Company Quick10K Filing
Capitol Investment IV
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 12 $123
10-Q 2019-11-12 Quarter: 2019-09-30
10-Q 2019-07-31 Quarter: 2019-06-30
10-Q 2019-05-08 Quarter: 2019-03-31
10-K 2019-03-04 Annual: 2018-12-31
10-Q 2018-11-13 Quarter: 2018-09-30
10-Q 2018-08-08 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-27 Annual: 2017-12-31
10-Q 2017-11-08 Quarter: 2017-09-30
10-Q 2017-09-27 Quarter: 2017-06-30
8-K 2019-11-14 Regulation FD, Exhibits
8-K 2019-11-11 Earnings, Exhibits
8-K 2019-11-05 Regulation FD, Exhibits
8-K 2019-10-29 Earnings, Regulation FD, Exhibits
8-K 2019-09-23 Regulation FD, Exhibits
8-K 2019-09-10 Accountant, Exhibits
8-K 2019-09-03 Regulation FD, Exhibits
8-K 2019-08-22 Officers
8-K 2019-08-09 Earnings, Exhibits
8-K 2019-07-29 Enter Agreement, Leave Agreement, M&A, Earnings, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Control, Officers, Amend Bylaw, Shell Status, Other Events, Exhibits
8-K 2019-07-26 Regulation FD, Exhibits
8-K 2019-07-22 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2019-07-16 Shareholder Vote
8-K 2019-07-11 Enter Agreement, Exhibits
8-K 2019-06-04 Regulation FD, Exhibits
8-K 2019-05-15 Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-05-13 Regulation FD, Exhibits
8-K 2019-05-07 Enter Agreement, Exhibits
8-K 2019-04-07 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2019-03-22 Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-02-28 Enter Agreement, Exhibits
8-K 2018-11-07 Enter Agreement, Exhibits
8-K 2018-10-03 Regulation FD, Exhibits
8-K 2018-08-03 Enter Agreement, Exhibits
CIC 2019-09-30
Part I - Financial Information
Item 1. Consolidated Financial Statements
Note 1: Business
Note 2: Summary of Significant Accounting Policies
Note 3: Segments
Note 4: Debt
Note 5: Equity
Note 6: Earnings per Share
Note 7: Share-Based Compensation
Note 8: Fair Value Measurements
Note 9: Financial Instruments
Note 10: Commitments and Contingencies
Note 11: Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 a09302019nscoex311.htm
EX-31.2 a09302019nscoex312.htm
EX-32 a09302019nscoex32.htm

Capitol Investment IV Earnings 2019-09-30

CIC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
ALGR 151 152 6 0 0 2 3 151 53.5 1%
NCTY 150 165 908 0 0 0 0 145 0%
CIC 123 412 15 0 0 6 6 123 0% 20.2 1%
GIG 121 78 73 0 0 -1 -0 -23 75.5 -1%
KBLMU 112 50 5 0 0 1 1 113 88.3 2%
STCN 109 735 607 818 150 -36 57 455 18% 8.0 -5%
WRLS 95 64 59 0 0 1 2 95 61.4 2%
HYAC 95 337 17 0 0 1 2 94 41.5 0%
SREV 91 159 66 227 68 -16 -1 63 30% -91.1 -10%
TBRG 83 266 12 0 0 3 3 83 32.0 1%

Document
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xbrli:shares iso4217:USD nsco:day nsco:location nsco:state nsco:segment
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
_______________________________
FORM 10-Q
_______________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 001-38186
_______________________________  
Nesco Holdings, Inc.
(Exact name of registrant as specified in its charter)
_______________________________
Indiana
35-1841460
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
6714 Pointe Inverness Way, Suite 220
Fort Wayne, IN 46804
(Address of principal executive offices, including zip code)
(800) 252-0043
(Registrant’s telephone number, including area code)
_______________________________
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 par value
NSCO
New York Stock Exchange
Redeemable warrants, exercisable for Common Stock, $0.0001 par value
NSCO.WS
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   o     NO   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES   o    NO   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o

 
Accelerated filer
x

Non-accelerated filer
o

 
Smaller reporting company
o
 
 
 
Emerging growth company
x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     YES   o     NO  o
The number of ordinary shares outstanding of NESCO Holdings, Inc. as of November 12, 2019, was 49,033,903.



