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 ~~March 31,~~June 30, 2020



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)



Delaware			84-2531628
(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)

Securities registered pursuant to Section 12(b) of the Act:



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~~Yes x NO o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ~~YES~~Yes x 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

Accelerated filer

Non-accelerated filer

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 x

The number of ~~ordinary~~ shares ~~outstanding~~of common stock of NESCO Holdings, Inc. as of ~~May 1,~~July 31, 2020 was 49,033,903.

Nesco Holdings, Inc. and Subsidiaries

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Page Number

~~PART I~~

~~FINANCIAL INFORMATION~~

~~Page Number~~

Item 1.

Unaudited Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2020 and December 31, 2019

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019

Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2020 and 2019

Unaudited Condensed Consolidated Statements of Stockholders' Deficit for the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

1821

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3033

Item 4.

Controls and Procedures

3235

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

3235

Item 1A.

Risk Factors

3235

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3235

Item 3.

Defaults Upon Senior Securities

3235

Item 4.

Mine Safety Disclosures

3235

Item 5.

Other Information

3335

Item 6.

Exhibits

3336

SIGNATURES

3437

PART I - FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

Nesco Holdings, Inc.

Condensed Consolidated Balance Sheets (unaudited)


(in $000s, except share data)	March 31, 2020			December 31, 2019			(in $000s, except share data)	June 30, 2020		December 31, 2019
Assets							Assets
Current Assets							Current Assets
Cash	$	10,236		$	6,302		Cash	$	5,300	$	6,302
Accounts receivable, net of allowance of $4,685 and $4,654 respectively	70,282			71,323
Accounts receivable, net of allowance of $4,881 and $4,654 respectively							Accounts receivable, net of allowance of $4,881 and $4,654 respectively	57,438		71,323
Inventory	30,738			33,001			Inventory	32,111		33,001
Prepaid expenses and other	5,251			5,217			Prepaid expenses and other	5,369		5,217
Total current assets	116,507			115,843			Total current assets	100,218		115,843
Property and equipment, net	9,802			6,561			Property and equipment, net	5,795		6,561
Rental equipment, net	380,053			383,420			Rental equipment, net	369,269		383,420
Goodwill and other intangibles, net	308,014			308,747			Goodwill and other intangibles, net	307,327		308,747
Notes receivable	691			713			Notes receivable	626		713
Total Assets	$	815,067		$	815,284		Total Assets	783,235		$	815,284
Liabilities and Stockholder's Deficit
Liabilities and Stockholders' Deficit							Liabilities and Stockholders' Deficit
Current Liabilities							Current Liabilities
Accounts payable	$	28,038		$	41,172		Accounts payable	$	14,856	$	41,172
Accrued expenses	15,165			27,590			Accrued expenses	27,206		27,590
Deferred rent income	1,753			2,270			Deferred rent income	1,212		2,270
Current maturities of long-term debt	1,601			1,280			Current maturities of long-term debt	1,280		1,280
Current portion of capital lease obligations	7,430			5,451			Current portion of capital lease obligations	8,080		5,451
Total current liabilities	53,987			77,763			Total current liabilities	52,634		77,763
Long-term debt, net	749,111			713,023			Long-term debt, net	732,805		713,023
Capital leases	18,898			22,631			Capital leases	16,290		22,631
Deferred tax liabilities	12,940			12,288			Deferred tax liabilities	13,267		12,288
Interest rate collar	7,671			1,709			Interest rate collar	8,476		1,709
Total long-term liabilities	788,620			749,651			Total long-term liabilities	770,838		749,651

Commitments and contingencies (see Note 9)
Commitments and contingencies (see Note 11)							Commitments and contingencies (see Note 11)

Stockholders' Deficit							Stockholders' Deficit
Common stock - $0.0001 par value, 250,000,000 shares authorized, 49,033,903 shares issued and outstanding, at March 31, 2020 and December 31, 2019	5			5
Common stock - $0.0001 par value, 250,000,000 shares authorized, 49,033,903 shares issued and outstanding, at June 30, 2020 and December 31, 2019							Common stock - $0.0001 par value, 250,000,000 shares authorized, 49,033,903 shares issued and outstanding, at June 30, 2020 and December 31, 2019	5		5
Additional paid-in capital	433,136			432,577			Additional paid-in capital	433,589		432,577
Accumulated deficit	(460,681		)	(444,712		)	Accumulated deficit	(473,831)		(444,712)

Total stockholders' deficit	(27,540		)	(12,130		)	Total stockholders' deficit	(40,237)		(12,130)
Total Liabilities and Stockholders' Deficit	$	815,067		$	815,284		Total Liabilities and Stockholders' Deficit	$	783,235	$	815,284

See accompanying notes to unaudited condensed consolidated financial statements.

Nesco Holdings, Inc.

Condensed Consolidated Statements of Operations (unaudited)


	Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
(in $000s, except share and per share data)	2020			2019			(in $000s, except share and per share data)	2020		2019		2020		2019
Revenue							Revenue
Rental revenue	$	50,994		$	45,642		Rental revenue	$	46,984	$	48,125	$	97,978	$	93,767
Sales of rental equipment	9,093			7,399			Sales of rental equipment	4,982		4,332		14,075		11,731
Sales of new equipment	7,577			2,350			Sales of new equipment	5,418		4,480		12,995		6,830
Parts sales and services	14,079			6,101			Parts sales and services	11,097		5,918		25,176		12,019
Total Revenue	81,743			61,492			Total Revenue	68,481		62,855		150,224		124,347
Cost of Revenue							Cost of Revenue
Cost of rental revenue	13,786			11,057			Cost of rental revenue	14,311		12,843		28,097		23,900
Depreciation of rental equipment	20,112			16,731			Depreciation of rental equipment	19,696		16,944		39,808		33,675
Cost of rental equipment sales	7,728			5,934			Cost of rental equipment sales	3,536		3,871		11,264		10,005
Cost of new equipment sales	6,654			1,806			Cost of new equipment sales	4,777		3,697		11,431		5,303
Cost of parts sales and services	11,360			4,850			Cost of parts sales and services	9,224		4,471		20,584		9,321
Major repair disposals	700			762			Major repair disposals	595		384		1,295		1,146
Total cost of revenue	60,340			41,140			Total cost of revenue	52,139		42,210		112,479		83,350
Gross Profit	21,403			20,352			Gross Profit	16,342		20,645		37,745		40,997
Operating Expenses							Operating Expenses
Selling, general and administrative expenses	11,618			7,579			Selling, general and administrative expenses	11,018		7,305		22,636		14,884
Licensing and titling expenses	821			653			Licensing and titling expenses	736		583		1,557		1,236
Amortization and non-rental depreciation	716			770			Amortization and non-rental depreciation	800		749		1,516		1,519
Transaction expenses	736			2,510			Transaction expenses	227		1,559		963		4,069
Other operating expenses	716			150			Other operating expenses	1,042		629		1,758		779
Total Operating Expenses	14,607			11,662			Total Operating Expenses	13,823		10,825		28,430		22,487
Operating Income	6,796			8,690			Operating Income	2,519		9,820		9,315		18,510
Other Expense							Other Expense

Interest expense, net	16,014			14,993			Interest expense, net	15,949		14,850		31,963		29,843
Other (income) expense, net	6,021			(13		)	Other (income) expense, net	783		(9)		6,804		(22)
Total other expense	22,035			14,980			Total other expense	16,732		14,841		38,767		29,821
Loss Before Income Taxes	(15,239		)	(6,290		)	Loss Before Income Taxes	(14,213)		(5,021)		(29,452)		(11,311)
Income Tax Expense	730			434
Income Tax Expense (Benefit)							Income Tax Expense (Benefit)	(1,063)		402		(333)		836
Net Loss	$	(15,969	)	$	(6,724	)	Net Loss	$	(13,150)	$	(5,423)	$	(29,119)	$	(12,147)
Loss per Share:							Loss per Share:
Basic and diluted	$	(0.33	)	$	(0.31	)	Basic and diluted	$	(0.27)	$	(0.25)	$	(0.59)	$	(0.56)
Weighted-average-common shares outstanding:							Weighted-average-common shares outstanding:
Basic and diluted	49,033,903			21,660,638			Basic and diluted	49,033,903		21,660,638		49,033,903		21,660,638

See accompanying notes to unaudited condensed consolidated financial statements.

Nesco Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)


	Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
(in $000s)	2020			2019			(in $000s)	2020		2019		2020		2019
Net loss	$	(15,969	)	$	(6,724	)	Net loss	$	(13,150)	$	(5,423)	$	(29,119)	$	(12,147)
Other comprehensive loss
Interest rate collar (net of taxes of $112 in 2019)	—			88
Other comprehensive loss:							Other comprehensive loss:
Interest rate collar (net of taxes of $173 and $285, respectively)							Interest rate collar (net of taxes of $173 and $285, respectively)	—		(476)		—		(388)
Other comprehensive loss	—			88			Other comprehensive loss	—		(476)		—		(388)
Comprehensive loss	$	(15,969	)	$	(6,636	)	Comprehensive loss	$	(13,150)	$	(5,899)	$	(29,119)	$	(12,535)

There were 0 reclassifications from accumulated other comprehensive loss reflected in the Unaudited Condensed Consolidated Statements of Operations during the three and six months ended ~~March 31,~~June 30, 2020 and 2019.

See accompanying notes to unaudited condensed consolidated financial statements.

