salaries, stock-based compensation expense,
insurance, advertising costs, professional services, and information technology
costs.
Amortization and Non-Rental Depreciation - Amortization expense relates to
intangible assets such as customer lists, trade names, etc. Non-rental
depreciation expense reflects the depreciation of property and equipment that is
not part of the rental fleet.
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Transaction Expenses and Other - Transaction expenses and other include expenses
directly related to the acquisition of businesses. These expenses generally are
comprised of travel and out-of-pocket expenses and legal, accounting and
valuation or appraisal fees incurred in connection with pre- and post-closure
activities. We also include costs and expenses associated with post-acquisition
integration activities related to the acquired businesses.
Financing and Other Expense (Income) - Financing and other expense or income
reflects the fees earned on customer arranged financing, financing income
associated with sales-type lease activity, gains or losses resulting from
insurance settlements, foreign currency gains and losses related to our Canadian
operations, as well as other miscellaneous gains or losses from non-operating
activities. Also included in financing and other expense/income are the
unrealized remeasurement gains and losses related to our interest rate collar
and redeemable warrants.
Interest Expense - Interest expense consists of contractual interest expense on
outstanding debt obligations, floorplan financing facilities, amortization of
deferred financing costs and other related financing expenses.
Income Tax Expense (Benefit) - We have net operating loss carryforward and
disallowed interest deduction carryforward assets, which are generally available
to be used to offset taxable income generated in future years. Due to
limitations on the use of these carryforwards under U.S. federal and state
income tax regulations, we record valuation allowances to reduce the
carryforward assets to amounts that we estimate will be realized. Accordingly,
income tax expense or benefit generally is comprised of changes to these
valuation allowance estimates and does not reflect taxes on current period
income (or tax benefit on current period losses). For these reasons, our
effective tax rate differs from the federal statutory tax rate.
Performance Measures
We consider the following key operational measures when evaluating our
performance and making day-to-day operating decisions:
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.

Operating Segments
Following the Acquisition, we modified our management structure and expanded
from two reportable operating segments to three: Equipment Rental Solutions,
Truck and Equipment Sales and Aftermarket Parts and Services. Segment
information provided within this Quarterly Report on Form 10-Q has been adjusted
for all prior periods consistent with the current reportable segment
presentation.
Equipment Rental Solutions ("ERS") Segment - We own a broad range of new and
used specialty equipment, including truck-mounted aerial lifts, cranes, service
trucks, dump trucks, trailers, digger derricks and other machinery and
equipment. As of June 30, 2021, this equipment (the "rental fleet") is comprised
of more than 8,800 units. The majority of our rental fleet can be used across a
variety of end-markets, which coincides with the needs of many of our customers
who operate in multiple end-markets. As is customary for equipment rental
companies, we sell used equipment out of our rental fleet to end user customers.
These sales are often made in response to specific customer requests. These
sales offer customers an opportunity to buy well-maintained equipment with long
remaining useful lives and enable us to effectively manage the age and mix of
our rental fleet to match current market demand. We also employ Rental Purchase
Options ("RPOs") on a select basis, which provide a buyout option with an
established purchase price that decreases over time as rental revenue is
collected. Customers are given credit against such purchase price for a portion
of the
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amounts paid over the life of the rental, allowing customers the flexibility of
a rental with the option to purchase at any time at a known price. Activities in
our ERS segment consist of the rental and sale from the rental fleet, of the
foregoing products.
Truck and Equipment Sales ("TES") Segment - We offer a broad variety of new
equipment for sale to be used across our end-markets, which can be modified to
meet our customers' specific needs. We believe that our integrated production
capabilities and extensive knowledge gained over a long history of selling
equipment have established us as a trusted partner for customers seeking
tailored solutions with short lead times. In support of these activities, we
primarily employ a direct-to-customer sales model, leveraging our dedicated
salesforce of industry and product managers, who are focused on driving national
and local sales. We also opportunistically engage in the sale of used equipment
purchased from third parties or received via trade-ins from new equipment sales
customers. In all of these cases, we will sell used equipment directly to
customers, rather than relying on auctions. Activities in our TES segment
consist of the production and sale of new and used specialty equipment and
vocational trucks, which includes equipment from leading original equipment
manufacturers ("OEMs") across our end-markets, as well as our Load King© brand.
Aftermarket Parts and Services ("APS") Segment - The APS segment includes the
sale of specialized aftermarket parts, including captive parts related to our
Load King© brand, used in the maintenance and repair of the equipment we sell
and rent. Specialized tools, including stringing blocks, insulated hot stick,
and rigging equipment, are sold or rented to customers on an individual basis or
in packaged specialty kits. We also provide truck and equipment maintenance and
repair services, which is executed throughout nationwide branch network and
fleet of mobile technicians supported by our 24/7 call center based in Kansas
City, Missouri.