Nesco Holdings, Inc. and Subsidiaries
TABLE OF CONTENTS
PART I
 
FINANCIAL INFORMATION
 
Page Number
 
 
 
 
 
Item 1.
 
Unaudited Condensed Consolidated Financial Statements
 
 
 
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
 
 
 
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018
 
 
 
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018
 
 
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
 
 
 
Unaudited Condensed Consolidated Statements of Stockholders' Deficit for the Three and Nine Months Ended September 30, 2019 and 2018
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
 
Controls and Procedures
 
 
 
 
 
 
PART II
 
OTHER INFORMATION
 
 
 
 
 
 
 
Item 1.
 
Legal Proceedings
 
Item 1A.
 
Risk Factors
 
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
 
Defaults Upon Senior Securities
 
Item 4.
 
Mine Safety Disclosures
 
Item 5.
 
Other Information
 
Item 6.
 
Exhibits
 
 
 
SIGNATURES
 


2


PART I - FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Nesco Holdings, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in $000s, except share data)
September 30, 2019
 
December 31, 2018
Assets
 
 
 
Current Assets
 
 
 
Cash
$
201

 
$
2,140

Accounts receivable, net of allowance of $4,120 and $7,562, respectively
62,617

 
52,559

Inventory
21,409

 
11,435

Prepaid expenses and other
4,791

 
2,483

Total current assets
89,018

 
68,617

Property and equipment, net
9,195

 
2,763

Rental equipment, net
341,870

 
320,722

Other Assets
 
 
 
Goodwill
228,714

 
228,714

Other intangible assets, net
70,236

 
70,740

Total other assets
298,950

 
299,454

Total Assets
$
739,033

 
$
691,556

Liabilities and Stockholders' Deficit
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
36,178

 
$
20,867

Accrued expenses
5,495

 
6,359

Accrued interest expense
10,144

 
14,024

Deferred rent income
2,314

 
4,762

Current portion of capital lease obligations
5,313

 
4,866

Current maturities of long-term debt
1,280

 
2,531

Total current liabilities
60,724

 
53,409

Long-term debt, net
655,396

 
756,872

Capital leases
24,140

 
28,418

Deferred tax liabilities
12,006

 
11,191

Other liabilities
2,552

 
422

Total long-term liabilities
694,094

 
796,903

Commitments and contingencies (see Note 10)

 

Stockholders' Deficit
 
 
 
Common stock - $0.0001 par value, 250,000,000 shares authorized, 49,033,903 and 21,660,638 shares issued and outstanding, at September 30, 2019 and December 31, 2018, respectively
5

 
2

Additional paid-in capital
432,027

 
259,298

Accumulated deficit
(447,817
)
 
(417,660
)
Accumulated other comprehensive loss

 
(396
)
Total stockholders' deficit
(15,785
)
 
(158,756
)
Total Liabilities and Stockholders' Deficit
$
739,033

 
$
691,556

See accompanying notes to unaudited condensed consolidated financial statements.

3


Nesco Holdings, Inc.
Condensed Consolidated Statements of Operations (unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in $000s, except share and per share data)
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Rental revenue
$
50,103

 
$
45,867

 
$
143,871

 
$
136,778

Sales of rental equipment
3,436

 
5,377

 
15,167

 
15,562

Sales of new equipment
1,246

 
8,024

 
8,076

 
12,167

Parts sales and services
7,657

 
4,814

 
19,675

 
13,102

Total revenue
62,442

 
64,082

 
186,789

 
177,609

Cost of Revenue
 
 
 
 
 
 
 
Cost of rental revenue, excluding depreciation
13,332

 
13,686

 
36,802

 
37,511

Depreciation of rental equipment
17,907

 
15,208

 
52,012

 
46,517

Cost of rental equipment sales
2,847

 
4,041

 
12,653

 
13,053

Cost of new equipment sales
1,116

 
7,287

 
6,618

 
10,639

Cost of parts sales and services
5,600

 
3,346

 
14,921

 
9,248

Major repair disposal
376

 
300

 
1,522

 
1,061

Total cost of revenue
41,178

 
43,868

 
124,528

 
118,029

Gross Profit
21,264

 
20,214

 
62,261

 
59,580

Operating Expenses
 
 
 
 
 
 
 