Nesco Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

Three Months Ended March 31,
(in $000s) 2020
2019
Operating Activities

Net (loss) income $ (15,969 )
$ (6,724 )
Adjustments to reconcile net (loss) income to net cash from operating activities:

Depreciation 20,377

16,996
Amortization - intangibles 691

724
Amortization - financing costs 711

677
Provision for losses on accounts receivable 777

692
Share-based payments 559

128
Gain on sale of rental equipment and parts (2,213 )
(1,977 )
Gain on insurance proceeds - damaged equipment (120 )
(452 )
Major repair disposal 700

762
Change in fair value of derivative 5,963

—
Deferred tax (benefit) expense 652

271
Changes in assets and liabilities:

Accounts receivable 1,207

1,823
Inventory 176

(4,299 )
Prepaid expenses and other (34 )
(3,413 )
Accounts payable (3,352 )
10,297
Accrued expenses and other liabilities (12,427 )
(8,163 )
Unearned income (517 )
(3,437 )
Net cash flow from operating activities (2,819 )
3,905
Investing Activities

Purchase of equipment - rental fleet (33,347 )
(13,704 )
Proceeds from sale of rental equipment and parts 9,960

7,628
Insurance proceeds from damaged equipment 365

797
Purchase of other property and equipment (4,168 )
(1,656 )
Net cash flow from investing activities (27,190 )
(6,935 )
Financing Activities

Borrowings under revolving credit facilities 35,680

15,000
Repayments under revolving credit facilities —

(9,000 )
Repayments of notes payable —

(183 )
Capital lease payments (1,737 )
(1,166 )
Finance fees paid —

20
Net cash flow from financing activities 33,943

4,671
Net Change in Cash 3,934

1,641
Cash at Beginning of Period 6,302

2,140
Cash at End of Period $ 10,236

$ 3,781

Supplemental Cash Flow Information

Cash paid for interest $ 24,977

$ 23,570
Cash paid for income taxes 76

136
Non-Cash Investing and Financing Activities

Transfer of parts inventory to leased equipment 2,087

1,470
Rental equipment and property and equipment purchases in accounts payable 11,861

20,868
Rental equipment sales in accounts receivable 5,627

3,050
Insurance recoveries accrued in accounts receivable —

424

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~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, December 31, 2019 49,033,903
$ 5
$ 432,577
$ (444,712 ) $ —
$ (12,130 )
Net loss —
—
—
(15,969 ) —
(15,969 )
Share-based payments —
—
559
—
—
559
Balance, March 31, 2020 49,033,903
$ 5
$ 433,136
$ (460,681 ) $ —
$ (27,540 )

Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit
Common Stock
Shares Amount
Balance, December 31, 2018 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 )


	Six Months Ended June 30,
(in $000s)	2020		2019
Operating Activities
Net loss	$	(29,119)	$	(12,147)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation	40,369		34,176
Amortization - intangibles	1,462		1,448
Amortization - financing costs	1,515		1,380
Provision for losses on accounts receivable	1,421		1,112
Share-based payments	1,012		180
Gain on sale of rental equipment and parts	(3,838)		(3,260)
Gain on insurance proceeds - damaged equipment	(233)		(387)
Major repair disposal	1,295		1,146

Change in fair value of derivative	6,767		—

Deferred tax (benefit) expense	979		544

Changes in assets and liabilities:
Accounts receivable	10,935		(13,357)
Inventory	(4,313)		(8,864)
Prepaid expenses and other	(152)		(2,412)
Accounts payable	(6,988)		8,020
Accrued expenses and other liabilities	(385)		(683)
Unearned income	(1,058)		(1,719)
Net cash flow from operating activities	19,669		5,177
Investing Activities

Purchase of equipment - rental fleet	(55,421)		(51,734)
Proceeds from sale of rental equipment and parts	19,005		18,187
Insurance proceeds from damaged equipment	2,191		1,427
Purchase of other property and equipment	(1,089)		(3,655)
Other	87		—
Net cash flow from investing activities	(35,227)		(35,775)
Financing Activities

Borrowings under revolving credit facilities	37,574		43,000
Repayments under revolving credit facilities	(19,074)		(9,000)
Repayments of notes payable	(232)		(365)
Capital lease payments	(3,712)		(2,613)

Finance fees paid	—		20
Net cash flow from financing activities	14,556		31,042
Net Change in Cash	(1,002)		444
Cash at Beginning of Period	6,302		2,140
Cash at End of Period	$	5,300	$	2,584


Supplemental Cash Flow Information
Cash paid for interest	$	29,502	$	28,708
Cash paid for income taxes	156		240
Non-Cash Investing and Financing Activities
Transfer of inventory to leased equipment	5,203		2,618
Rental equipment and property and equipment purchases in accounts payable	2,316		19,021
Rental equipment sales in accounts receivable	2,453		623




Insurance recoveries accrued in accounts receivable	702		224

See accompanying notes to unaudited condensed consolidated financial statements.

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, December 31, 2019	49,033,903	$	5	$	432,577	$	(444,712)	$	—	$	(12,130)
Net loss	—	—		—		(15,969)		—		(15,969)
Share-based payments	—	—		559		—		—		559

Balance, March 31, 2020	49,033,903	$	5	$	433,136	$	(460,681)	$	—	$	(27,540)
Net loss	—	—		—		(13,150)		—		(13,150)
Share-based payments	—	—		453		—		—		453
Balance, June 30, 2020	49,033,903	$	5	$	433,589	$	(473,831)	$	—	$	(40,237)






				Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Deficit
	Common Stock
	Shares	Amount

Balance, December 31, 2018	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)

See accompanying notes to unaudited condensed consolidated financial statements.

Nesco Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1: Business and Organization

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, with Holdings, “we,” “our,” “us,” “Nesco,” or the "Company"), and 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.

Our wholly-owned subsidiaries ~~include~~include: NESCO, LLC, an Indiana limited liability company, NESCO Holdings I, Inc. ~~("Holdings I")~~, a Delaware corporation, 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 primarily contractors, for the maintenance, repair, upgrade and installation of critical infrastructure assets, including distribution and transmission electric lines, telecommunications networks and rail systems, as well as a small percentage 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 in the same end markets of electric lines, telecommunications networks and rail systems; 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 70 locations in the United States and Canada.

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.~~S-X. 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 the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Use of Estimates

We prepare our consolidated financial statements in conformity with GAAP, which requires us to use judgment to make estimates that directly affect the amounts reported in our consolidated financial statements and accompanying notes. Significant estimates are used for items including, but not limited to, the useful lives and residual values of our rental equipment, and business combinations. In addition, estimates are used to test both long-lived assets, goodwill and indefinite-lived assets for impairment, and to determine the fair value of impaired assets, if any impairment exists. These estimates are based on our historical experience and on various other assumptions we believe to be reasonable under the circumstances. We review our estimates on an ongoing basis using information currently available, and we revise our recorded estimates as updated information becomes available, facts and circumstances change, or actual amounts become determinable. Actual results could differ from our estimates. In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results.

Recently Issued Accounting Pronouncements

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. Accordingly, we have elected to comply with certain reduced public company reporting requirements related to effective dates for the adoption of newly issued standards

issued by the Financial Accounting Standards Board (the “FASB”). An emerging growth company is permitted to apply the effective dates applicable to non-public entities, which generally are delayed in comparison to public entities that are non-emerging growth entities.

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 ~~March 31,~~June 30, 2020, we have capital lease obligations of approximately ~~$26.3~~$24.4 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 the lease commencement date and measured based on the present value of lease payments over the lease term. 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~~The FASB ~~approved its proposal~~issued new guidance with respect to ~~defer~~deferring the effective date of Topic 842 by one year. Accordingly, we will adopt Topic 842 effective January 1, ~~2021,~~2022, 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.

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.

Measurement of Current Expected Credit Losses

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," to update the methodology used to measure current expected credit losses (“CECL”). This ASU applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. This ASU replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings (deficit) in the period of adoption. For emerging growth companies electing the modified transition dates of non-public entities, this ASU is effective for fiscal years beginning after December 15, ~~2022.We~~2022. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350)," intended to simplify the subsequent accounting for goodwill acquired in a business combination. Prior guidance required utilizing a two-step process to review goodwill for impairment. A second step was required if there was an indication that an impairment may exist, and the second step required calculating the potential impairment by comparing the implied fair value of a reporting unit’s goodwill (as if purchase accounting were performed on the testing date) to the carrying amount of the goodwill. The new guidance eliminates the second step from the goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill

impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss should not exceed the total amount of goodwill allocated to the reporting unit). The guidance requires prospective adoption and will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption of this guidance is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently assessing the expected impact on our 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 six months ended ~~March 31,~~June 30, 2020 and 2019, we recognized rental revenue in accordance with Topic 840, Leases, which is the lease accounting standard.

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 March 31,						Three Months Ended March 31,							Three Months Ended June 30,										Three Months Ended June 30,
	2020						2019							2020										2019
(in $000s)	Topic 840		Topic 606		Total		Topic 840		Topic 606		Total		(in $000s)	Topic 840		Topic 606		Total		Topic 840		Topic 606		Total
Rental:													Rental:
Rental revenue	$	48,913	$	—	$	48,913	$	43,641	$	—	$	43,641	Rental revenue	$	45,048	$	—	$	45,048	$	45,731	$	—	$	45,731
Shipping and handling	—		2,081		2,081		—		2,001		2,001		Shipping and handling	—		1,936		1,936		—		2,394		2,394
Total rental revenue	48,913		2,081		50,994		43,641		2,001		45,642		Total rental revenue	45,048		1,936		46,984		45,731		2,394		48,125
Sales and services:													Sales and services:
Sales of rental equipment	—		9,093		9,093		—		7,399		7,399		Sales of rental equipment	—		4,982		4,982		—		4,332		4,332
Sales of new equipment	—		7,577		7,577		—		2,350		2,350		Sales of new equipment	—		5,418		5,418		—		4,480		4,480
Parts and services	—		14,079		14,079		—		6,101		6,101		Parts and services	—		11,097		11,097		—		5,918		5,918
Total sales and services	—		30,749		30,749		—		15,850		15,850		Total sales and services	—		21,497		21,497		—		14,730		14,730
Total revenue	$	48,913	$	32,830	$	81,743	$	43,641	$	17,851	$	61,492	Total revenue	$	45,048	$	23,433	$	68,481	$	45,731	$	17,124	$	62,855

														Six Months Ended June 30,										Six Months Ended June 30,
														2020										2019
(in $000s)													(in $000s)	Topic 840		Topic 606		Total		Topic 840		Topic 606		Total
Rental:													Rental:
Rental revenue													Rental revenue	$	93,961	$	—	$	93,961	$	89,372	$	—	$	89,372
Shipping and handling													Shipping and handling	—		4,017		4,017		—		4,395		4,395
Total rental revenue													Total rental revenue	93,961		4,017		97,978		89,372		4,395		93,767
Sales and services:													Sales and services:
Sales of rental equipment													Sales of rental equipment	—		14,075		14,075		—		11,731		11,731
Sales of new equipment													Sales of new equipment	—		12,995		12,995		—		6,830		6,830
Parts and services													Parts and services	—		25,176		25,176		—		12,019		12,019
Total sales and services													Total sales and services	—		52,246		52,246		—		30,580		30,580
Total revenue													Total revenue	$	93,961	$	56,263	$	150,224	$	89,372	$	34,975	$	124,347

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 ($~~0.7~~0.6 million and $1.4 million for the three and six months ended ~~March 31, 2019)~~June 30, 2019, 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 three and six months ended ~~March 31,~~June 30, 2019, sales of rental equipment were ~~$7.4~~$4.3 million and $11.7 million, respectively, and sales of new equipment were ~~$2.4 million.~~$4.5 million and $6.8 million, respectively.