Non-GAAP Financial Measures
In this MD&A and in the Supplemental Pro Forma Information, we report certain
financial measures that are not required by, or presented in accordance with,
GAAP. We utilize these financial measures to manage our business on a day-to-day
basis, and some of these measures are commonly used in our industry to evaluate
performance. We believe these non-GAAP measures provide investors expanded
insight to assess performance, in addition to the standard GAAP-based financial
measures. Reconciliation of the most directly comparable GAAP measure to each
non-GAAP measure that we refer to is included in this quarterly report on Form
10-Q. The following provides a description of the non-GAAP financial measures.
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, including the
method by which the assets were acquired, and capital structures. Adjusted
EBITDA should not be considered as an alternative to, or more meaningful than,
net loss determined in accordance with GAAP. Certain items excluded from
Adjusted EBITDA are significant components in understanding and assessing a
company's financial performance, such as a company's cost of capital and tax
structure, as well as the historical costs of depreciable assets, none of which
are reflected in Adjusted EBITDA. The Company's presentation of Adjusted EBITDA
should not be construed as an indication that results will be unaffected by the
items excluded from Adjusted EBITDA. The Company's computation of Adjusted
EBITDA may not be identical to other similarly titled measures of other
companies.
The Company defines Adjusted EBITDA as net income or loss before interest
expense, income taxes, depreciation and amortization, share-based compensation,
and other items that the Company does not view as indicative of ongoing
performance. The Company's Adjusted EBITDA includes an adjustment to exclude the
effects of purchase accounting adjustments when calculating the cost of
inventory and used 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. The Company also includes an adjustment to
remove the impact of accounting for certain of our rental contracts with
customers containing a rental purchase option that are accounted for under GAAP
as a sales-type lease. We include this adjustment because we believe continuing
to reflect the transactions as an operating lease better reflects the economics
of the transactions given our large portfolio of rental contracts. These, and
other, adjustments to GAAP net income or loss that are applied to derive
Adjusted EBITDA are specified by the Company's senior secured credit agreements.
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Although management evaluates and presents the Adjusted EBITDA non-GAAP measure
for the reasons described herein, please be aware that this non-GAAP measure has
limitations and should not be considered in isolation or as a substitute for
revenue, operating income/loss, net income/loss, earnings/loss per share or any
other comparable operating measure prescribed by GAAP. In addition, we may
calculate and/or present this non-GAAP financial measure differently than
measures with the same or similar names that other companies report, and as a
result, the non-GAAP measure we report may not be comparable to those reported
by others.
Pro Forma Adjusted EBITDA
We present Pro Forma Adjusted EBITDA as if the Acquisition had occurred on
January 1, 2020. Refer to the reconciliation of pro forma combined net loss to
Pro Forma Adjusted EBITDA for the three and six-month periods ended June 30,
2021 and 2020 in the section entitled "Supplemental Pro Forma Information."
Gross Profit Excluding Depreciation of Rental Equipment
Gross profit excluding depreciation of rental equipment is a financial
performance measure that we use to monitor our results from operations. We
believe the exclusion of depreciation expense of the rental fleet provides a
meaningful measure of financial performance because it provides useful
information relating to profitability that reflects ongoing and direct operating
expenses, such as freight costs and fleet maintenance costs, related to our
rental fleet. Although management evaluates and presents this non-GAAP measure
for the reasons described herein, please be aware that this non-GAAP measure has
limitations and should not be considered in isolation or as a substitute for
revenue, gross profit or any other comparable operating measure prescribed by
GAAP. In addition, we may calculate and/or present this non-GAAP financial
measure differently than measures with the same or similar names that other
companies report, and as a result, the non-GAAP measure we report may not be
comparable to those reported by others.

Overview of Markets
We continue to focus on four primary end markets: Transmission and Distribution,
or T&D, Telecom, Rail, and Infrastructure. In the T&D end market, we continue to
observe demand for renewable energy resulting in the development of new
transmission lines as well as repair projects to address advanced-age
transmission and distribution grids to replace existing lines and poles. These
factors resulted in continued demand from our customers of the Company's
products and services. Telecom, specifically the roll-out of 5G, has seen some
positive trends over the last year and half. Our existing T&D related contactor
customers are expected to deliver the roll-out, and our existing equipment
portfolio aligns well with the needs of this market. Rail investment, both in
the freight and commuter markets, remains robust. The existing rail
infrastructure is aged and in need of maintenance. Infrastructure also provides
potential growth opportunities as seen by the major road and bridge maintenance
work experienced across the United States.
Uncertainty remains regarding emerging variant strains of COVID-19, and
regarding the length of time it will take for the COVID-19 pandemic to subside,
including the time it will take for vaccines to be broadly distributed and
accepted in the United States and the rest of the world, and the effectiveness
of such vaccines in slowing or stopping the spread of COVID-19 and mitigating
the economic effects of the 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., and the Company
has continued to meet the needs of 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. The
unprecedented nature of the COVID-19 pandemic continues to make it difficult to
predict our future business and financial performance.

Consolidated Operating Results
The consolidated operating results presented below for the three and six months
ended June 30, 2021 include the results of Custom Truck LP from April 1, 2021 to
June 30, 2021. The consolidated operating results for the three and six months
ended June 30, 2020 represent those of Nesco Holdings before the acquisition of
Custom Truck LP and, therefore, are not comparable.
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                                                     Three Months Ended                                                    Six Months Ended
                                                          June 30,                                                             June 30,
(in $000s)                         2021       % of revenue            2020      % of revenue            2021       % of revenue            2020      % of revenue
Rental revenue                 $   98,539        26.3%            $  46,984        68.6%            $  146,828        32.4%            $  97,978        65.2%
Equipment sales                   247,675        66.0%               10,400        15.2%               265,662        58.6%               27,070        18.0%

Parts sales and services           28,897         7.7%               11,097        16.2%                40,920         9.0%               25,176        16.8%
Total revenue                     375,111        100.0%              68,481        100.0%              453,410        100.0%             150,224        100.0%
Cost of revenue, excluding
rental equipment depreciation     285,242        76.0%               32,443        47.4%               325,478        71.8%               72,671        48.4%
Depreciation of rental
equipment                          43,179        11.5%               19,696        28.8%                61,023        13.5%               39,808        26.5%
Gross profit                       46,690        12.4%               16,342        23.9%                66,909        14.8%               37,745        25.1%
Operating expenses                 90,122                            13,823                            113,395                            28,430
Operating (loss) income           (43,432)                            2,519                            (46,486)                            9,315
Other expense                      79,360                            16,732                            100,123                            38,767
Loss before income taxes         (122,792)                          (14,213)                          (146,609)                          (29,452)
Income tax expense (benefit)        6,564                            (1,063)                            10,654                              (333)
Net loss                       $ (129,356)                        $ (13,150)                        $ (157,263)                        $ (29,119)