Transaction expenses
3,325

 
127

 
7,394

 
163

Selling, general, and administrative expenses
10,514

 
8,369

 
26,634

 
26,085

Amortization expense
724

 
720

 
2,172

 
2,103

Non-rental depreciation
21

 
58

 
92

 
161

Asset impairment
657

 

 
657

 

Other operating expenses
434

 

 
1,213

 

Total operating expenses
15,675

 
9,274

 
38,162

 
28,512

Operating Income
5,589

 
10,940

 
24,099

 
31,068

Other Expense (Income)
 
 
 
 
 
 
 
Loss on extinguishment of debt
4,005

 

 
4,005

 

Interest expense, net
16,533

 
14,196

 
46,376

 
41,649

Other (income) expense, net
2,567

 
(42
)
 
2,545

 
286

Total other expenses
23,105

 
14,154

 
52,926

 
41,935

Loss Before Income Taxes
(17,516
)
 
(3,214
)
 
(28,827
)
 
(10,867
)
Income Tax Expense
494

 
463

 
1,330

 
1,253

Net Loss
$
(18,010
)
 
$
(3,677
)
 
$
(30,157
)
 
$
(12,120
)
Loss per share:
 
 
 
 
 
 
 
    Basic and diluted
$
(0.45
)
 
$
(0.17
)
 
$
(1.09
)
 
$
(0.56
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
    Basic and diluted
39,909,481

 
21,660,638

 
27,743,586

 
21,660,638

See accompanying notes to unaudited condensed consolidated financial statements.

4


Nesco Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss (unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in $000s)
2019
 
2018
 
2019
 
2018
Net loss
$
(18,010
)
 
$
(3,677
)
 
$
(30,157
)
 
$
(12,120
)
Other comprehensive loss
 
 
 
 
 
 
 
Interest rate collar (net of taxes of $285)

 

 
(388
)
 

Other comprehensive loss

 

 
(388
)
 

Comprehensive loss
$
(18,010
)
 
$
(3,677
)
 
$
(30,545
)
 
$
(12,120
)
During the three and nine months ended September 30, 2019, $0.8 million (net of taxes of $0.3 million) was reclassified from accumulated other comprehensive loss and recorded in the Unaudited Condensed Consolidated Statements of Operations.
There were no reclassifications from accumulated other comprehensive loss reflected in the Unaudited Condensed Consolidated Statements of Operations during the three and nine month periods ended September 30, 2018.

See accompanying notes to unaudited condensed consolidated financial statements.




5


Nesco Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
 
Nine Months Ended September 30,
(in $000s)
2019
 
2018
Operating Activities
 
 
 
Net loss
$
(30,157
)
 
$
(12,120
)
Adjustments to reconcile net loss to net cash flow from operating activities:
 
 
 
Depreciation
52,104

 
46,678

Amortization - intangibles
2,172

 
2,103

Amortization - financing costs
2,099

 
2,721

Provision for losses on accounts receivable
3,472

 
2,563

Share-based payments
463

 
850

Gain on sale of rental equipment and parts
(3,930
)
 
(10,798
)
Gain on insurance proceeds - damaged equipment
(570
)
 

Major repair disposal
1,522

 
1,061

Loss on extinguishment of debt
4,005

 

Change in fair value of derivative
2,552

 

Asset impairment
657

 

Deferred tax expense
816

 
844

Changes in assets and liabilities:
 
 
 
Accounts receivable
(13,728
)
 
(3,010
)
Inventory
(13,742
)
 
(8,544
)
Prepaid expenses and other
(2,211
)
 
(827
)
Accounts payable
4,792

 
(4,403
)
Accrued expenses and other liabilities
(4,770
)
 
(10,806
)
Unearned income
(4,832
)
 
(634
)
Net cash flow from operating activities
714

 
5,678

Investing Activities
 
 
 
Cash paid for business acquisition, net of cash acquired

 
(1,593
)
Purchase of equipment - rental fleet
(77,752
)
 
(33,101
)
Proceeds from sale of rental equipment and parts
22,608

 
32,014

Insurance proceeds from damaged equipment
1,721

 

Purchase of other property and equipment
(7,166
)
 
(3,976
)
Other
(1,671
)
 
3

Net cash flow from investing activities
(62,260
)
 
(6,653
)
Financing Activities
 
 
 