Inventory

Parts, tools and accessories inventory is primarily comprised of items purchased for resale or rent to customers. During the second quarter ended June 30, 2020, in connection with a new inventory management system, we elected to change our method for these inventories, which were previously valued using the first-in, first-out (“FIFO”) method, to the moving average cost method. We believe the change is preferable because it better reflects movement of the inventory and the corresponding value which provides a better reflection of periodic income from operations. This change was not applied retrospectively to prior periods, as the effect of the change was not material to our consolidated financial statements, including interim periods.

Also included within parts, tools and accessories inventory are materials and components that we carry to service our rental fleet and new equipment held for sale. These materials and components are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.

Equipment inventory consists of equipment bought specifically for resale to customers. These new purchases are recorded directly to inventory when received. Equipment inventory is stated at the lower of cost or net realizable value, with cost determined on a specific identification basis.

Inventory consisted of the following:


(in $000s)	June 30, 2020		December 31, 2019
Parts, tools and accessories inventory	$	27,324	$	30,174
Equipment inventory	4,787		2,827
Inventory	$	32,111	$	33,001

(in $000s) March 31, 2020
December 31, 2019
Parts, tools and accessories inventory $ 29,382

$ 30,174
Equipment inventory 1,356

2,827
Inventory $ 30,738

$ 33,001

Rental and Property and Equipment

Rental ~~and property~~equipment consisted of the following:


(in $000s)	June 30, 2020		December 31, 2019
Rental equipment	$	669,231	$	658,564
Less: accumulated depreciation	(299,962)		(275,144)
Rental equipment, net	$	369,269	$	383,420

Property and equipment consisted of the following:


(in $000s)	June 30, 2020		December 31, 2019
Property and equipment	$	11,058	$	10,082
Less: accumulated depreciation	(7,684)		(7,168)
Construction in progress	2,421		3,647
Property and equipment, net	$	5,795	$	6,561

(in $000s) March 31, 2020 December 31, 2019
Rental equipment $ 668,220
$ 658,564
Less: accumulated depreciation (288,167 ) (275,144 )
Rental equipment, net $ 380,053
$ 383,420

~~We recorded a major repair disposal expense of $0.7 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively, related to units needing major repairs.~~

(in $000s) March 31, 2020
December 31, 2019
Property and equipment $ 10,411

$ 10,082
Less: accumulated depreciation (7,389 )
(7,168 )
Construction in progress 6,780

3,647
Property and equipment, net $ 9,802

$ 6,561

Note 3: Segments

We ~~operate and~~ have 2 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 these 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 doing business servicing these same end-markets.

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 June 30,										Three Months Ended June 30,
	Three Months Ended March 31,						Three Months Ended March 31,							2020										2019
	2020						2019
((in $000s)	ERS		PTA		Total		ERS		PTA		Total
(in $000s)													(in $000s)	ERS		PTA		Total		ERS		PTA		Total
Rental revenue⁽¹⁾⁽²⁾	$	47,053	$	3,941	$	50,994	$	42,896	$	2,746	$	45,642	Rental revenue⁽¹⁾⁽²⁾	$	43,025	$	3,959	$	46,984	$	44,867	$	3,258	$	48,125
Sales of rental equipment	9,093		—		9,093		7,399		—		7,399		Sales of rental equipment	4,982		—		4,982		4,332		—		4,332
Sales of new equipment	7,577		—		7,577		2,350		—		2,350		Sales of new equipment	5,418		—		5,418		4,480		—		4,480
Parts sales and services	—		14,079		14,079		—		6,101		6,101		Parts sales and services	—		11,097		11,097		—		5,918		5,918
Total revenues	63,723		18,020		81,743		52,645		8,847		61,492		Total revenues	53,425		15,056		68,481		53,679		9,176		62,855
Cost of revenue	27,320		12,908		40,228		18,654		5,755		24,409		Cost of revenue	21,549		10,894		32,443		19,561		5,705		25,266
Depreciation of rental equipment	18,976		1,136		20,112		15,661		1,070		16,731		Depreciation of rental equipment	18,559		1,137		19,696		15,889		1,055		16,944
Gross Profit	$	17,427	$	3,976	$	21,403	$	18,330	$	2,022	$	20,352	Gross Profit	$	13,317	$	3,025	$	16,342	$	18,229	$	2,416	$	20,645

														Six Months Ended June 30,										Six Months Ended June 30,
														2020										2019
(in $000s)													(in $000s)	ERS		PTA		Total		ERS		PTA		Total
Rental revenue⁽¹⁾⁽²⁾													Rental revenue⁽¹⁾⁽²⁾	$	90,078	$	7,900	$	97,978	$	87,762	$	6,005	$	93,767
Sales of rental equipment													Sales of rental equipment	14,075		—		14,075		11,731		—		11,731
Sales of new equipment													Sales of new equipment	12,995		—		12,995		6,830		—		6,830
Parts sales and services													Parts sales and services	—		25,176		25,176		—		12,019		12,019
Total revenues													Total revenues	117,148		33,076		150,224		106,323		18,024		124,347
Cost of revenue													Cost of revenue	48,869		23,802		72,671		38,215		11,460		49,675
Depreciation of rental equipment													Depreciation of rental equipment	37,535		2,273		39,808		31,550		2,125		33,675
Gross Profit													Gross Profit	$	30,744	$	7,001	$	37,745	$	36,558	$	4,439	$	40,997

(1) As discussed in Note 2, Summary of Significant Accounting Policies, 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 in 2019, billings to customers for damages 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 the comparable prior period have been reclassified to rental revenue from parts sales and services ($~~0.7~~0.6 million and $1.4 million for the three and six months ended ~~March 31, 2019)~~June 30, 2019, respectively).

(2) Amounts for equipment rental revenue of ~~$0.5~~$0.7 million and $1.2 million for the three and six months ended ~~March 31,~~June 30, 2019, respectively, previously reported in the PTA segment as rental revenue have been reclassified to the ERS segment to align the reportable segment information to the information our CODM began receiving on a regular basis in 2019.

Total assets by segment are not disclosed herein because asset by operating segment data is not reviewed by the CODM ~~as the basis~~ to assess performance and allocate resources.

Gross profit is the primary operating result whereby our segments are evaluated for performance and resource allocation. The following table presents a reconciliation of consolidated gross profit to consolidated loss before income taxes:

Three Months Ended March 31,
(in $000s) 2020 2019
Gross profit $ 21,403
$ 20,352
Selling, general and administrative expenses 11,618
7,579
Licensing and titling expenses 821
653
Amortization and non-rental depreciation 716
770
Transaction expenses 736
2,510
Other operating expenses 716
150
Other (income) expense 6,021
(13 )
Interest expense, net 16,014
14,993
Loss before income taxes $ (15,239 ) $ (6,290 )


	Three Months Ended June 30,						Six Months Ended June 30,
(in $000s)	2020		2019		2020		2019

Gross profit	$	16,342	$	20,645	$	37,745	$	40,997
Selling, general and administrative expenses	11,018		7,305		22,636		14,884
Licensing and titling expenses	736		583		1,557		1,236
Amortization and non-rental depreciation	800		749		1,516		1,519
Transaction expenses	227		1,559		963		4,069

Other operating expenses	1,042		629		1,758		779
Other (income) expense	783		(9)		6,804		(22)

Interest expense, net	15,949		14,850		31,963		29,843
Loss before income taxes	$	(14,213)	$	(5,021)	$	(29,452)	$	(11,311)

We are positioned to serve all 50 U.S. states and 13 Canadian provinces and territories using our network of locations in North America. The following tables present revenue by country and total assets by country:

Three Months Ended March 31,
(in $000s) 2020 2019
Revenue:
United States $ 79,702
$ 59,684
Canada 1,369
1,655
Mexico ⁽¹⁾
672
153
$ 81,743
$ 61,492


	Three Months Ended June 30,						Six Months Ended June 30,
(in $000s)	2020		2019		2020		2019

Revenue:
United States	$	66,368	$	61,446	$	146,070	$	121,133
Canada	998		1,036		2,367		2,681
Mexico ⁽¹⁾	1,115		373		1,787		533
	$	68,481	$	62,855	$	150,224	$	124,347

(1) On September 27, 2019, the Company began commencing activities for the closure of its Mexican operations, which is part of the ERS segment. For the three and six months ended ~~March 31,~~June, 30, 2020 and 2019, operations in Mexico generated a loss before income taxes of ~~$0.5~~$0.6 million and ~~$1.3~~$0.6 million, and $1.1 million and $1.8 million, respectively.


(in $000s)	June 30, 2020		December 31, 2019

Assets:
United States	$	774,377	$	802,516
Canada	6,573		8,152
Mexico	2,285		4,616
	$	783,235	$	815,284

(in $000s) March 31, 2020 December 31, 2019
Assets:
United States $ 804,649
$ 802,516
Canada 7,159
8,152
Mexico 3,259
4,616
$ 815,067
$ 815,284

Note 4: Business Combination

On September 20, 2019, we entered into a stock purchase agreement with Truck Utilities, Inc. (“Truck Utilities”). Truck Utilities is a specialty rentals, parts, tools and accessories sales, service, equipment sales and truck upfitting company serving the electric transmission, distribution, telecom, and other regional end-markets. On November 4, 2019, we closed on the acquisition for a purchase price of approximately $44.7 million (net of cash acquired of $3.1 million), prior to certain capital expenditure adjustments of approximately $3.8 million. Truck Utilities’ rentals, equipment sales and truck upfitting operations were added to our ERS segment, while its parts, tools and accessories sales and service were added to our PTA segment. The transaction was financed by drawing on the 2019 Credit Facility.

