SEC Filing Summary: Capitol Investment Corp. IV — Q3 2018 Form 10-Q
Entity mismatch: The request identifies Custom Truck One Source, Inc., but the supplied filing is for Capitol Investment Corp. IV, a Cayman Islands blank-check company. The figures and disclosures below describe Capitol Investment Corp. IV, not Custom Truck One Source.
Business context and reporting period
The filing covers the quarter and nine months ended September 30, 2018. Capitol Investment Corp. IV was formed to pursue a business combination and had not completed one by the reporting date. Its activity consisted of formation, its August 2017 IPO and private placement, and searching for a target. It reported no operating revenue and does not expect operating revenue before completing a business combination.
Financial results and position
- Q3 2018: Net income was $1.43 million, compared with a $167,016 net loss in Q3 2017. Results included $1.74 million of trust-account interest income, a $12,462 unrealized gain, and $324,052 of operating costs. Basic and diluted earnings per share were $0.04.
- Nine months 2018: Net income was $3.41 million, compared with a $172,066 net loss for the comparable 2017 inception period. Interest income was $4.62 million, the unrealized gain was $12,462, and operating costs were $1.23 million. Reported basic and diluted loss per share was $0.02 after excluding income attributable to shares subject to redemption.
- Cash flow: Net cash used in operating activities was $1.23 million for the first nine months of 2018. The company withdrew $750,000 of trust-account interest for working capital. Cash outside the trust account fell to $21,360 from $501,925 at year-end 2017.
- Assets and liquidity: Total assets were $406.45 million, including $406.39 million held in the trust account, primarily in U.S. Treasury bills. Current liabilities were $106,557; total liabilities were $14.19 million, including a $14.09 million deferred underwriting fee payable upon a business combination. The company reported no long-term debt.
- Equity and redemption: $387.25 million of Class A shares was classified as subject to possible redemption outside shareholders’ equity. Shareholders’ equity was $5.00 million.
- Margins: Not meaningful for this pre-combination blank-check company; it reported no operating revenue.
Changes versus the comparable period
- Q3 and nine-month results shifted from losses in the 2017 comparison periods to net income in 2018, primarily because the trust account generated interest income after the IPO.
- Trust-account assets increased to $406.39 million from $402.50 million at December 31, 2017, while cash outside the trust account declined substantially.
- Operating costs increased to $324,052 in Q3 2018 from $167,016 in the Q3 2017 comparison, and to $1.23 million for the first nine months of 2018 from $172,066 in the 2017 inception-period comparison. The periods are not fully comparable because the company began operations in May 2017.
Outlook, risks, and unusual items
- Management expected available cash, including committed insider and director loans totaling $377,000, to fund needs through the earlier of a business combination or August 21, 2019, when the company would have to cease ordinary operations and wind up if no combination is completed. No loan amounts were outstanding at September 30, 2018.
- The company withdrew another $750,000 of trust-account interest in October 2018. It may use trust interest for working capital, subject to stated limits, while substantially all remaining trust funds are intended for a business combination.
- Management warned that underestimated target-search, due-diligence, or transaction costs could leave insufficient working capital. Additional financing may be needed to complete a combination; failure to obtain sufficient funds could result in liquidation.
- On October 3, 2018, NYSE staff notified the company that it was not in compliance with the requirement to maintain at least 300 public stockholders. It had to submit a compliance plan by November 17, 2018; failure to obtain acceptance or regain compliance could lead to suspension and delisting procedures. The company anticipated regaining compliance after locating a target.
- Other commitments include monthly affiliate administrative-service fees of up to $20,000 and consulting arrangements with aggregate annual fees of $560,000 and success fees of $1.09 million payable upon a business combination.
- Management stated disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended company: this filing is for Capitol Investment Corp. IV, not Custom Truck One Source, Inc.
- Check the status and terms of the proposed business combination, if any, and the company’s progress toward its August 21, 2019 deadline.
- Verify the NYSE compliance-plan outcome and public-stockholder count.
- Confirm the availability and terms of the $377,000 insider/director loan commitments and any subsequent borrowings.
- Review the trust-account balance, redemption exposure, deferred underwriting fee, and consulting success fees when assessing funds available for a transaction.