Total Revenue. The increase in total revenue in the three and six months ended
June 30, 2021 compared to the same periods of the prior year was driven by the
addition of Custom Truck LP's revenues to our operating results. The acquisition
of Custom Truck LP added a new equipment production and sales line of business,
which we report under our TES segment. Equipment sales revenue for the prior
year includes Nesco's sales of new units in those periods, however, this
activity was not significant relative to the current year. The increase in
equipment sales revenue for the three and six months ended June 30, 2021 of
$237.3 million and $238.6 million, respectively, was driven by the contribution
of Custom Truck LP's whole goods sales business, with sales of new equipment
comprising 86.9% of equipment sales revenue in the second quarter of 2021 (83.8%
of equipment sales revenue for the six months ended) as compared to new sales
revenue of 52.1% of equipment sales revenue in the second quarter of 2020 (48.0%
for the six month period). The increase in parts and services revenue for the
three and six months ended June 30, 2021 of $17.8 million and $15.7 million,
respectively, was driven by the contribution of Custom Truck LP's parts sales
and heavy equipment service business. Rental revenue, which increased $51.6
million in the second quarter of 2021 ($48.9 million for the six month period)
when compared to the corresponding prior periods, is the result of the addition
of Custom Truck LP's rental fleet comprising approximately 4,300 rentable units,
bringing our total rentable fleet level to more than 8,800 units.
Cost of Revenue. Cost of revenue, excluding rental equipment depreciation of
$43.2 million, was $285.2 million in the second quarter of 2021, representing an
increase of $252.8 million compared to the second quarter of 2020. For the six
months ended June 30, 2021, cost of revenue, excluding rental equipment
depreciation of $61.0 million, was $325.5 million, representing an increase of
$252.8 million compared to the same period in 2020. The primary driver of the
increase in total cost of revenue of $276.3 million and $274.0 million in the
three and six months ended June 30, 2021, respectively, was the addition of
Custom Truck LP's whole goods sales business. The cost of sales of new equipment
represented approximately $194.8 million and $201.7 million of total cost of
revenue in the three and six months ended June 30, 2021, respectively.
Operating Expenses. Operating expenses for the three months ended June 30, 2021
increased $76.3 million and for the six months ended June 30, 2021 increased
$85.0 million compared to the same periods in 2020. The primary drivers of the
increases are related to additional selling, general and administrative expenses
related to operating a larger business as a result of the Acquisition and the
expenses related to closing the Acquisition and business integration costs.
Certain expenses directly related to the Acquisition and Related Financing
Transactions are not expected to recur in future periods including legal and
insurance fees aggregating $10.2 million.
Other Expense. Other expense for the three and six months ended June 30, 2021
increased $62.6 million and $61.4 million, respectively, compared to the same
periods in 2020. We recognized loss on extinguishment of debt in the amount of
$61.7 million in the second quarter of 2021 directly related to the refinancing
of Nesco's asset-based revolving credit facility and senior secured notes in
connection with the Acquisition. Interest expense for the three and six months
ended June 30, 2021 increased $3.8 million (or 23.7%) and $2.7 million (or
8.3%), respectively, as a result of the Acquisition and Related Financing
Transactions, which increased our consolidated debt outstanding by $754.7
million compared to June 30, 2020.
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Income Tax Expense (Benefit). The Company's effective tax rate for the six
months ended June 30, 2021 of negative 7.3%, differs from the U.S. federal
statutory tax rate due primarily to the recording of the valuation allowance.
Income tax benefit in the six months ended June 30, 2020 relates to changes in
the valuation allowance.
Net Loss. Net loss was $129.4 million for the three months ended June 30, 2021
compared to net loss of $13.2 million for the same period of the prior year. Net
loss was $157.3 million for the six months ended June 30, 2021 compared to net
loss of $29.1 million for the same period of the prior year. In both periods,
the addition of Custom Truck LP and the significant expenses incurred and
recognized directly related to the Acquisition and Related Financing
Transactions were the primary drivers of the increases to net loss.

Financial and Operating Performance
The operating performance metrics presented below for the three and six months
ended June 30, 2021 include the results of Custom Truck LP from April 1, 2021 to
June 30, 2021. The operating performance metrics presented below for the three
and six months ended June 30, 2020 represent those of Nesco Holdings before the
acquisition of Custom Truck LP and, therefore, are not comparable.
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, thereby reducing our costs to match our revenue. We principally
evaluate financial performance based on the following measurements: average OEC
on rent, fleet utilization, and OEC on rent yield. The table below presents
these key measures.
                                                      Three Months Ended                                                        Six Months Ended
                                                           June 30,                                                                 June 30,
(in $000s)                        2021                2020              change             (%)              2021               2020              change            (%)

Average OEC on rent(a)       $ 1,084,709          $ 461,058            $623,651          135.3%         $ 792,325          $ 480,407            $311,918           64.9
Fleet utilization(b)              81%                 71%                10%               14%              80%                74%                 6%               8%
OEC on rent yield(c)              38%                 36%                 2%               4%               37%                36%                 1%               2%
Sales order backlog (as of
June 30, 2021)(d)            $   222,661              n/a


(a)  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.
(b)  Fleet utilization for the period is calculated by dividing the amount of
time an asset is on rent by the amount of time the asset has been owned during
the period. Time on rent is weighted by OEC.
(c)  OEC on rent yield ("ORY") is a measure of return realized by our rental
fleet during the 12-month 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, the
ORY is adjusted to an annualized basis.
(d)  Sales order backlog consists of purchase orders received for products
expected to be shipped within the next 12 months, although shipment dates are
subject to change due to design modifications or changes in other customer
requirements. Order backlog should not be considered an accurate measure of
future net sales.
Average OEC on Rent. The increase in Average OEC on rent for the three and six
months ended June 30, 2021 compared to the same periods in 2020 was driven by
the addition of Custom Truck LP's rental fleet.
Fleet Utilization. Fleet utilization improved for the three and six months ended
June 30, 2021 compared to the same periods in 2020 as project work and rental
demand rebounded following the impact of the COVID-19 global health pandemic
that affected rental volume in 2020.
OEC on Rent Yield. The increase in ORY was driven by the addition of the Custom
Truck LP rental fleet and its impact to the mix of equipment types on rent, as
this fleet has lower OEC unit costs.
Sales Order Backlog. Sales order backlog consists of customer orders placed for
customized and stock equipment and relates to the addition of Custom Truck LP's
new equipment sales business.