As of the date of this report, we were in the preliminary phases of preparing the valuation of the assets acquired and liabilities assumed. Accordingly, the purchase price allocation for this acquisition presented below is preliminary. Completion of the purchase price allocation, which we expect will be completed during the third quarter of 2020, will encompass the finalization of valuations for acquisition-date working capital, intangible assets, property and equipment, as well as completion of acquisition-related income tax

assessments. We have estimated the fair values of the assets acquired and liabilities assumed using the information that was available. Upon completion of the valuation process, amounts recognized could change resulting in additional expenses recognized for depreciation and amortization of long-lived assets in future periods.

We accounted for the acquisitions using the acquisition method of accounting. The purchase price has been allocated to the fair value of the tangible and identifiable intangible assets acquired as determined by management with the assistance of independent third parties. The results of operations of Truck Utilities has been included with the Company’s results since the date of the acquisition. Transaction costs associated with the acquisitions were expensed as incurred.

The fair value (which remains provisional) of the assets acquired and liabilities assumed as of the acquisition date is presented below.

(in $000s)
Current assets, net of current liabilities $ 403
Property and equipment 78
Rental equipment 38,780
Customer relationships 2,820
Total identifiable assets acquired 42,081
Goodwill 9,439
Total consideration $ 51,520


(in $000s)
Current assets, net of current liabilities	$	319
Property and equipment	78
Rental equipment	38,780
Customer relationships	2,820
Total identifiable assets acquired	41,997
Goodwill	9,523
Total consideration	$	51,520

The preliminary values of intangible assets and goodwill related to the acquisition of Truck Utilities consists largely of the synergies and economies of scale provided by the acquired rental equipment portion of the business, as well as additional service center locations in the central Midwestern region of the United States. During the three and six months ended ~~March 31,~~June 30, 2020 we recorded ~~an adjustment~~adjustments to the preliminary fair value assigned to certain rental equipment, which reduced goodwill. ~~This adjustment was~~These adjustments were not significant. Goodwill has been preliminarily allocated to the ERS and PTA reporting units in the amount of ~~$5.9~~$6.0 million and $3.5 million, respectively.

The operating results of the acquisition ~~has~~have been reflected in the Company’s consolidated financial statements since the acquisition date. Truck Utilities reported revenue of ~~$12.5~~$10.1 million and pretax income of ~~$0.7~~$0.2 million in the three months ended ~~March 31, 2020.~~June 30, 2020 ($22.5 million and $0.9 million in the six months ended June 30, 2020). The following pro forma information is presented for comparison purposes as if the Truck Utilities acquisition was completed as of January 1, 2019:


(in $000s)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Total revenue	$	73,811	$	146,316
Net loss	(5,667)		(12,082)
Basic and diluted net loss per share	(0.26)		(0.56)

(in $000s) Three Months Ended March 31, 2019
Total revenue $ 72,505
Net loss (6,415 )
Basic and diluted net loss per share (0.30 )

Note 5: Debt

Debt obligations and associated interest rates consisted of the following as of ~~March 31,~~June 30, 2020 and December 31, 2019 :


	June 30,		December 31,		June 30,		December 31,
(in $000s)	2020		2019		2020		2019
2019 Credit Facility	$	268,500	$	250,000	3.0	%	4.2	%
Senior Secured Notes due 2024	475,000		475,000		10.0	%	10.0	%



Notes Payable	3,293		3,525
Total debt outstanding	746,793		728,525
Deferred finance fees	(12,708)		(14,222)
Net debt	734,085		714,303
Less current maturities	(1,280)		(1,280)
Long-term debt	$	732,805	$	713,023

March 31, December 31, March 31, December 31,
(in $000s) 2020 2019 2020 2019
2019 Credit Facility $ 285,680
$ 250,000
3.2 % 4.2 %
Senior Secured Notes due 2024 475,000
475,000
10.0 % 10.0 %
Notes Payable 3,543
3,525

Total debt outstanding 764,223
728,525

Deferred finance fees (13,511 ) (14,222 )
Net debt 750,712
714,303

Less current maturities (1,601 ) (1,280 )
Long-term debt $ 749,111
$ 713,023

On March 10, 2020, we entered into an agreement (the “Incremental Agreement”) amending the 2019 Credit Facility. The Incremental Agreement amends the syndicate of banks for a new participant that increased the maximum amount of the facility by $35.0 million to a total of $385.0 million. As of June 30, 2020, there was $78.3 million (excluding cash) of availability under the 2019 Credit Facility.

Note 6: Goodwill and Intangible Assets

Goodwill and intangible assets consisted of the following:

(in $000s) March 31, 2020 December 31, 2019
Goodwill $ 238,153
$ 238,195
Nesco trade name 28,000
28,000
Other intangible assets:

Trade names 1,030
1,030
Non-compete agreements 380
380
Customer relationships 52,880
52,880

82,290
82,290
Less: accumulated amortization (12,429 ) (11,738 )
Intangible assets, net 69,861
70,552
Goodwill and intangible assets $ 308,014
$ 308,747


(in $000s)	June 30, 2020		December 31, 2019
Goodwill	$	238,237	$	238,195
Nesco trade name	28,000		28,000
Other intangible assets:
Trade names	1,030		1,030
Non-compete agreements	380		380
Customer relationships	52,880		52,880
	82,290		82,290
Less: accumulated amortization	(13,200)		(11,738)
Intangible assets, net	69,090		70,552
Goodwill and intangible assets	$	307,327	$	308,747

Goodwill related to our ERS segment and PTA segment was ~~$229.4~~$229.5 million and $8.7 million, respectively, as of ~~March 31,~~June 30, 2020 ~~$229.5 million~~ and ~~$8.7 million, respectively, as of~~ December 31, 2019.

We perform our annual goodwill impairment testing in the fourth quarter of each year. In addition to the annual impairment test, we regularly assess whether a triggering event has occurred which would require interim impairment testing. ~~Despite~~During the significant excess fair value identified in our 2019 impairment assessment, we determined that the decline in Nesco's market capitalization coupled with the uncertainties stemming from the broad economic impact as a result of the COVID-19 pandemic indicate that an impairment loss may have been incurred. Therefore,first quarter ended March 31, 2020, we qualitatively assessed whether it was more likely than not that the goodwill and indefinite-lived intangible assets were ~~impaired as of March 31, 2020. We reviewed our previous forecasts and assumptions based on our current projections~~

that are subject to various risks and uncertainties, including: (1) forecasted revenues, expenses and cash flows, including the duration and extent of impact to our business from the COVID-19 pandemic, and current discount rates.

impaired. Based ~~on our~~that interim impairment assessment, ~~as of March 31, 2020,~~ we ~~have~~ determined that our goodwill and indefinite-lived intangible assets ~~are~~were not impaired. ~~However,~~During the three months ended June 30, 2020, we ~~are unable to predict how long these conditions will persist, what additional measures may be introduced by governments or private parties or what effect~~did not identify any ~~such additional measures may have on our business.~~triggering events that necessitated an impairment test.

Note 7: Earnings per Share

The merger and other related transactions with Capitol Investment Corp. IV were accounted for as a reverse recapitalization. Earnings per share has been recast for all historical periods to reflect the Company's capital structure for all comparative periods.

Diluted net income (loss) per share includes the effects of potentially dilutive shares of common stock. Potentially dilutive effects include the exercise of warrants, contingently issuable shares, and share-based compensation, all of which have been excluded from the calculation of diluted net income (loss) per share because earnings are at a net loss and therefore, the potentially dilutive effect would be anti-dilutive. The share amounts of our potentially dilutive shares excluded aggregated ~~27.3 million.~~27.5 million and 27.1 million for the three and six months ended June 30, 2020, respectively.

The following table sets forth the computation of basic and dilutive loss per share:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net loss (in $000s)	$	(13,150)	$	(5,423)	$	(29,119)	$	(12,147)



Weighted-average basic and diluted shares outstanding	49,033,903		21,660,638		49,033,903		21,660,638
Basic and diluted net loss per share	$	(0.27)	$	(0.25)	$	(0.59)	$	(0.56)

Three Months Ended March 31,
2020 2019
Net loss (in $000s)
$ (15,969 ) $ (6,724 )
Weighted-average basic and diluted shares outstanding 49,033,903
21,660,638
Basic and diluted net loss per share $ (0.33 ) $ (0.31 )

Table of Contents

Note 8: Share-Based Compensation

During the second quarter ended June 30, 2019, the Company approved the 2019 Omnibus Incentive Plan, which authorizes up to 3,150,000 shares of common stock of Nesco Holdings, Inc. for issuance in accordance with the plan’s terms, subject to certain adjustments. On June 11, 2020, the Company's stockholders approved the Amended and Restated 2019 Omnibus Incentive Plan, which increased the total authorized shares of common stock of Nesco Holdings, Inc. to 6,150,000 (the "Plan"). The purpose of the Plan is to provide the Company's and its subsidiaries’ officers, directors, employees and consultants who, by their position, ability and diligence, are able to make important contributions to the Company’s growth and profitability, with an incentive to assist the Company in achieving its long-term corporate objectives, to attract and retain executive officers and other employees of outstanding competence and to provide such persons with an opportunity to acquire an equity interest in the Company. To accomplish these objectives, the Plan provides for awards of equity-based incentives through granting of restricted stock units, stock options, stock appreciation rights and other stock or cash based awards. At June 30, 2020, there were 2,241,000 shares in the share reserve still available for issuance.

The Company records share-based compensation awards using a fair value method and recognizes compensation expense for an amount equal to the fair value of the share-based payment issued in its financial statements. The Company’s share-based compensation plans include programs for stock options, restricted stock units ("RSUs"), performance share units ("PSUs"), and deferred compensation.

Compensation Expense

Share-based compensation expense was $0.6 million and $1.0 million for the three and six months ended June 30, 2020, respectively, and is included in selling, general, and administrative expenses within the unaudited condensed consolidated statements of operations. In the three and six months ended June 30, 2020, the Company's board of directors approved and awarded various share grants under the Plan, totaling approximately 1.2 million options and 0.8 million RSUs. As of June 30, 2020, there was approximately $10.1 million of total unrecognized compensation cost related to stock-based compensation arrangements under the Plan. That cost is expected to be recognized over a weighted average period of 3.4 years.