Proceeds from debt
475,000

 

Borrowings under revolving credit facilities
243,000

 
38,000

Repayments under revolving credit facilities
(259,000
)
 
(30,000
)
Repayments of notes payable
(527,348
)
 
(1,475
)
Capital lease payments
(3,830
)
 
(4,017
)
Proceeds from merger and recapitalization
147,268

 

Finance fees paid
(15,483
)
 
(1,645
)
Net cash flow from financing activities
59,607

 
863

Net Change in Cash
(1,939
)
 
(112
)
Cash at Beginning of Period
2,140

 
960

Cash at End of Period
$
201

 
$
848

 
Nine Months Ended September 30,
(in $000s)
2019
 
2018
Supplemental Cash Flow Information
 
 
 
Cash paid for interest
$
47,861

 
$
48,542

Cash paid for income taxes
444

 
347

Non-Cash Investing and Financing Activities
 
 
 
Transfer of parts inventory to leased equipment
3,767

 
3,936

Rental equipment purchases in accounts payable
21,227

 
11,282

Rental equipment sales in accounts receivable
169

 
1,291

Insurance recoveries accrued in accounts receivable
189

 

Rental equipment on capital lease

 
6,694

Acquisition

 
3,546

See accompanying notes to unaudited condensed consolidated financial statements.

6


Nesco Holdings, Inc.
Condensed Consolidated Statements of Stockholders' Deficit (unaudited)
 
 
 
 
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholders' Deficit
 
Common Stock
 
 
 
 
(in $000s, except share data)
Shares
 
Amount
 
 
 
 
Balance, January 1, 2019
21,660,638

 
$
2

 
$
259,298

 
$
(417,660
)
 
$
(396
)
 
$
(158,756
)
Net loss

 

 

 
(6,724
)
 

 
(6,724
)
Share-based payments

 

 
128

 

 

 
128

Interest rate collar

 

 

 

 
88

 
88

Balance, March 31, 2019
21,660,638

 
2

 
259,426

 
(424,384
)
 
(308
)
 
(165,264
)
Net loss

 

 

 
(5,423
)
 

 
(5,423
)
Share-based payments

 

 
52

 

 

 
52

Interest rate collar

 

 

 

 
(476
)
 
(476
)
Balance, June 30, 2019
21,660,638

 
2

 
259,478

 
(429,807
)
 
(784
)
 
(171,111
)
Net loss prior to reverse recapitalization

 

 

 
(10,988
)
 

 
(10,988
)
Net loss post reverse recapitalization

 

 

 
(7,022
)
 

 
(7,022
)
Reverse capitalization
27,373,265

 
3

 
172,266

 

 

 
172,269

Share-based payments

 

 
283

 

 

 
283

Interest rate collar

 

 

 

 
784

 
784

Balance, September 30, 2019
49,033,903

 
$
5

 
$
432,027

 
$
(447,817
)
 
$

 
$
(15,785
)
 
 
 
 
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholders' Deficit
 
Common Stock
 
 
 
 
(in $000s, except share data)
Shares
 
Amount
 
 
 
 
Balance, January 1, 2018
21,660,638

 
$
2

 
$
258,168

 
$
(402,134
)
 
$

 
$
(143,964
)
Net loss

 

 

 
(3,034
)
 

 
(3,034
)
Share-based payments

 

 
290

 

 

 
290

Balance, March 31, 2018
21,660,638

 
2

 
258,458

 
(405,168
)
 

 
(146,708
)
Net loss

 

 

 
(5,409
)
 

 
(5,409
)
Share-based payments

 

 
280

 

 

 
280

Balance, June 30, 2018
21,660,638

 
2

 
258,738

 
(410,577
)
 

 
(151,837
)
Net loss

 

 

 
(3,677
)
 

 
(3,677
)
Share-based payments

 

 
280

 

 

 
280

Balance, September 30, 2018
21,660,638

 
$
2

 
$
259,018

 
$
(414,254
)
 
$

 
$
(155,234
)

See accompanying notes to unaudited condensed consolidated financial statements.


