Filing summary
Filing identity: The supplied 10-Q is for Capitol Investment Corp. IV, a blank-check company, not Custom Truck One Source, Inc. The filing text does not provide Custom Truck One Source financial results. It covers the quarter ended March 31, 2019.
Business context and results
Capitol was seeking a business combination and reported no operating revenue. Its activity related to its formation, public offering, target search, and proposed transaction with NESCO Holdings I, Inc. The results mainly reflect interest earned on cash and marketable securities held in trust, offset by operating expenses.
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Operating revenue | None reported | None reported |
| Operating costs | $536,154 | $413,244 |
| Interest income | $2,274,691 | $1,367,437 |
| Unrealized gain on trust investments | $24,491 | $1,181 |
| Net income | $1,763,028 | $955,374 |
| Basic and diluted income (loss) per share | $(0.04) | $0.03 |
| Cash used in operating activities | $461,280 | $506,633 |
The reported net income includes earnings attributable to redeemable public shares; after that allocation, income attributable to other ordinary shares was a loss of $427,633 in Q1 2019, versus income of $365,151 in Q1 2018. Operating margins are not meaningful because the company had no operating revenue.
Financial position and liquidity
- At March 31, 2019, cash outside the trust was $756,973; cash and marketable securities in the trust totaled $410,026,800.
- Total assets were $410.8 million, total liabilities were $15.0 million, including $750,000 of related-party convertible notes and a $14.1 million deferred underwriting fee. Shareholders’ equity was $5.0 million. The filing reports no long-term debt apart from the related-party notes.
- Q1 cash increased by $288,720, reflecting $750,000 of related-party note proceeds less $461,280 used in operating activities. The trust balance is principally intended to fund a business combination and is not equivalent to unrestricted operating liquidity.
- Management said available resources were expected to cover needs until the earlier of a business combination or August 21, 2019. Lenders committed to provide an additional $102,000 if needed.
Material developments, outlook, and risks
- Net income increased from $955,374 to $1.76 million year over year, principally because trust interest income increased. Operating costs also rose, while operating cash use declined.
- On April 7, 2019, Capitol agreed to combine with NESCO. The stated consideration to NESCO’s owner included $75 million cash, 17,464,235 shares, and warrants for 2.5 million shares, subject to the agreement’s terms; additional shares could be earned if specified share-price or sale-price conditions are met.
- The transaction was expected to close in Q2 2019, subject to shareholder approval and other conditions. Financing commitments included a $350 million asset-based revolving facility and up to $400 million of second-lien bridge financing if the company could not issue qualifying second-lien notes.
- Related-party notes are unsecured, non-interest bearing, and payable at a business-combination closing; holders may elect to convert principal into warrants, subject to transaction restrictions. If no combination closes, repayment is limited to funds outside the trust.
- Other disclosed obligations include the $14.1 million deferred underwriting fee payable upon a completed combination, monthly administrative fees of up to $20,000, and consulting arrangements with aggregate annual fees of approximately $664,000 plus $1.09 million in success fees payable upon a combination.
- The company warned that working-capital shortfalls or insufficient transaction financing could prevent a combination and lead to liquidation. Management reported disclosure controls were effective at a reasonable assurance level and no material change in internal control during the quarter.
Important facts to verify
- Confirm the issuer: this document is Capitol Investment Corp. IV’s 10-Q, not a Custom Truck One Source filing.
- Verify the subsequent outcome and final terms of the proposed NESCO transaction, including closing, financing, shareholder approval, and any later amendments.
- Check the availability and restrictions on trust funds versus unrestricted cash, and the status and terms of related-party working-capital loans.
- Review the treatment of redeemable shares, deferred underwriting fees, and potential dilution from warrants and contingent share awards.