Note 8:9: Fair Value Measurements

FASB accounting standards provide a comprehensive framework for measuring fair value and sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. Levels within the hierarchy are defined as follows:

•Level 1 - Unadjusted quoted prices for identical assets and liabilities in active markets;

•Level 2 - Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable for the asset or liability, either directly or indirectly; and

•Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The following table sets forth the carrying values (exclusive of deferred financing fees) and fair values of our financial liabilities:


	Carrying Value		Fair Value
(in $000s)			Level 1		Level 2		Level 3
June 30, 2020
2019 Credit Facility	$	268,500	$	—	$	268,500	$	—
Senior Secured Notes due 2024	475,000		—		477,375		—
Notes Payable	3,293		—		3,293		—
Derivative	8,476		—		8,476		—

December 31, 2019
2019 Credit Facility	$	250,000	$	—	$	250,000	$	—
Senior Secured Notes due 2024	475,000		—		494,000		—
Notes Payable	3,525		—		3,650		—
Derivative	1,709		—		1,709		—

Carrying Value Fair Value
(in $000s) Level 1 Level 2 Level 3
March 31, 2020
2019 Credit Facility $ 285,680
$ —
$ 285,680
$ —
Senior Secured Notes due 2024 475,000
—
427,500
—
Notes Payable 3,543
—
3,543
—
Derivative 7,671
—
7,671
—

December 31, 2019
2019 Credit Facility $ 250,000
$ —
$ 250,000
$ —
Senior Secured Notes due 2024 475,000
—
494,000
—
Notes Payable 3,525
—
3,650
—
Derivative 1,709
—
1,709
—

Note 9:10: Financial Instruments

In the normal course of business, the Company uses various financial instruments, including derivative instruments, to manage the risks associated with interest rate exposure. These financial instruments are not used for trading or speculative purposes.

The fair values of derivative instruments included within the Unaudited Condensed Consolidated Balance Sheets were as follows:

Liability Derivatives
(in $000s) March 31, 2020 December 31, 2019
Derivative instruments:
Interest rate collar $ 7,671
$ 1,709
Total derivative instruments $ 7,671
$ 1,709


	Liability Derivatives
(in $000s)	June 30, 2020		December 31, 2019
Derivative instruments:
Interest rate collar	$	8,476	$	1,709
Total derivative instruments	$	8,476	$	1,709

Derivatives Not Designated as Hedges

On July 17, 2019, we entered into an interest rate collar agreement to mitigate the risk of changes in the interest rate paid during the contract period for $170.0 million of the Company's variable rate loans under the 2019 Credit Facility. Under the terms of the interest rate collar, we are required to pay the counterparty to the agreement an amount equal to the difference between a monthly LIBOR-based interest rate and a defined interest rate floor; conversely, we are entitled to receive from the counterparty an amount equal to the excess of a LIBOR-based interest rate and a defined interest rate cap. The required payments due to or due from the counterparty are calculated by applying the interest rate differential to the notional amount ($170.0 million) and are determined monthly through July 31, 2024. The interest rate collar expires in July 2024 and has not been designated as a cash flow hedge. Consequently, the change in fair value of the interest rate collar ($~~6.0~~0.8 million and $6.8 million in the three and six months ended ~~March 31, 2020)~~June 30, 2020, respectively) is recognized in our Unaudited Condensed Consolidated Statements of Operations within Other (income) expense, net.

Derivatives Instruments Designated as Hedges

When a derivative contract is entered into, the Company may designate the derivative instrument as a cash flow hedge of a forecasted transaction, a cash flow hedge of a recognized asset or liability or as an undesignated derivative. When a derivative is designated, the Company formally documents its hedge relationships, including identification of the derivative instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivative instruments that are designated as hedges to specific assets, liabilities or forecasted transactions.

The fair market value of derivative instruments is determined through market-based valuations and may not be representative of the actual gains or losses that will be recorded when these instruments mature due to future fluctuations in the markets in which they are traded.

The Company assesses at inception and at least quarterly thereafter, whether the derivatives used in cash flow hedging transactions are effective in offsetting the changes in the cash flows of the hedged item. To the extent the derivative is deemed to be an effective

hedge, the fair market value changes of the instrument are recorded to accumulated other comprehensive loss and subsequently reclassified into net loss when the hedged transaction affects earnings. Changes in the fair market value of derivatives not deemed to be an effective hedge are recorded in net loss in the period of change. If the hedging relationship ceases to be effective subsequent to inception, or it becomes probable that a forecasted transaction is no longer expected to occur, the hedging relationship will be undesignated and any future gains and losses on the derivative instrument will be recorded in net loss.

We entered into an interest rate collar on December 4, 2018, to hedge the interest rate risk associated with our previous revolving credit facility, which was repaid on the date of the merger with Capitol Investment Corp. IV. The interest rate collar was designated as a cash flow hedge and had a term extending to September 30, 2020. On July 17, 2019, we terminated the interest rate collar, which resulted in the hedge becoming undesignated. Accordingly, $0.8 million (net of income taxes of $0.3 million) was reclassified from accumulated other comprehensive loss to Other income (expense) net, in our Condensed Consolidated Statements of Operations during the year ended December 31, 2019.

Note ~~10:~~11: Commitments and Contingencies

We record a liability when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.

Legal Matters

We are subject to various claims and legal actions that arise primarily in the ordinary course of business. These matters include, but are not limited to, general liability claims (including personal injury, product liability, property, and auto claims), indemnification and guarantee obligations, employee injuries and employment-related claims, and contract and real estate matters. We maintain insurance coverage for our operations and employees. Our major policies include coverage for property, general liability, auto, directors and officers, health, and workers’ compensation insurances. The ultimate legal and financial liability with respect to such matters generally cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements against us. Estimates for losses from litigation are made after consultation with outside legal counsel. In our opinion, after consultation with legal counsel, the disposition or ultimate resolution of such claims and actions will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Purchase Commitments

We enter into purchase agreements with manufacturers and suppliers of equipment for our rental fleet and inventory. All of these agreements are cancelable within a specified notification period to the supplier.

Note ~~11:~~12: COVID-19

On March 11, 2020, the World Health Organization ("the WHO") declared the rapid spread of the Coronavirus Disease 2019 ("COVID-19") a global health pandemic. Beginning in March, governmental authorities began imposing restrictions on non-essential activities as part of social distancing measures. These measures have adversely affected the global and North American economies. The end markets Nesco operates in have been identified by the United States Cybersecurity and Infrastructure Security Agency ("CISA") as a critical markets that should continue operating throughout the pandemic, appropriately modified to adhere to the U.S. Centers for Disease Control workforce and customer protection guidance.

We have undertaken efforts intended to maintain the health and safety of our employees and their families and to ensure the Company's continued financial and operational viability, especially in relation to our position as a supplier to critical industries. Employees whose tasks can be ~~done~~completed offsite have been instructed to work from home. Our service locations remain operational, and we are maintaining social distancing and enhanced cleaning protocols and usage of personal protective equipment, where appropriate.

While Nesco’s business is considered critical, we are unable to predict the impact that COVID-19 will have on our financial position and operating results due to numerous uncertainties. Some of our customers are delaying projects, deferring future capital equipment purchases and eliminating in-person sales meetings. As a result, our business has been and will continue to be adversely impacted by the pandemic. Since the pandemic began, management has been ~~very~~ focused on ~~mitigating~~delivering for our customers and managing our costs and cash flows while preparing for a future recovery. We have reduced our capital spending, our working capital balances and undertaken cost reduction efforts including limited headcount reductions. At the ~~effects to the business. Specific actions~~same time, we have ~~taken include a reduction~~ continued to make opportunistic investments

in ~~planned capital expenditures~~the fleet, systems and ~~investments in inventory~~personnel to position the Company for ~~the year in addition to reductions in headcount and other selling, general and administrative expenses.~~long-term growth. We are continually monitoring the ~~situation~~markets in which we operate and will take additional ~~measures~~actions we believe are appropriate as the situation continues to develop.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Throughout this section, unless otherwise noted “we,” “us,” “our,” “Company,” or "Nesco” refers to Nesco Holdings, Inc. and its consolidated subsidiaries.

The information provided below supplements, but does not form part of, our financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of Nesco’s management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see the section entitled “Risk Factors” ~~included herein~~ and in our Annual Report on Form 10-K, filed with the SEC on March 16, ~~2020.~~

~~ORGANIZATION~~

~~On July 31, 2019, NESCO Holdings I, Inc.~~2020, and NESCO Holdings, LP consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated as of April 7, 2019, which was amended on July 10, 2019 (as amended, the "Merger Agreement") by and among Capitol Investment Corp. IV ("Capitol"), Capitol Intermediate Holdings, LLC, a Delaware limited liability company and wholly-owned subsidiary of Capitol (“Intermediate Holdings”), Capitol Investment Merger Sub 1, LLC, a Delaware limited liability company and wholly-owned subsidiary of Capitol (“Merger Sub”), Capitol Investment Merger Sub 2, LLC, a Delaware limited liability company and wholly-owned subsidiary of Capitol Investment Corp. IV (“New HoldCo”). Pursuant to the Merger Agreement, (i) Capitol domesticated as a Delaware corporation and was renamed “Nesco Holdings, Inc.” (the “Domestication”), (ii) Merger Sub merged with and into Holdings I, with Holdings I surviving as a wholly-owned subsidiary of Capitol (the “Initial Merger”), and (iii) immediately after the Initial Merger, Holdings I merged with and into New HoldCo, with New HoldCo surviving as an indirect wholly-owned subsidiary of Capitol (the “Subsequent Merger,” and together with the Initial Merger, the “Mergers,” and together with the Domestication and the other transactions contemplated by the Merger Agreement, the “Transactions”). As a result of the Transactions, Holdings I became a limited liability company and a wholly-owned subsidiary of Capitol, with Nesco Owner becoming a securityholder of Capitol. Upon the closing, Capitol’s common stock, warrants and units ceased trading, and upon the opening of trading on August 1, 2019, common stock and warrants began trading on the NYSE, respectively, under the symbols “NSCO” and “NSCO WS,” respectively.

~~For information related to~~ our ~~business operations, see the description of our business set forth in the Company's Annual~~Quarterly Report ~~on Form 10-K for the year ended December 31, 2019~~ filed with the SEC on May 7, 2020.