7



 Nesco Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements
 
Note 1: Business

Organization

Nesco Holdings, Inc. (“Holdings”), a Delaware corporation, serves as the parent for our primary operating company, NESCO, LLC. NESCO, LLC, an Indiana limited liability company, and its wholly owned subsidiaries (collectively, “we,” “our,” “us,” “Nesco,” or the "Company"), is engaged in the business of providing a range of services and products to customers through rentals of specialty equipment, sales of parts related to the specialty equipment, and repair and maintenance services related to that equipment.

Holdings' wholly-owned subsidiaries include NESCO Holdings I, Inc. (which was the ultimate parent holding company prior to the transaction described below) ("Holdings I"), NESCO Finance Corporation, a Delaware corporation, NESCO Investments, LLC, a Delaware limited liability company, NESCO International, LLC, a Delaware limited liability company, and NESCO El Alquiler S. de R.L. de C.V., an operating company in Mexico.

We are a specialty equipment rental provider to the electric utility transmission and distribution, telecommunications and rail industries in North America. Our core business relates to our fleet of specialty rental equipment that is utilized by service providers in infrastructure improvement work. Specifically, we offer our specialized equipment to a diverse customer base, including utilities and contractors, for the maintenance, repair, upgrade and installation of critical infrastructure assets, including electric lines, telecommunications networks and rail systems, as well as for lighting and signage. We rent and sell a broad range of new and used equipment, including bucket trucks, digger derricks, line equipment, cranes, pressure diggers, and underground equipment, which forms our Equipment Rental and Sales ("ERS") segment. To complement our fleet, we also provide a one-stop shop for existing and prospective Nesco customers to purchase or rent parts, tools, and accessories needed to outfit their specialty truck fleet. These activities form our Parts, Tools, and Accessories (“PTA”) segment. We are positioned to serve all 50 U.S. states and 13 Canadian provinces and territories via our network of over 50 locations in the United States and Canada.

Merger with Capitol Investment Corp. IV
 
On April 7, 2019, Holdings I entered into a definitive agreement (as amended, the “Merger Agreement”) with Capitol Investment Corp. IV ("Capitol"), a public investment vehicle, whereby the parties agreed to merge, resulting in the parent of Holdings I becoming a publicly listed company. This merger closed on July 31, 2019 (“Merger”), which consummated as a result of the following (the “Transactions”):
 
Holders of 26,091,034 shares of Capitol Class A ordinary shares sold in its initial public offering exercised their rights to convert those shares to cash at a conversion price of $10.24 per share, or an aggregate of approximately $267.2 million. The per share conversion price of $10.24 for holders of public shares electing conversion was paid out of Capitol’s trust account, which had a balance immediately prior to the closing of approximately $412.3 million. Concurrently, NESCO Holdings, LP, a Delaware limited partnership controlled by Energy Capital Partners ("Nesco Owner") and the sole shareholder of Holdings I, purchased 4,500,000 newly-issued shares of common stock at a price of $10.00 per share in exchange for a combination of cash and full repayment of certain outstanding indebtedness, and the founders of Capitol (the "Capitol Sponsors") purchased in aggregate 1,000,000 newly-issued shares of common stock at a price of $10.00 per share, paid in cash (see Note 5).

Of the remaining funds in the trust account and amounts from the sale of the newly-issued common stock described above: (i) approximately $17.8 million was used to pay Capitol’s transaction expenses, (ii) $127.8 million was used to pay down Nesco's debt, and (iii) the balance of approximately $10.2 million was released to Nesco to be used to pay certain of Nesco's transaction-related costs. The amount remaining (after deducting direct equity issuance costs of $10.0 million) from the combination of the trust account funds and consideration received from Nesco Owner and the Capitol Sponsors discussed above of $172.3 million was reflected as contributed capital in the Company's Condensed Consolidated Statements of Stockholders' Deficit in the three months ended September 30, 2019.

In connection with the Merger, Capitol became Holdings by domesticating from the Cayman Islands as a corporation formed under the laws of the State of Delaware named Nesco Holdings, Inc.

Immediately after giving effect to the Transactions (including as a result of the conversions described above and certain forfeitures of Capitol common stock and warrants immediately prior to the closing), there were 49,033,903 shares of common stock issued

8


and outstanding, which excludes the additional shares that Nesco Owner may be entitled to as further described below. Additionally, there were warrants to purchase 20,949,980 shares of common stock issued and outstanding.