                                       36
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Adjusted EBITDA
The Adjusted EBITDA Reconciliation presented below for the three and six months
ended June 30, 2021 include the results of Custom Truck LP from April 1, 2021 to
June 30, 2021. The Adjusted EBITDA Reconciliation for the three and six months
ended June 30, 2020 represent those of Nesco Holdings and are not comparable.
                                            Three Months Ended June 30,                     Six Months Ended June 30,
(in $000s)                                    2021                  2020                     2021                    2020
Net income (loss)                      $      (129,356)         $  (13,150)         $     (157,263)              $  (29,119)
Interest expense                                17,602              15,949                  32,508                   31,963
Income tax expense                               6,564              (1,063)                 10,654                     (333)
Depreciation and amortization                   60,062              21,358                  79,163                   43,126

EBITDA                                         (45,128)             23,094                 (34,938)                  45,637
  Adjustments:
  Non-cash purchase accounting impact
(1)                                             21,387                 178                  21,440                    1,095
  Transaction and process improvement
costs (2)                                       24,601               1,639                  35,345                    3,718
  Loss on extinguishment of debt (3)            61,695                   -                  61,695                        -

  Sales-type lease adjustment (4)                 (510)                  -                    (510)                       -
  Share-based payments (5)                       7,162                 453                   7,860                    1,012
Change in fair value of derivative and
warrants (6)                                     1,034                 804                   6,880                    6,767
Adjusted EBITDA                        $        70,241          $   26,168          $       97,772               $   58,229


(1) Represents the non-cash impact of purchase accounting, net of accumulated
depreciation, on the cost of equipment and inventory sold. The equipment and
inventory acquired received a purchase accounting step-up in basis, which is a
non-cash adjustment to the equipment cost pursuant to our credit agreement.
(2) Represents transaction costs related to acquisitions of businesses. These
expenses are comprised of professional consultancy, legal, tax and accounting
fees. Also included are expenses associated with the integration of acquired
businesses.
(3) Loss on extinguishment of debt represents special charges, which are not
expected to recur. Such charges are adjustments pursuant to our credit
agreement.
(4) Represents the impact of sales-type lease accounting for certain leases
containing rental purchase options ("RPOs"), as the application of sales-type
lease accounting is not deemed to be representative of the ongoing cash flows of
the underlying rental contracts. The adjustments are made pursuant to our credit
agreement.
(5) Represents non-cash share-based compensation expense associated with the
issuance of stock options and restricted stock units.
(6) Represents the charge to earnings for our interest rate collar and the
change in fair value of the liability for warrants.


Operating Results by Segment
The operating results by segment information presented below for the three and
six months ended June 30, 2021 include Custom Truck LP from April 1, 2021 to
June 30, 2021. The operating results by segment information for the three and
six months ended June 30, 2020 include only those of Nesco Holdings and are not
comparable.
Equipment Rental Solutions (ERS) Segment

                                         Three Months Ended                        Six Months Ended
                                              June 30,                                 June 30,
(in $000s)                               2021           2020                      2021           2020
Rental revenue                       $   95,081      $ 43,025                  $ 139,811      $ 90,078
Equipment sales                          32,555         4,982                     43,040        14,075

Total revenue                           127,636        48,007                    182,851       104,153

Cost of rental revenue                   27,524        13,236                     43,061        26,174
Cost of equipment sales                  34,529         3,536                     41,269        11,264

Depreciation of rental equipment         42,192        18,559                     59,077        37,535
Total cost of revenue                   104,245        35,331                    143,407        74,973
Gross profit                         $   23,391      $ 12,676                  $  39,444      $ 29,180


Total Revenue. Rental revenue increased in the second quarter of 2021 and for
the six month period, when compared to the corresponding prior periods, as a
result of the addition of Custom Truck LP's rental fleet comprising
approximately 4,300 rentable units. Additionally, rental revenue was impacted by
the adoption of ASU 2016-02, Leases ("Topic 842"), effective January 1, 2021. In
                                       37
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accordance with the collectability provisions of Topic 842, effective January 1,
2021, rental revenue for both the three and six months ended June 30, 2021
includes $6.0 million in estimated losses related to operating lease receivables
from rental customers. During the three and six months ended June 30, 2020, the
Company recognized bad debt expense of $0.6 million and $1.3 million,
respectively, within selling, general and administrative expenses in its
consolidated statements of operations that would have been recorded as
reductions to rental revenue had the provisions of Topic 842 been applied to
those periods.
Sales of rental equipment increased due to the greater number of customer
requested buys in the period, driven in part by the addition of Custom Truck LP
and sales of units from its rental fleet. Additionally, we continued to make
selective divestitures of under-utilized and aging fleet equipment.
Cost of Revenue. The increase in cost of revenue, excluding depreciation, in the
second quarter of 2021 and for the six month period when compared to the
corresponding prior periods is primarily due to costs related to increased sales
of rental equipment.
Depreciation. Depreciation of our rental fleet increased in the second quarter
of 2021 and for the six month period when compared to the corresponding prior
periods as a direct result of the addition of the rental fleet from Custom Truck
LP, compared to the same periods in 2020.
Gross Profit. Rental gross profit excluding depreciation of rental equipment of
$42.2 million, was $67.6 million for the three months ended June 30, 2021, which
represents a rental gross profit margin improvement of 1.9% compared to the
second quarter of 2020. Rental gross profit excluding depreciation of rental
equipment of $59.1 million, was $96.8 million, for the six months ended June 30,
2021, which represents a rental gross profit margin decline of 1.7% compared to
the prior year period. Gross profit from sales of rental equipment for the three
and six months ended June 30, 2021 was negative $2.0 million and $1.8 million,
respectively, and was impacted by purchase accounting for the mark-up to fair
values of certain Custom Truck LP rental fleet units sold. The factors discussed
above resulted in gross profit in our ERS segment of $23.4 million and $39.4
million for the three and six months ended June 30, 2021, respectively.
Truck and Equipment Sales (TES) Segment
                               Three Months Ended                        Six Months Ended
                                    June 30,                                 June 30,
(in $000s)                     2021           2020                      2021           2020

