Business Context and Reporting Period
Quarterly report for the three and six months ended June 30, 2019. Although the request identifies Custom Truck One Source, Inc., the filing is for Nesco Holdings, Inc. (formerly Capitol Investment Corp. IV), a blank-check company pursuing a business combination with Nesco. The July 2019 name change and Delaware domestication occurred after the reporting date. The company had not begun operating as the combined business and reported no operating revenue.
Financial Results and Liquidity
Amounts are in U.S. dollars. Reported earnings primarily reflect interest on funds held in the trust account, not operating activity.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Operating costs | $904,919 | $491,575 | $1,441,073 | $904,819 |
| Interest income | $2,050,569 | $1,513,001 | $4,325,260 | $2,880,438 |
| Net income | $1,121,159 | $1,020,245 | $2,884,187 | $1,975,619 |
| Basic and diluted income (loss) per share | $(0.07) | $0.02 | $(0.10) | $(0.00) |
| Cash used in operating activities | Not separately stated | $1,334,647 | $857,602 |
At June 30, cash outside the trust was $83,606, versus $468,253 at year-end 2018; trust cash and marketable securities were $412.1 million. Current assets were $93,920 and current liabilities $206,272. Liabilities included $950,000 of unsecured, non-interest-bearing related-party notes and a $14.1 million deferred underwriting fee. No long-term debt was reported at quarter-end. The filing does not provide operating margins; these are not meaningful in the absence of revenue.
Changes, Outlook, and Risks
- Compared with Q2 2018, quarterly operating costs increased about 84% and net income increased about 10%. For the first half, costs rose about 59% and net income about 46%. Earnings growth was driven by higher trust-account interest, while operating costs also increased.
- The company said it expected its available cash to cover needs only through the earlier of a business-combination closing or August 21, 2019, its then-applicable transaction deadline. It received an additional $550,000 in related-party notes on July 29. If the deal failed, note repayment was limited to cash outside the trust; otherwise the amounts would be forgiven.
- On July 16, stockholders approved the proposed transaction and 26,091,034 shares elected redemption. The filing estimated redemption payments of approximately $267.1 million, based on the June 30 trust balance, assuming no elections were reversed.
- The July 10 merger amendment reduced the combined-company enterprise value by $50 million to approximately $1.037 billion, assuming no redemptions, and revised seller consideration and earnout terms. Nesco waived the $265 million minimum closing-cash condition, subject to other conditions and at least $200 million of cash remaining after closing.
- After quarter-end, the company arranged a conditional sale of $475 million of second-lien notes due 2024, expected to close with the transaction. A separate $350 million asset-based revolving facility had been committed, subject to documentation and conditions; the bridge-loan commitment was available only if the notes were not issued. These are proposed transaction financings, not June 30 borrowings.
- Management reported disclosure controls were effective at a reasonable-assurance level and no material quarterly change in internal control over financial reporting. Management cautioned that forward-looking statements were subject to risks and uncertainty; market-risk exposure was described as limited because trust investments were short-term U.S. government securities or qualifying money-market funds.
Important Facts for Investors to Verify
- Confirm the filing and issuer: this is a SPAC filing for Nesco Holdings/Capitol Investment Corp. IV, not an operating-company 10-Q for Custom Truck One Source.
- Check the final number of redemptions, resulting cash available at closing, and whether the stated $200 million post-closing cash condition was met.
- Verify consummation and final terms of the Nesco business combination, including equity issuance, earnouts, and related-party subscriptions.
- Confirm whether the $475 million notes and revolving credit facility closed, and review the combined company’s resulting leverage, rates, covenants, and liquidity.
- Assess near-term funding and transaction costs against the very limited $83,606 of unrestricted cash reported at June 30.