Upon the closing, Capitol’s common stock, warrants and units ceased trading, and upon the opening of trading on August 1, 2019, Holdings' common stock and warrants began trading on the NYSE, respectively, under the symbol “NSCO” and “NSCO WS,” respectively.

Upon the completion of the Transactions, NESCO Holdings, LP, a Delaware limited partnership controlled by Energy Capital Partners ("Nesco Owner"), and certain members of management of the Company received 21,660,638 shares of Holdings and warrants to purchase 2,500,000 shares of Holdings, in exchange for all of the share capital. Nesco Owner also obtained the right to receive up to 3,451,798 additional common shares of the Company upon the occurrence of certain events.

At the closing of the Transactions, Nesco Owner and certain members of management of Holdings held approximately 53% of the issued and outstanding ordinary shares of Holdings and stockholders of Capitol held approximately 47% of the issued and outstanding shares of Holdings.

Accordingly, the Merger transactions were treated as the equivalent of Holdings I issuing stock for the net assets of Capitol. Consistent with SEC Topic 12, Reverse Acquisitions and Reverse Recapitalizations, the acquisition of a private operating company by a non-operating public shell corporation typically results in the owners and management of the private company having actual or effective voting control and operating control of the combined company. Therefore, the transaction is, in substance, a reverse recapitalization, equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation accompanied by a recapitalization. The accounting is similar to that of a reverse acquisition, except that no goodwill or other intangible assets should be recorded. The net assets of Capitol as of July 31, 2019, were stated at historical cost, and no goodwill or other intangible assets were recorded.

Note 2: Summary of Significant Accounting Policies
Basis of Presentation
  
The accompanying interim statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair statement of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year or for any other period. These interim statements should be read in conjunction with Holdings I’s audited financial statements for the year ended December 31, 2018, included in Capitol's final prospectus and definitive proxy statement filed with the Securities and Exchange Commission on June 4, 2019 (as supplemented on June 24, 2019 and July 11, 2019), and incorporated by reference in the Current Report on Form 8-K filed with the SEC on August 1, 2019.

The Transactions were accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Capitol was treated as the acquired company and Holdings I was treated as the acquirer for financial reporting purposes. Therefore, the consolidated financial results include information regarding Holdings I as Nesco Holdings, Inc.'s predecessor entity. Thus, the financial statements included in this report reflect: (i) the historical operating results of Holdings I prior to the Transactions; (ii) the combined results of Capitol and Holdings I following the Transactions (effectively, Nesco Holdings, Inc.); (iii) the assets, liabilities and stockholder's equity of Holdings I at their historical costs; and (iv) Nesco Holdings, Inc.’s equity and earnings per share presented for the period from the Closing Date of the Transactions.

Use of Estimates
These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, and accordingly, include amounts that require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the notes thereto. Significant items subject to such estimates and assumptions include, but are not limited to, the useful lives and salvage values of our rental equipment. Actual results may differ from these estimates and assumptions.

In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results. These consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018.