Equipment sales            $   215,120      $ 5,418                  $ 222,622      $ 12,995

Cost of equipment sales        194,810        4,777                    201,735        11,431

Gross profit               $    20,310      $   641                  $  20,887      $  1,564


Total Revenues. The acquisition of Custom Truck LP added a new equipment
production and sales line of business. Revenue for the prior year periods
represents Nesco's sales of new units in those periods. The sale of new units
was not a significant component of the Company's business prior to the Custom
Truck LP acquisition.
Cost of Equipment Sales. Cost of equipment sales increased in line with the
addition of Custom Truck LP's whole goods production and sale business.
Gross Profit. Gross margin for the three and six months ended June 30, 2021 was
9.4%. This compares to gross margin for the comparable prior periods of 11.8%
and 12.0%, respectively. Gross margins in the second quarter of 2021 and
year-to-date 2021 were impacted by higher than expected freight costs, as well
as purchase accounting for the mark-up of Custom Truck LP's new equipment
inventory to fair value. The factors discussed above resulted in gross profit in
our TES segment of $20.3 million and $20.9 million for the three and six months
ended June 30, 2021, respectively.
                                       38
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Aftermarket Parts and Services (APS) Segment


                                        Three Months Ended                          Six Months Ended
                                             June 30,                                   June 30,
(in $000s)                               2021            2020                      2021          2020
Rental revenue                     $    3,458          $ 3,959                  $   7,017      $ 7,900

Parts and services revenue             28,897           11,097                     40,920       25,176

Total revenue                          32,355           15,056                     47,937       33,076

Cost of revenue                        28,379           10,894                     39,413       23,802

Depreciation of rental equipment          987            1,137                      1,946        2,273
Total cost of revenue                  29,366           12,031                     41,359       26,075
Gross profit                       $    2,989          $ 3,025                  $   6,578      $ 7,001


Total Revenues. The increase in APS segment revenue in the second quarter of
2021 and for the six month period when compared to the corresponding prior
periods, is the result of the addition of Custom Truck LP's aftermarket parts
and distribution and aftermarket repair services business. Rentals of parts,
tools and accessories decreased $0.5 million (12.7%) in the second quarter of
2021 and $0.9 million (11.2%) in the six month period in 2021 compared to the
corresponding prior periods due to the impact of severe heat across North
America impacting new project starts.
Cost of Revenue. Cost of revenue increased in line with the addition of Custom
Truck LP's aftermarket parts distribution and aftermarket repair services
business.
Gross Profit. Total segment gross profit was impacted by the effect of purchase
accounting for the mark-up of Custom Truck LP's parts inventories to fair value.
The factors discussed above resulted in gross profit in our APS segment of $3.0
million and $6.6 million for the three and six months ended June 30, 2021,
respectively.
                                       39
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Supplemental Pro Forma Information
As result of the Acquisition and Related Financing Transactions, we believe
presenting supplemental pro forma financial information is beneficial to the
readers of our financial statements. The following table sets forth key metrics
used by management to run our business on a pro forma and combined basis as if
the Acquisition and Related Financing Transactions had occurred on January 1,
2020. Refer to the information below for a full reconciliation of the statements
of operations.
Summary Pro Forma and Operational Data
                                         Three Months Ended                  Six Months Ended
                                              June 30,                           June 30,
(in $000s)                              2021             2020             2021              2020
Revenue                            $   375,111       $ 294,506       $   769,881       $   648,345
Gross profit                       $    56,078       $  43,716       $   139,406       $   102,815
Net loss                           $   (57,613)      $ (18,602)      $   (51,284)      $  (117,196)
Adjusted EBITDA                    $    70,241       $  63,998       $   143,106       $   137,547
Fleet and Operational Metrics:
Average OEC on rent                $ 1,084,709       $ 956,589       $ 1,066,318       $ 1,007,173
Fleet utilization                           81  %           71  %             80  %             74  %
OEC on rent yield                           38  %           38  %             37  %             38  %

Order backlog (as of period end) $ 222,661 $ 82,856 $ 222,661 $ 82,856





Pro Forma Financial Statements
The following pro forma information has been prepared in accordance with Article
11 of Regulation S-X, "Pro Forma Financial Information," as amended by the
Securities and Exchange Commission's Final Rule Release No. 33-10786,
"Amendments to Financial Disclosures About Acquired and Disposed Businesses," as
adopted on May 21, 2020 ("Article 11"). The amended Article 11 became effective
on January 1, 2021. The pro forma combined statements of operations for the
three months ended June 30, 2020 and the six months ended June 30, 2021 and 2021
combine the consolidated statements of operations of Nesco Holdings and Custom
Truck LP, giving effect to the following items as if they had occurred on
January 1, 2020:
i.the sale of the Company's common stock, proceeds from which were used for the
Acquisition;
ii.the extinguishment of Nesco's asset-based revolving credit facility (the
"2019 Credit Facility") and its 10% Senior Secured Second Lien Notes due 2024
(the "2024 Secured Notes") and the contemporaneous issuance of the 2029 Secured
Notes and borrowings under the ABL Facility, proceeds from which were used for
the Acquisition; and
iii.the estimated effects of the acquisition of Custom Truck LP, inclusive of
the estimated effects of debt repaid.
The adjustments presented in the following pro forma financial information have
been identified and presented to provide relevant information necessary for an
accurate understanding of the combined company following the transactions and
events described above. The pro forma financial information set forth below is
based upon available information and assumptions that we believe are reasonable
and is for illustrative purposes only. The financial results may have been
different if the transactions described above had been completed sooner. You
should not rely on the pro forma financial information as being indicative of
the historical results that would have been achieved if these transactions and
events had been completed as of January 1, 2020. The pro forma combined
financial information below should be read in conjunction with the condensed
consolidated financial statements and related notes of the Company included
elsewhere in this Quarterly Report on Form 10-Q. All pro forma adjustments and
their underlying assumptions are described more fully below.
During the preparation of these pro forma combined financial statements, we
assessed whether there were any material differences between the accounting
policies of the Company and Custom Truck LP. The assessment performed did not
identify any material differences and, as such, these pro forma combined
financial statements do not adjust for or assume any differences in accounting
policies between the two entities.
                                       40
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The following pro forma combined financial information and associated notes are
based on the historical financial statements of Nesco Holdings and Custom Truck
LP. The pro forma combined statements of operations for periods indicated below
are based on, derived from, and should be read in conjunction with, the
Company's historical financial statements.
Pro Forma Combined Statements of Operations - Three Months Ended June 30, 2021
                                                        Custom Truck
                                                         One Source,                   Pro Forma              Pro Forma
(in $000s)                                                  Inc.                     Adjustmentsa             Combined
Rental revenue                                         $     98,539                $            -           $   98,539