~~March 16, 2020.~~

~~COVID-19~~

~~On March 11, 2020, the World Health Organization ("the WHO") declared the rapid spread~~Overview of the Coronavirus Disease 2019 ("COVID-19") a global health pandemic. Beginning in March, governmental authorities began imposing restrictions on non-essential activities as part of social distancing measures. These measures have adversely affected theMarkets and Related Industry Performance

The global and North American ~~economies.~~economies continue to face unprecedented uncertainty arising from the COVID-19 pandemic. The ~~end markets~~pandemic has necessitated governmental authorities, institutions and communities to take extraordinary actions. Nesco ~~operates in~~serves critical infrastructure sectors that have been identified by the by the United States Cybersecurity and Infrastructure Security Agency ("CISA") as ~~a critical markets that should continue operating throughout the pandemic, appropriately modified to adhere~~vital to the U.S. ~~Centers for Disease Control workforce and customer protection guidance.~~

~~There are many uncertainties regarding~~Accordingly, we have continued to meet the ~~pandemic, and we are closely monitoring the impact of the pandemic on all aspects~~needs of our ~~business, including how it will impact~~customers during the pandemic. We have also undertaken efforts intended to maintain the health and safety of our employees and their families, as well as our customers, ~~employees, suppliers,~~ vendors and communities.

While Nesco’s business ~~partners~~is considered critical and ~~distribution channels. While~~while we delivered year-on-year increases in revenue and cash from operating activities during the second quarter of 2020 compared with the same period in 2019, we are unable to predict the impact that COVID-19 will have on our financial position and operating results due to ~~numerous uncertainties, we~~ongoing uncertainties. Government and business mitigation efforts have ~~undertaken efforts intended~~varied from region to ~~maintain the health and safety of our employees and their families and to ensure the Company's continued financial and operational viability, especially in relation to our position~~region as ~~a supplier to those critical industries identified in the Memorandum noted above.~~

~~While Nesco’s business is considered critical, we are unable to predict the impact that COVID-19 will~~circumstances have ~~on our financial position and operating results due to numerous uncertainties.~~unfolded at local levels. Some of our customers ~~are delaying~~continue to delay projects, ~~deferring~~to defer capital equipment purchases and ~~eliminating~~to minimize in-person sales meetings. As a result, our business has been and will continue to be adversely impacted by the pandemic.

The combination of our financial position, our available liquidity, the flexibility to reduce capital spending provided by our young fleet age and the critical nature of our end markets should help to lessen the impacts of COVID-19 on our financial performance. Should a prolonged downturn eventuate, sustained adverse impacts may affect our future valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, or reserve associated with such assets, including goodwill, intangible assets, rental and property and equipment, inventories, accounts receivable and other assets.

Since the pandemic began, management has been ~~very~~ focused on ~~mitigating~~delivering for our customers and managing our costs and cash flows while preparing for a future recovery. We have reduced our capital spending, our working capital balances and undertaken cost reduction efforts including limited headcount reductions. At the ~~effects to the business. Specific actions~~same time, we have ~~taken include a reduction in planned capital expenditures and~~continued to make opportunistic investments in ~~inventory~~fleet, systems and personnel to position us for ~~the year in addition to reductions in headcount and other selling, general and administrative expenses.~~long-term growth. We are continually monitoring the ~~situation~~markets in which we operate and will take additional measures we believe are appropriate as the situation continues to develop.

~~In our ERS segment, some of our end-user~~Starting in March, we saw a decline in demand from electric distribution customers are delaying projects, deferring capital equipment purchases, and/or eliminating in-person sales meetings. In additional, trade shows, industry conventions, and product demonstrations have been canceled and are continuing to be canceled. As a result, our selling activities and our ability to convert those activities into actual sales have been and will continue to be adversely impacted by the pandemic. In our PTA segment, distribution projects are often in population centers where projects were delayed by efforts to promote social distancing. Electric distribution projects seem to have since stabilized. Electric transmission projects were more stable during the early part of the pandemic but experienced a normal seasonal summer slowdown starting in June. Electric distribution and ~~several municipalities~~transmission customers continue to have elected to postpone non-emergency distribution repair projects to limit contact with the general public. While several PTA projects have been postponed while current social distancing measures are in effect, we are not awarelarge backlogs of ~~any~~ projects that ~~have been canceled. In addition, management is focused on mitigating~~must be undertaken to reduce fire hazards, to ensure the ~~effects~~uninterrupted supply of electricity and to meet growing electricity demands of the ~~COVID-19 pandemic, which has required~~future tied to increased household usages and ~~will~~vehicle electrification. We have experienced relative stability in the rail and telecom sectors. Telecom end-customers have announced intentions to continue to ~~require a large investment of time, energy, resources,~~invest in 5G infrastructure and ~~focus.~~additional network enhancements designed to address deficiencies that became apparent with increased traffic during pandemic stay-at-home orders.

FINANCIAL OVERVIEW

We use a variety of operational and financial metrics, including non-GAAP financial measures, such as Adjusted EBITDA, to enable us to analyze our performance and financial condition. We utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance. Some of these measures are commonly used in our industry to evaluate performance. We believe these non-GAAP measures provide expanded insight to assess performance, in addition to the standard GAAP-based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, our non-GAAP financial measures may not be comparable to measures used by other companies within the industry.

The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. You should read this discussion and analysis of our results of operations and financial condition together with the consolidated financial statements and the related notes thereto also included within.

Measures Related to our Fleet

We consider the following key operational measures when evaluating our performance and making day-to-day operating decisions:

Equipment on rent - Equipment on rent is the original equipment cost (“OEC”) of units rented to customers at a given point in time. Average equipment on rent is calculated as the weighted-average equipment on rent during the stated period. OEC represents the original equipment cost, ~~by fleet type over a period of time,~~ exclusive of the effect of adjustments to rental equipment fleet acquired in business combinations. 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 count - Fleet count represents the average or period end (defined as either) equipment units held in our rental fleet over any period.

Fleet utilization - Fleet utilization, with respect to the average equipment units held in our rental fleet over any period, is defined as the total number of days the rental equipment was rented during the period divided by the total number of days such rental equipment could have been rented during the same period, assuming that each piece of equipment could have been rented every day in the period (i.e. no maintenance or planned downtime is included in the calculation).

Rental rate per day - Rental rate per day for the period is calculated as total rental revenue excluding freight and billings to customers for damaged equipment divided by the total billed rental days.

Fleet age - Fleet age represents the number of years from the manufacturer chassis year of the rental equipment unit through the current year end. We evaluate fleet age for each equipment type and our fleet as a whole. In order to calculate average fleet age by type and average total fleet age, we weight the fleet age by the number of units within the relevant group.

Gross Profit, Income from Operations and Cash Flow from Operations

Gross profit, income from operations and cash flow from operations are financial performance measures that we use to monitor our results from operations and to measure our performance against our debt covenants.

Adjusted EBITDA

Adjusted EBITDA is also a financial performance measure that we use to monitor our results from operations, to measure our performance against our debt covenants and in measuring our performance relative to that of our competitors.

We believe the presentation of Adjusted EBITDA enhances an investor’s understanding of our financial performance because it is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business. Such items are excluded pursuant to the definition of Adjusted EBITDA in the 2019 Credit Facility and the Indenture, Adjusted EBITDA is the basis for several financial loan covenants contained in the 2019 Credit Facility. We believe that Adjusted EBITDA provides investors with a useful tool for assessing the comparability between periods of our ability to generate cash from operations sufficient to pay taxes, service debt and undertake capital expenditures. We use these financial measures for business planning purposes, for loan compliance purposes, and in measuring our performance relative to that of our competitors.

~~Nesco’s~~

Our use of the terms EBITDA and Adjusted EBITDA may vary from that of others in its industry and therefore are limited in their usefulness as comparative measures. These financial measures should not be considered as alternatives to net income (loss), operating income (loss) or any other performance measures derived in accordance with GAAP as measures of operating performance, operating cash flows or as measures of liquidity. Non-GAAP financial measures should not be relied upon to the exclusion of U.S. GAAP financial measures. We encourage investors to review our non-GAAP financial measures together with our U.S. GAAP results and historical consolidated financial statements, and not in isolation. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by other companies.

Adjusted EBITDA includes an adjustment to exclude the effects of purchase accounting adjustments when calculating the cost of used equipment sold. When equipment is purchased in connection with a business combination, the equipment is revalued to its then current fair value for accounting purposes. The consideration transferred (i.e., the purchase price) in a business combination is allocated to the fair value of equipment as of the acquisition date, with depreciation recorded thereafter following our accounting policies; however, this may not be indicative of our actual cost to acquire new equipment that we add to our fleet apart from a business acquisition. 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. As indicated above, the agreements governing our indebtedness define this adjustment to EBITDA, as such, and we believe this metric is a better indication of our true cost of equipment sales due to the removal of the purchase accounting adjustments.

Consolidated Operating Results Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019


(in $000s)	Three Months Ended June 30, 2020		% of revenue	Three Months Ended June 30, 2019		% of revenue	Six Months Ended June 30, 2020		% of revenue	Six Months Ended June 30, 2019		% of revenue
Rental revenue	$	46,984	68.6%	$	48,125	76.6%	$	97,978	65.2%	$	93,767	75.4%
Sales of rental equipment	4,982		7.3%	4,332		6.9%	14,075		9.4%	11,731		9.4%
Sales of new equipment	5,418		7.9%	4,480		7.1%	12,995		8.7%	6,830		5.5%
Parts sales and services	11,097		16.2%	5,918		9.4%	25,176		16.8%	12,019		9.7%
Total Revenue	68,481		100.0%	62,855		100.0%	150,224		100.0%	124,347		100.0%
Cost of revenue	32,443		47.4%	25,266		40.2%	72,671		48.4%	49,675		39.9%
Depreciation of rental equipment	19,696		28.8%	16,944		27.0%	39,808		26.5%	33,675		27.1%
Gross Profit	16,342		23.9%	20,645		32.8%	37,745		25.1%	40,997		33.0%
Operating expenses	13,823			10,825			28,430			22,487
Operating Income	2,519			9,820			9,315			18,510
Other Expense	16,732			14,841			38,767			29,821
Loss Before Income Taxes	(14,213)			(5,021)			(29,452)			(11,311)
Income Tax Expense (Benefit)	(1,063)			402			(333)			836
Net Loss	$	(13,150)		$	(5,423)		$	(29,119)		$	(12,147)