9



Recently Issued Accounting Pronouncements
Leases
The FASB’s new guidance to account for leases (“Topic 842”) by entities that are lessees, requires (1) recognition of lease assets and lease liabilities on the balance sheet and (2) disclosure of key information about leasing arrangements. Topic 842 provides two classifications for leases: financing or operating.
Finance leases - The accounting and recognition for leases qualifying as finance leases is similar to the accounting and recognition required under ASC Topic 840, Leases (“Topic 840”), for capital leases. As of September 30, 2019, we have capital lease obligations of approximately $29.5 million. When we make our contractually required payments under the capital leases, we allocate a portion to reduce the capital lease obligation and a portion is recognized as interest expense. The assets leased under the capital leases are included in rental equipment, and depreciation thereon is recognized in cost of rental revenue.
Operating leases - Under Topic 842, operating leases result in the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Under Topic 842, operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, upon adoption of Topic 842, we will use our estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. The operating lease ROU assets will also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease that we are reasonably certain to exercise. Lease expense under Topic 842 will be recognized on a straight-line basis over the lease term. Upon adoption of Topic 842, we expect to recognize operating lease ROU assets and lease liabilities that reflect the present value of these future payments, which we currently estimate to be in the range of $8.0 million to $10.0 million.
In October 2019, the FASB approved its proposal to defer the effective date of Topic 842 by one year. Accordingly, we will adopt Topic 842 effective January 1, 2021, using the transition method that allows us to recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. A modified retrospective approach is required for adoption for all leases that exist at or commence after the date of initial application with an option to use certain practical expedients. We expect to use the package of practical expedients that allows us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We additionally expect to use the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component.
Under Topic 842, lessor accounting will remain substantially similar to the current accounting; however, certain refinements were made to conform the standard with the recently issued revenue recognition guidance in ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components. On July 30, 2018, the FASB issued ASU 2018-11, which created a practical expedient that provides lessors an option not to separate lease and non-lease components when certain criteria are met and instead account for those components as a single lease component. We are currently in the process of evaluating whether our lease arrangements will meet the criteria under the practical expedient to account for lease and non-lease components as a single lease component, which would alleviate the requirement upon adoption of Topic 842 that we reallocate or separately present lease and non-lease components.
Derivatives
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which includes changes to its accounting guidance for derivatives and hedging, which changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. Some changes resulting from this new guidance include the elimination of the concept of recognizing periodic hedge ineffectiveness for cash flow hedges, changes to the recognition and presentation of changes in the fair value of the hedging instrument, enhancement of the ability to use the critical-terms-match method for the cash flow hedge of groups of forecasted transactions when the timing of the hedged transactions does not perfectly match the hedging instrument’s maturity date, and the addition of new disclosure requirements and amendments to existing ones. This new guidance is effective for us as of January 1, 2020. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
Revenue Recognition
Following the adoption of Topic 606, as of January 1, 2018, we recognized revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Topic 840, which addresses lease accounting, for which we will adopt an update to this standard using the modified retrospective approach, as described herein. For the three and nine months ended September 30, 2019 and 2018, we recognized rental revenue in accordance with Topic 840 Leases, which is the lease accounting standard.

10


Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A “performance obligation” is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under Topic 606. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services. As reflected below, most of our revenue is accounted for under Topic 840. Our contracts with customers generally do not include multiple performance obligations. The inset below presents our revenue types based on the accounting standard used to determine the accounting.
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
2019
 
2018
(in $000s)
Topic 840
 
Topic 606
 
Total
 
Topic 840
 
Topic 606
 
Total
Rental:
 
 
 
 
 
 
 
 
 
 
 
  Rental revenue
$
47,821

 
$

 
$
47,821

 
$
43,944

 
$

 
$
43,944

  Shipping and handling

 
2,282

 
2,282

 

 
1,923

 
1,923

    Total rental revenue
47,821

 
2,282

 
50,103

 
43,944

 
1,923

 
45,867

Sales and services:
 
 
 
 
 
 
 
 
 
 
 
  Sales of rental equipment

 
3,436

 
3,436

 

 
5,377

 
5,377

  Sales of new equipment

 
1,246

 
1,246

 

 
8,024

 
8,024

  Parts and services

 
7,657

 
7,657

 

 
4,814

 
4,814

    Total sales and services

 
12,339

 
12,339

 

 
18,215

 
18,215

    Total revenue
$
47,821

 
$
14,621

 
$
62,442

 
$
43,944

 
$
20,138

 
$
64,082

 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
(in $000s)
Topic 840
 
Topic 606
 
Total
 
Topic 840
 
Topic 606
 
Total
Rental:
 
 
 
 
 
 
 
 
 
 
 
  Rental revenue
$
137,194

 
$

 
$
137,194

 
$
130,905

 
$

 
$
130,905

  Shipping and handling

 
6,677

 
6,677

 

 
5,873

 
5,873

    Total rental revenue
137,194

 
6,677

 
143,871

 
130,905

 
5,873

 
136,778

Sales and services:
 
 
 
 
 
 
 
 
 
 
 
  Sales of rental equipment

 
15,167

 
15,167

 

 
15,562

 
15,562

  Sales of new equipment

 
8,076

 
8,076

 

 
12,167

 
12,167

  Parts and services

 
19,675

 
19,675

 

 
13,102

 
13,102

    Total sales and services

 
42,918

 
42,918

 