Equipment sales                                             247,675                             -              247,675
Parts sales and services                                     28,897                             -               28,897
Total revenue                                               375,111                             -              375,111
Cost of revenue                                             285,242                        (9,388)   b         275,854
Depreciation of rental equipment                             43,179                             -               43,179
Total cost of revenue                                       328,421                        (9,388)             319,033
Gross profit                                                 46,690                         9,388               56,078
Selling, general and administrative                          51,264                             -               51,264
Amortization                                                 13,332                             -               13,332
Non-rental depreciation                                         951                             -                  951
Transaction expenses and other                               24,575                       (24,575)   c               -

Total operating expenses                                     90,122                       (24,575)              65,547
Operating income (loss)                                     (43,432)                       33,963               (9,469)
Loss on extinguishment of debt                               61,695                       (61,695)   d               -
Interest expense, net                                        19,723                             -               19,723
Finance and other expense (income)                           (2,058)                            -               (2,058)
Total other expense                                          79,360                       (61,695)              17,665
Income (loss) before taxes                                 (122,792)                       95,658              (27,134)
Taxes                                                         6,564                        23,915    e          30,479
Net income (loss)                                      $   (129,356)               $       71,743           $  (57,613)


a.The pro forma adjustments give effect to the following as if they occurred on
January 1, 2020: (i) the Acquisition and (ii) extinguishment of Nesco Holdings'
2019 Credit Facility and the 2024 Secured Notes repaid in connection with the
Acquisition. The adjustments also give effect to transaction expenses directly
attributable to the Acquisition.
b.Represents the elimination from cost of revenue, of the run-off of the
estimated step-up in fair value of inventory acquired that was recognized in the
Company's consolidated financial statements for the three months ended June 30,
2021. The impact of the step-up is reflected as an adjustment to the comparable
prior period (e.g. June 30, 2020) as if the Acquisition had occurred on January
1, 2020.
c.Represents the elimination of transaction expenses recognized in the Company's
consolidated financial statements for the three months ended June 30, 2021. The
expenses were directly attributable to the Acquisition and are reflected as
adjustments to the comparable prior period (e.g. June 30, 2020) as if the
Acquisition had occurred on January 1, 2020.
d.Represents the elimination of the loss on extinguishment of debt recognized in
the Company's consolidated financial statements for the three months ended June
30, 2021 as though the repayment of the 2019 Credit Facility and the 2024
Secured Notes had occurred on January 1, 2020.
e.Reflects the adjustment to recognize the tax impacts of the pro forma
adjustments for which a tax expense is recognized using a statutory tax rate of
25%.


                                       41

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Pro Forma Combined Statements of Operations - Three Months Ended June 30, 2020
                                                                      Custom Truck           Pro Forma              Pro Forma
(in $000s)                                     Nesco Holdings              LP              Adjustmentsa             Combined

Rental revenue                               $        46,984          $  49,103          $            -           $   96,087

Equipment sales                                       10,400            157,392                       -              167,792
Parts sales and services                              11,097             19,530                       -               30,627
Total revenue                                         68,481            226,025                       -              294,506
Cost of revenue                                       32,443            163,219                   8,858    b         204,520
Depreciation of rental equipment                      19,696             24,442                   2,132    c          46,270
Total cost of revenue                                 52,139            187,661                  10,990              250,790
Gross profit                                          16,342             38,364                 (10,990)              43,716
Selling, general and administrative                   11,754             27,341                       -               39,095
Amortization                                             772              1,985                   3,595    d           6,352
Non-rental depreciation                                   28              1,190                    (354)   d             864
Transaction expenses and other                         1,269                  -                       -                1,269

Total operating expenses                              13,823             30,516                   3,241               47,580
Operating income (loss)                                2,519              7,848                 (14,231)              (3,864)
Loss on extinguishment of debt                             -                  -                       -                    -
Interest expense, net                                 15,949             13,237                 (10,529)   e          18,657
Finance and other expense (income)                       783             (2,713)                      -               (1,930)
Total other expense                                   16,732             10,524                 (10,529)              16,727
Income (loss) before taxes                           (14,213)            (2,676)                 (3,702)             (20,591)
Taxes                                                 (1,063)                 -                    (926)   f          (1,989)
Net income (loss)                            $       (13,150)         $  (2,676)         $       (2,776)          $  (18,602)


a.The pro forma adjustments give effect to the following as if they occurred on
January 1, 2020: (i) the Acquisition, (ii) the extinguishment of Nesco Holdings'
2019 Credit Facility the 2024 Secured Notes repaid in connection with the
Acquisition and (iii) the extinguishment of the outstanding borrowings of Custom
Truck LP's credit facility and term loan that was repaid on the closing of the
Acquisition.
b.Represents adjustments to cost of revenue for (i) the run-off of the estimated
step-up in fair value of inventory acquired and (ii) a reduction to depreciation
expense for the difference between historical depreciation and estimated
depreciation of the preliminary fair value of the property and equipment.
c.Represents the adjustment for depreciation of rental fleet relating to the
estimated mark-up to fair value from purchase accounting as a result of the
Acquisition.
d.Represents the differential in other amortization and depreciation related to
the estimated fair value of the identified intangible assets and non-rental
property and equipment from purchase accounting as a result of the Acquisition.
e.Reflects the differential in interest expense, inclusive of amortization of
capitalized debt issuance costs, related to the Company's debt structure after
the Acquisition as though the following had occurred on January 1, 2020: (i)
borrowings under the ABL Facility; (ii) repayment of the 2019 Credit Facility;
(iii) repayment of the 2024 Secured Notes; (iv) repayment of Custom Truck LP's
borrowings under its revolving credit and term loan facility; and (v) borrowing
under the 2029 Secured Notes.
f.Reflects the adjustment to recognize the tax impacts of the pro forma
adjustments for which a tax expense is recognized using a statutory tax rate of
25%.