(in $000s) Three Months Ended March 31, 2020 % of revenue Three Months Ended March 31, 2019 % of revenue
Rental revenue $ 50,994
62.4% $ 45,642
74.2%
Sales of rental equipment 9,093
11.1% 7,399
12.0%
Sales of new equipment 7,577
9.3% 2,350
3.8%
Parts sales and services 14,079
17.2% 6,101
9.9%
Total Revenue 81,743
100.0% 61,492
100.0%
Cost of revenue 40,228
49.2% 24,409
39.7%
Depreciation of rental equipment 20,112
24.6% 16,731
27.2%
Gross Profit 21,403
26.2% 20,352
33.1%
Operating expenses 14,607

11,662

Operating Income 6,796

8,690

Other Expense 22,035

14,980

Loss Before Income Taxes (15,239 )
(6,290 )
Income Tax Expense 730

434

Net Loss $ (15,969 )
$ (6,724 )

Total ~~Revenue~~

Revenue.Total revenue for the ~~three months ended March 31,~~second quarter 2020, increased by ~~$20.3~~$5.6 million, or ~~32.9%~~9.0%, compared to the ~~same period in~~second quarter 2019. Rental revenue ~~increased $5.4~~decreased $1.1 million, or ~~11.7%~~2.4%, compared to the same period in 2019. This ~~increase is~~was primarily a result of ~~an increase~~units coming off rent and lack of new project starts as customers delayed projects in response to COVID-19. This led to a decrease in average equipment on rent ~~which grew 10.2%~~ to ~~$499.8~~$461.1 million in the ~~first~~current quarter ~~2020, compared to $453.6~~from $464.7 million in the same quarter of 2019. Sales of rental equipment, which can vary from quarter to quarter, increased ~~$1.7~~$0.7 million, or ~~22.9%~~15.0%, and sales of new

equipment increased ~~$5.2~~$0.9 million, or ~~222.4%~~20.9%, compared to the same period in 2019. Parts sales and service revenue increased ~~$8.0~~$5.2 million, or ~~130.8%~~87.5%, compared to the same period in 2019 ~~as a result~~primarily due to the acquisition of ~~investments to expand our Parts, Tools and Accessories segment. The~~ Truck ~~Utilities acquisition completed in November 2019 contributed $12.5 million to total revenue.~~Utilities.

Total revenue for the six months ended June 30, 2020, increased by $25.9 million, or 20.8%, compared to the same period in 2019. Rental revenue increased $4.2 million, or 4.5%, compared to the same period in 2019 driven by investments made in 2019 and partially offset by delays in projects resulting from the COVID-19 pandemic in the second quarter. Sales of rental equipment increased $2.3 million, or 20.0%, and sales of new equipment increased $6.2 million, or 90.3%, compared to the same period in 2019. Parts sales and service revenue increased $13.2 million, or 109.5%, compared to the same period in 2019 primarily due to the acquisition of Truck Utilities.

Cost of ~~Revenue~~

~~Total cost~~Revenue. Cost of revenue, excluding depreciation of ~~$20.1~~$19.7 million, for the three months ended ~~March 31,~~June 30, 2020, increased by ~~$15.8~~$7.2 million, or ~~64.8%~~28.4%, compared to the same period in 2019 ($~~19.2~~9.9 million, or ~~46.7%~~23.5%, including depreciation).

Cost of revenue, excluding depreciation of $39.8 million, for the six months ended June 30, 2020, increased by $23.0 million, or 46.3%, compared to the same period in 2019 ($29.1 million, or 34.9%, including depreciation). The vast majority of the increase in cost of revenue for both the three and six months ended June 30, 2020 is ~~primarily~~ due to ~~a 71.0% increase in equipment sales, with $6.6 million of~~the costs related to ~~those sales. Additionally, the 130.8% increase~~increases in parts sales and service revenue ~~resulted~~and in ~~a $6.5 million increase of costs related those sales.~~equipment sales revenue.

Operating ~~Expenses~~

Expenses. Operating expenses for the three and six months ended ~~March 31,~~June 30, 2020 increased ~~$2.9~~$3.0 million, or ~~25.3%~~27.7%, and $5.9 million, or 26.4%, respectively, compared to the same ~~period~~periods in 2019. The increase is primarily due to ~~an increase in~~increased selling, general and administrative expenses of $4.0 million. Selling, general and administrative expenses increased due to the combination of the acquisition of Truck Utilities; growth in personnel expenses necessary as a new public company in addition to other public company costs; and increased commissions as a result of ~~higher revenue.~~increased headcount with the expansion of the organization and additional expenses incurred as a result of being a public company. Offsetting this increase is a reduction in transaction expenses of ~~$1.8~~$1.3 million ($3.1 million for the six month period ended June 30, 2020) compared to the same period in 2019, which were directly related to the ~~Transactions~~merger with Capitol in 2019.

Other ~~Expense~~

Expense. Other expense for the three and six months ended ~~March 31,~~June 30, 2020 increased ~~$7.1~~$1.9 million, or ~~47.1%~~12.7%, and $8.9 million, or 30.0%, respectively, compared to the same ~~period~~periods in 2019. This is primarily a result of ~~a change~~the changes in fair value of an interest rate collar, which is an undesignated hedging instrument. The resulting expense in the current quarter related to the collar was approximately ~~$6.0 million.~~$0.8 million ($6.8 million for the six month period ended June 30, 2020). In addition, net interest expense in the current quarter increased by ~~$1.0 million due to the Senior Secured Notes that were issued in a private placement in the second half of 2019, as well as the amortization of associated deferred financing costs.~~$1.1 million.

Income Tax ~~Expense~~

Expense. Income tax expense was ~~$0.7~~a benefit of $1.1 million and $0.3 million for the three and six months ended ~~March 31, 2020. Due~~June 30, 2020, respectively. This is due to our ~~valuation allowance on our net operating loss and interest deduction limitation carryforwards, we have not recognized~~recovery of taxes paid in prior years as a ~~deferred tax benefit when we report pretax losses because we have determined~~result of the ~~realization of tax benefits for the carryforwards to be uncertain. Our income tax expense reflects an increase~~United States CARES Act that was enacted in ~~our deferred tax liabilities associated with our non-tax deductible tradename intangible asset and goodwill as well as foreign taxes incurred in Canada and Mexico.~~March 2020.

Financial Performance

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 substantial 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 five measurements: Adjusted EBITDA, fleet count, fleet utilization, equipment dollars ("OEC") on rent and rental rate per day. The following table summarizes these operating metrics.

Financial performance for the three and six months ended ~~March 31, 2019~~June 30, 2020 and ~~2020:~~2019:


	Three Months Ended June 30,							Six Months Ended June 30,
(in $000s, except fleet count and rate per day)	2020	2019	change	(%)	2020	2019	change	(%)
Adjusted EBITDA ^(a)	$26,168	$30,477	$(4,309)	(14.1)	$58,229	$60,911	$(2,682)	(4.4)
Average equipment on rent ^(b)	$461,100	$464,700	$(3,600)	(0.8)	$480,400	$458,400	$22,000	4.8
Average fleet count	4,615	4,086	529	12.9	4,621	4,000	621	15.5
Average fleet utilization^(c)	71.3%	80.2%	(8.9)%	(11.1)	73.6%	81.1%	(7.5)%	(9.2)
Average rental rate per day^(d)	$136.71	$136.67	$0.04	—	$137.26	$137.06	$0.20	0.1

Three Months Ended March 31,
(in $000s, except fleet count and rate per day) 2020 2019 change (%)
Adjusted EBITDA ^(a)
$ 32,061
$ 30,434
$ 1,627
5.3 %
Average equipment on rent ^(b)
$ 499,756
$ 452,146
$ 47,610
10.5 %
Average fleet count 4,627
3,913
714
18.2 %
Average fleet utilization^(c)
75.9 % 82.2 % (6.3 )% (7.7 )%
Average rental rate per day^(d)
$ 137.77
$ 137.46
$ 0.31
0.2 %

(a) EBITDA represents net income (loss) before interest, provision for income taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA as further adjusted for (1) non-cash purchase accounting impact, (2) transaction and process improvement costs, including the effect of the cessation of operations in Mexico, (3) major repairs, (4) share-based payments, ~~(5) other non-recurring items,~~ and ~~(6)~~(5) the change in fair value of derivative instruments. These metrics are subject to certain limitations. See "Financial Overview—Adjusted EBITDA" and the reconciliation of Adjusted EBITDA to U.S. GAAP net income (loss) below.

(b) Average equipment 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. This metric has been adjusted to exclude Mexico, which the Company commenced exit activities in the third quarter of 2019.

(c) Average fleet utilization for the period is calculated as the total number of invoiced days divided by the total number of available equipment days. This metric has been adjusted to exclude Mexico, which the Company commenced exit activities in the third quarter of 2019.

(d) Average rental rate per day for the period is calculated as total rental revenue excluding freight and damaged billings divided by the total rental days, which represents the number of billable days in the period aggregated across all units in the fleet. This metric has been adjusted to exclude Mexico, which the Company commenced exit activities in the third quarter of 2019.

Adjusted EBITDA.

~~Adjusted EBITDA~~

Adjusted EBITDA ~~increased $1.6~~decreased $4.3 million, or ~~5.3%~~14.1%, ~~from $30.4~~to $26.2 million for the three months ended ~~March 31, 2019~~June 30, 2020 compared to ~~$32.1~~the same period in 2019. This decrease can be attributed to a combination of a $1.6 million decline in gross profit, excluding depreciation of $19.7 million, as well as the aforementioned increase in operating expenses.

Adjusted EBITDA decreased $2.7 million, or 4.4%, to $58.2 million for the ~~three~~six months ended ~~March 31, 2020.~~June 30, 2020 compared to the same period in 2019. This decrease is primarily due to the aforementioned increase ~~can be primarily attributed to~~in operating expenses, offset by a ~~$4.4~~$2.9 million increase in gross profit, excluding depreciation of $20.1 million, for the three months ended March 31, 2020 as compared to the same period in 2019, driven by growth across all revenue streams. Core rental gross profit was the main driver of gross profit growth in the first quarter, contributing $37.2 million of gross profit excluding depreciation of $20.1 million, a $2.6 million or 7.6% year over year increase.

$39.8 million.

The following is a reconciliation from U.S. GAAP net loss to Adjusted EBITDA for the three months ended ~~March 31,~~June 30, 2020 and ~~2019 and~~2019.