 
40,831

 
40,831

    Total revenue
$
137,194

 
$
49,595

 
$
186,789

 
$
130,905

 
$
46,704

 
$
177,609


Rental revenue is primarily comprised of revenues from rental agreements and freight charges billed to customers as well as charges to customers for damaged equipment. Effective July 1, 2019, damage billings are classified in rental revenue, given that the amounts are directly related to the Company's rental arrangements with its customers. Amounts for damages in comparable prior periods have been reclassified to rental revenue from parts and services in the above table ($0.9 million and $2.5 million for the three and nine months ended September 30, 2018, respectively, and $3.2 million and $2.6 million for the years ended December 31, 2018 and 2017, respectively). Additionally, sales of equipment, which are presented separately between sales of rental equipment and new equipment, were previously presented on a combined basis as equipment sales. For the years ended December 31, 2018 and 2017, sales of rental equipment were $26.0 million and $17.2 million, respectively, and sales of new equipment were $18.4 million and $10.1 million, respectively.

11


Rental Equipment
Rental equipment consisted of the following:
(in $000s)
September 30, 2019
 
December 31, 2018
Rental equipment
$
603,506

 
$
541,529

   Less: accumulated depreciation
(261,636
)
 
(220,807
)
Rental equipment, net
$
341,870

 
$
320,722


We recorded a major repair disposal expense of $0.4 million and $0.3 million for the three months ended September 30, 2019 and 2018, respectively, and $1.5 million and $1.1 million for the nine months ended September 30, 2019 and 2018, respectively, related to units needing major repairs.
On September 27, 2019, we commenced closure of the Company's operations in Mexico due to continued delays in contracts from the Mexican government. An impairment loss of $0.7 million was recorded to reduce the carrying amount of rental equipment to its fair value, which was determined based on a recent analysis of market activity (i.e., Level 3 fair value as defined in Note 8 herein) for the equipment at these operations. The Company also recorded a $0.2 million charge for the statutorily-required minimum benefits to be be provided to employees due to their involuntary termination. These charges are included in Impairment loss and Selling, General, and Administrative expenses on the Unaudited Condensed Consolidated Statements of Operations, respectively.
Note 3: Segments
We operate and have two reportable business segments, Equipment Rental and Sales (“ERS”) and Parts, Tools, and Accessories (“PTA”). ERS provides rental solutions to utilities and contractors serving multiple infrastructure end-markets, including electric transmission and distribution, telecom, rail, lighting and signage. We rent and sell specialized equipment to utilities and utility contractors that build and maintain critical transmission and distribution infrastructure. Utilizing our national platform and rental fleet, we expanded our focus on equipment rental to the telecom, rail, lighting and signage end-markets. The majority of our existing equipment can be used across multiple end-markets and many of our customers operate in multiple end-markets. We rent and sell a broad range of new and used equipment including bucket trucks, digger derricks, line equipment, cranes, pressure diggers, rail mounted equipment and underground equipment. Our PTA segment offers customers sale and rental solutions for parts, tools, and accessories to complement our specialty equipment line.
Our reportable segments align with the information our chief operating decision maker (“CODM”) receives on a regular basis to evaluate the performance of the business and to allocate resources. The accounting principles applied at the operating segment level in determining gross profit are generally the same as those applied at the consolidated financial statement level. There are no inter-segment revenues, and cost allocations to operating segment cost of revenue are minimal; that is, revenue, cost of equipment and parts sold or rented, depreciation of rental equipment and gross profit are directly attributed to each of the operating segments.The following tables present our financial information by segment:
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
2019
 
2018
(in $000s)
ERS
 
PTA
 
Total
 
ERS
 
PTA
 
Total
Rental revenue
$
46,174

 
$
3,929

 
$
50,103

 
$
43,033

 
$
2,834

 
$
45,867

Sales of rental equipment
3,436

 

 
3,436

 
5,377

 

 
5,377

Sales of new equipment
1,246

 

 
1,246

 
8,024

 

 
8,024

Parts sales and services

 
7,657

 
7,657

 

 
4,814

 
4,814

Total revenues
$
50,856

 
$
11,586

 
$
62,442

 
$
56,434

 
$
7,648

 
$
64,082

Cost of revenue and sales, excluding depreciation
16,878

 
6,393

 
23,271

 
24,240

 
4,420

 
28,660

Depreciation of rental equipment
16,849

 
1,058

 
17,907

 
14,271

 
937

 
15,208

     Gross profit
$
17,129

 
$
4,135

 
$
21,264

 
$
17,923

 
$
2,291

 
$
20,214




12