                                       42

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Pro Forma Combined Statements of Operations - Six Months Ended June 30, 2021
                                                                      Custom Truck            Pro Forma              Pro Forma
(in $000s)                                     Nesco Holdings              LP               Adjustmentsa             Combined

Rental revenue                               $        90,561          $  108,240          $            -           $  198,801

Equipment sales                                       27,572             484,045                       -              511,617
Parts sales and services                              23,226              36,237                       -               59,463
Total revenue                                        141,359             628,522                       -              769,881
Cost of revenue                                       74,924             470,387                  (1,342)   b         543,969
Depreciation of rental equipment                      33,358              45,891                   7,257    c          86,506
Total cost of revenue                                108,282             516,278                   5,915              630,475
Gross profit                                          33,077             112,244                  (5,915)             139,406
Selling, general and administrative                   29,943              67,798                       -               97,741
Amortization                                           8,508               1,990                   9,170    d          19,668
Non-rental depreciation                                   42               2,241                    (894)   d           1,389
Transaction expenses and other                        28,539              11,738                 (40,277)   e               -

Total operating expenses                              67,032              83,767                 (32,001)             118,798
Operating income (loss)                              (33,955)             28,477                  26,086               20,608
Loss on extinguishment of debt                        61,695                   -                 (61,695)   f               -
Interest expense, net                                 32,054              12,567                  (9,042)   g          35,579
Finance and other expense (income)                     6,929              (5,476)                      -                1,453
Total other expense                                  100,678               7,091                 (70,737)              37,032
Income (loss) before taxes                          (134,633)             21,386                  96,823              (16,424)
Taxes                                                 10,084                 570                  24,206    h          34,860
Net income (loss)                            $      (144,717)         $   20,816          $       72,617           $  (51,284)


a.The pro forma adjustments give effect to the following as if they occurred on
January 1, 2020: (i) the Acquisition, (ii) the extinguishment of Nesco Holdings'
2019 Credit Facility the 2024 Secured Notes repaid in connection with the
Acquisition and (iii) the extinguishment of the outstanding borrowings of Custom
Truck LP's credit facility and term loan that was repaid on the closing of the
Acquisition.
b.Represents adjustments to cost of revenue for a reduction to depreciation
expense for the difference between historical depreciation and estimated
depreciation of the preliminary fair value of the property and equipment.
c.Represents the adjustment for depreciation of rental fleet relating to the
estimated mark-up to fair value from purchase accounting as a result of the
Acquisition.
d.Represents the differential in other amortization and depreciation related to
the estimated fair value of the identified intangible assets and non-rental
property and equipment from purchase accounting as a result of the Acquisition.
e.Represents the elimination of transaction expenses recognized in the Company's
consolidated financial statements for the six months ended June 30, 2021. The
expenses were directly attributable to the Acquisition and are reflected as
adjustments to the comparable prior period (e.g. June 30, 2020) as if the
Acquisition had occurred on January 1, 2020.
f.Represents the elimination of the loss on extinguishment of debt recognized in
the Company's consolidated financial statements for the six months ended June
30, 2021 as though the repayment of the 2019 Credit Facility and the 2024
Secured Notes had occurred on January 1, 2020.
g.Reflects the differential in interest expense, inclusive of amortization of
capitalized debt issuance costs, related to the Company's debt structure after
the Acquisition as though the following had occurred on January 1, 2020: (i)
borrowings under the ABL Facility; (ii) repayment of the 2019 Credit Facility;
(iii) repayment of the 2024 Secured Notes; (iv) repayment of Custom Truck LP's
borrowings under its revolving credit and term loan facility; and (v) borrowing
under the 2029 Secured Notes.
h.Reflects the adjustment to recognize the tax impacts of the pro forma
adjustments for which a tax expense is recognized using a statutory tax rate of
25%.


                                       43

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Pro Forma Combined Statements of Operations - Six Months Ended June 30, 2020
                                                                      Custom Truck            Pro Forma              Pro Forma
(in $000s)                                     Nesco Holdings              LP               Adjustmentsa              Combined

Rental revenue                               $        97,978          $  104,738          $            -           $   202,716

Equipment sales                                       27,070             354,537                       -               381,607
Parts sales and services                              25,176              38,846                       -                64,022
Total revenue                                        150,224             498,121                       -               648,345
Cost of revenue                                       72,671             362,184                  17,719    b          452,574
Depreciation of rental equipment                      39,808              49,568                   3,580    c           92,956
Total cost of revenue                                112,479             411,752                  21,299               545,530
Gross profit                                          37,745              86,369                 (21,299)              102,815
Selling, general and administrative                   24,193              59,170                       -                83,363
Amortization                                           1,463               4,398                   6,762    d           12,623
Non-rental depreciation                                   53               2,375                    (706)   d            1,722
Transaction expenses and other                         2,721                   -                  40,277    e           42,998

Total operating expenses                              28,430              65,943                  46,333               140,706
Operating income (loss)                                9,315              20,426                 (67,632)              (37,891)
Loss on extinguishment of debt                             -                   -                  61,695    f           61,695
Interest expense, net                                 31,963              32,937                 (24,676)   g           40,224
Finance and other expense (income)                     6,804              (2,922)                      -                 3,882
Total other expense                                   38,767              30,015                  37,019               105,801
Income (loss) before taxes                           (29,452)             (9,589)               (104,651)             (143,692)
Taxes                                                   (333)                  -                 (26,163)   h          (26,496)
Net income (loss)                            $       (29,119)         $   (9,589)         $      (78,488)          $  (117,196)


a.The pro forma adjustments give effect to the following as if they occurred on
January 1, 2020: (i) the Acquisition, (ii) the extinguishment of Nesco Holdings'
2019 Credit Facility and the 2024 Secured Notes repaid in connection with the
Acquisition and (iii) the extinguishment of the outstanding borrowings of Custom
Truck LP's credit facility and term loan that was repaid on the closing of the
Acquisition.
b.Represents adjustments to cost of revenue for (i) the run-off of the estimated
step-up in fair value of inventory acquired and (ii) a reduction to depreciation
expense for the difference between historical depreciation and estimated
depreciation of the preliminary fair value of the property and equipment.
c.Represents the adjustment for depreciation of rental fleet relating to the
estimated mark-up to fair value from purchase accounting as a result of the
Acquisition.
d.Represents the differential in other amortization and depreciation related to
the estimated fair value of the identified intangible assets and non-rental
property and equipment from purchase accounting as a result of the Acquisition.
e.Represents transaction expenses directly attributable to the Acquisition as if
the Acquisition had occurred on January 1, 2020.
f.Represents the loss on extinguishment of debt as though the repayment of the
2019 Credit Facility and the 2024 Secured Notes had occurred on January 1, 2020.
g.Reflects the differential in interest expense, inclusive of amortization of
capitalized debt issuance costs, related to the Company's debt structure after
the Acquisition as though the following had occurred on January 1, 2020: (i)
borrowings under the ABL Facility; (ii) repayment of the 2019 Credit Facility;
(iii) repayment of the 2024 Secured Notes; (iv) repayment of Custom Truck LP's
borrowings under its revolving credit and term loan facility; and (v) borrowing
under the 2029 Secured Notes.
h.Reflects the adjustment to recognize the tax impacts of the pro forma
adjustments for which a tax expense is recognized using a statutory tax rate of
25%.
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Reconciliation of Pro Forma Net Loss to Pro Forma Adjusted EBITDA The following table provides a reconciliation of pro forma net loss to pro forma Adjusted EBITDA:


                                                Three Months Ended                      Six Months Ended
                                                     June 30,                               June 30,
(in $000s)                                    2021               2020               2021               2020
Net income (loss)                         $ (57,613)         $ (18,602)         $ (51,284)         $ (117,196)
Interest expense                             17,602             13,939             30,979              29,442
Income tax expense                           30,479             (1,989)            34,860             (26,496)
Depreciation and amortization                60,062             55,957            111,887             112,223
EBITDA                                       50,530             49,305            126,442              (2,027)
Adjustments:                                                                                                -
Non-cash purchase accounting impact          11,999              9,781                313              20,387
Transaction and process improvement costs        26              2,307                409              48,548
Loss on extinguishment of debt                    -                  -                  -              61,695

Sales-type lease adjustment                    (510)               886                645                 256
Share-based payments                          7,162                915              8,417               1,921
Change in fair value of derivative and
warrants                                      1,034                804              6,880               6,767
Adjusted EBITDA                           $  70,241          $  63,998          $ 143,106          $  137,547





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Liquidity and Capital Resources
Our principal sources of liquidity include cash generated by operating
activities and borrowings under revolving credit facilities as described below.
We believe that our liquidity sources and operating cash flows are sufficient to
address our operating, debt service and capital requirements over the next 12
months; however, we are continuing to monitor the impact of COVID-19 on our
business and the financial markets. As of June 30, 2021, we had $27.2 million in
cash and cash equivalents compared to $3.4 million as of December 31, 2020. As
of June 30, 2021, we had $385.0 million of outstanding borrowings under our ABL
Facility compared to $251.0 million of outstanding borrowing under the 2019
Credit Facility as of December 31, 2020.
ABL Facility
In connection with the Acquisition on the Closing Date the Buyer, as borrower,
and the ABL Guarantors (as defined in the ABL Credit Agreement) entered into the
ABL Credit Agreement. 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.
As of June 30, 2021, borrowing availability under the ABL Facility was $355.2
million, and outstanding standby letters of credit were $3.7 million. 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)
the London Interbank Offered Rate ("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 (x) with respect to base rate loans, 0.50% to 1.00% and (y) 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 prepay, without premium or
penalty, any borrowing under the ABL Facility and terminate, or from time to
time reduce, the commitments under the ABL Facility.
The obligations under the ABL Facility are guaranteed by Capitol Investment
Merger Sub 2, LLC, 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 to certain
exceptions in the case of non-
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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 distributions; repurchase, prepay or
redeem subordinated indebtedness; make investments; create restrictions on the
ability of Buyer's restricted subsidiaries to pay dividends to Buyer; create
liens; transfer or sell assets; consolidate, merge, sell or otherwise dispose of
all or substantially all of Buyer's assets; enter into certain transactions with
Buyer's affiliates; and designate subsidiaries as unrestricted subsidiaries, in
each case subject to certain exceptions, as well as a restrictive covenant
applicable to each Specified Floor Plan Company (as defined in the ABL Credit
Agreement) limiting its ability to own certain assets and engage in certain
lines of business. 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 $920.0 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 "Indenture"). 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
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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 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).
Floor Plan Financing
Daimler Truck Financial
The Company is party to the Wholesale Financing Agreement with Daimler Truck
Financial (the "Daimler Facility") which bears interest at a rate of Prime plus
0.80% after an initial interest free period of up to 150 days. The total
capacity under the Daimler Facility is $175.0 million.
PACCAR
The Company has an Inventory Financing Agreement with PACCAR Financial Corp that
provides the Company with a line of credit of $50.0 million to finance inventory
purchases of new Peterbilt and/or Kenworth trucks, tractors, and chassis.
Amounts borrowed against this line of credit incur interest at a rate of LIBOR
plus 2.4%.
PNC Equipment Finance, LLC
The Company has an Inventory Loan, Guaranty and Security Agreement (the "Loan
Agreement") with PNC Equipment Finance, LLC. The Loan Agreement provides the
Company with a $295.0 million revolving credit facility, which matures on August
25, 2022 and bears interest at a rate of LIBOR plus 3.05%.
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