	Three Months Ended June 30,						Six Months Ended June 30,
(in $000s)	2020		2019		2020		2019
Net loss	$	(13,150)	$	(5,423)	$	(29,119)	$	(12,147)
Interest expense	15,949		14,850��		31,963		29,843
Income tax expense (benefit)	(1,063)		402		(333)		836
Depreciation expense	19,992		17,180		40,369		34,176
Amortization expense	771		724		1,462		1,448
EBITDA	22,499		27,733		44,342		54,156
Adjustments:
Non-cash purchase accounting impact ⁽¹⁾	178		125		1,095		736
Transaction and process improvement costs ⁽²⁾	1,639		2,183		3,718		4,693
Major repairs ⁽³⁾	595		384		1,295		1,146
Share-based payments ⁽⁴⁾	453		52		1,012		180

Change in fair value of derivative ⁽⁵⁾	804		—		6,767		—
Adjusted EBITDA	$	26,168	$	30,477	$	58,229	$	60,911

The following is a reconciliation from Adjusted EBITDA to ~~U.S. GAAP~~ net cash flow from operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019.


	Three Months Ended March 31,							Six Months Ended June 30,
(in $000s)	2020			2019			(in $000s)	2020		2019
Net loss	$	(15,969	)	$	(6,724	)
Adjusted EBITDA							Adjusted EBITDA	$	58,229	$	60,911
Adjustments:							Adjustments:
Change in fair value of derivative ⁽⁵⁾							Change in fair value of derivative ⁽⁵⁾	(6,767)		—

Share-based payments ⁽⁴⁾							Share-based payments ⁽⁴⁾	(1,012)		(180)
Major repairs ⁽³⁾							Major repairs ⁽³⁾	(1,295)		(1,146)
Transaction and process improvement costs ⁽²⁾							Transaction and process improvement costs ⁽²⁾	(3,718)		(4,693)
Non-cash purchase accounting impact ⁽¹⁾							Non-cash purchase accounting impact ⁽¹⁾	(1,095)		(736)
EBITDA							EBITDA	44,342		54,156
Add:							Add:
Interest expense	16,014			14,993			Interest expense	(31,963)		(29,843)
Income tax expense	730			434
Depreciation expense	20,377			16,996
Amortization expense	691			724
EBITDA	21,843			26,423
Adjustments:
Non-cash purchase accounting impact ⁽¹⁾	917			611
Transaction and process improvement costs ⁽²⁾	2,079			2,510
Major repairs ⁽³⁾	700			762
Share-based payments ⁽⁴⁾	559			128
Change in fair value of derivative ⁽⁵⁾	5,963			—
Adjusted EBITDA	$	32,061		$	30,434
Income tax benefit (expense)							Income tax benefit (expense)	333		(836)
Amortization - financing costs							Amortization - financing costs	1,515		1,380
Share-based payments							Share-based payments	1,012		180
Loss (gain) on sale of rental equipment and parts							Loss (gain) on sale of rental equipment and parts	(3,838)		(3,260)
Gain on insurance proceeds - damaged equipment							Gain on insurance proceeds - damaged equipment	(233)		(387)

Major repair disposal							Major repair disposal	1,295		1,146

Change in fair value of derivative							Change in fair value of derivative	6,767		—

Deferred tax (benefit) expense							Deferred tax (benefit) expense	979		544
Provision for losses on accounts receivable							Provision for losses on accounts receivable	1,421		1,112

Changes in assets and liabilities:							Changes in assets and liabilities:
Accounts receivable							Accounts receivable	10,935		(13,357)
Inventory							Inventory	(4,313)		(8,864)
Prepaid expenses and other							Prepaid expenses and other	(152)		(2,412)
Accounts payable							Accounts payable	(6,988)		8,020
Accrued expenses							Accrued expenses	(385)		(683)
Deferred rental income							Deferred rental income	(1,058)		(1,719)
Net cash flow from operating activities							Net cash flow from operating activities	$	19,669	$	5,177

Notes to EBITDA and Adjusted EBITDA reconciliations:

Three Months Ended March 31,
(in $000s) 2020 2019
Adjusted EBITDA $ 32,061
$ 30,434
Adjustments:

Change in fair value of derivative ⁽⁵⁾
(5,963 ) —
Share-based payments ⁽⁴⁾
(559 ) (128 )
Major repairs ⁽³⁾
(700 ) (762 )
Transaction and process improvement costs ⁽²⁾
(2,079 ) (2,510 )
Non-cash purchase accounting impact ⁽¹⁾
(917 ) (611 )
EBITDA 21,843
26,423
Add:

Interest expense (16,014 ) (14,993 )
Income tax benefit (expense) (730 ) (434 )
Amortization - financing costs 711
677
Share-based payments 559
128
Loss (gain) on sale of rental equipment and parts (2,213 ) (1,977 )
Gain on insurance proceeds - damaged equipment (120 ) (452 )
Major repair disposal 700
762
Change in fair value of derivative 5,963
—
Deferred tax (benefit) expense 652
271
Bad debt expense, net of recoveries 777
692
Changes in assets and liabilities:

Accounts receivable 1,207
1,823
Inventory 176
(4,299 )
Prepaid expenses and other (34 ) (3,413 )
Accounts payable (3,352 ) 10,297
Accrued expenses (12,427 ) (8,163 )
Deferred rental income (517 ) (3,437 )
Net cash from operating activities $ (2,819 ) $ 3,905

(1) Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment sold. The equipment acquired received a purchase step-up in basis, which is a non-cash adjustment to the equipment cost pursuant to our credit agreement.

(2) 2020: Represents transaction costs related to ~~our~~Nesco’s acquisition of Truck Utilities (which include post-acquisition integration expenses incurred during the current quarterly ~~period)~~and six month periods); 2019: Represents transaction expenses related to merger activities associated with the ~~Transaction~~transaction with Capitol that was consummated on July 31, 2019. These expenses are comprised of professional consultancy, legal, tax and accounting fees. Also included are costs of startup activities (which include training, travel, and process setup costs) associated with the rollout of new PTA locations that occurred throughout the prior year into the current ~~quarterly period.~~periods. Finally, the expenses associated with the Company's closure of its Mexican operations, which closure activities commenced in the third quarter of 2019, are ~~also included.~~included for the current quarterly and six month periods. Pursuant to ~~our~~Nesco’s credit agreement, the cost of undertakings to ~~effect~~affect such cost savings, operating expense reductions and other synergies, as well as any expenses incurred in connection with acquisitions, are amounts to be included in the calculation of Adjusted EBITDA.

(3) Represents the undepreciated cost of replaced vehicle chassis and components from heavy maintenance, repair and overhaul activities associated with our fleet, which is an adjustment pursuant to our credit agreement.

(4) Represents non-cash stock compensation expense associated with the issuance of stock options and restricted stock units.

(5) Represents the charge to earnings for our interest rate collar (which is an undesignated hedge) in the three and six months ended ~~March 31,~~June 30, 2020.

Equipment on ~~rent~~

Rent. Average equipment on rent was ~~$499.8~~$461.1 million for the three months ended ~~March 31,~~June 30, 2020, ~~an increase~~a decrease of ~~$46.1~~$3.6 million or ~~10.2%~~0.8% over the same period in 2019. The decrease is primarily due to COVID-19 related customer project delays.

Average equipment on rent for the six months ended June 20, 2020 was $480.4 million up from $458.4 million for the same period in 2019. The increase is due to ~~increased~~ fleet ~~size, including the equipment acquired~~investments made in ~~connection with our acquisition of Truck Utilities,~~2019 and continued demand from ~~our equipment rental customers.~~customers during the first quarter, offset by project delays related to COVID-19 in the second quarter.

Fleet ~~count~~

Count.Average fleet count was ~~4,627~~4,615 for the three months ended ~~March 31,~~June 30, 2020, an increase of ~~714~~529 units from an average fleet count of ~~3,913~~4,086 over the same period in 2019. Average fleet count for the six months ended June 30, 2020 was 4,621, an increase of 621 from an average fleet count of 4,000 over the same period in 2019. Bucket trucks represented the largest category of our year over year capital expenditures for the three and six months ended ~~March 31,~~June 30, 2020, driven by strong demand in ~~transmission~~2019 and ~~distribution, telecom and rail end-markets.~~the first quarter of 2020 that has been offset by project delays resulting from the COVID-19 pandemic.

Fleet ~~utilization~~

Utilization.Fleet utilization was ~~75.9%~~71.3% for the three months ended ~~March 31,~~June 30, 2020, compared to ~~82.2% in~~80.2% the same period of 2019. ~~Every product category saw an increase~~Fleet utilization was 73.6% for the six months ended June 30, 2020, compared to 81.1% the same period of 2019. The decrease in ~~rented days year over year. First quarter utilization~~both periods is ~~typically lower than other quarters~~primarily due to ~~seasonality, absent any unusual activity such as the California fire recovery work in the first quarter of 2019. This quarter followed typical patterns, however, was further impacted by~~ COVID-19 ~~and equipment recently added to the fleet that has not yet gone on rent.~~related customer project delays.

Rental ~~rate per day~~

Rate Per Day.Average rental rate per day was ~~$137.8~~$136.71 for the three months ended ~~March 31,~~June 30, 2020, a ~~0.2%~~slight increase from ~~$137.5~~$136.67 for the same period in 2019. Average rental rate per day was $137.26 for the six months ended June 30, 2020, a 0.1% increase from $137.06 for the same period in 2019. Consolidated rate remained steady year over year.

Fleet ~~age~~

Age.We use fleet age by type to assist in our decision to sell and purchase a particular fleet category to ensure our fleet age remains competitive. Our overall average fleet age was ~~3.4 years~~3.7 as of ~~March 31,~~June 30, 2020, compared to 3.7 years at ~~March 31,~~June 30, 2019. We believe the current age of our fleet is young and gives us flexibility from a capital allocation and sales perspective.

Fleet ~~composition~~

Composition.We own a diverse selection of equipment in order to meet the needs of our customers. Bucket trucks, digger derricks, line equipment and rail-mounted equipment make up a significant percentage of our fleet portfolio. We also carry cranes, pressure diggers, underground equipment, and other miscellaneous fleet items, making us a full service specialty equipment provider. All of our equipment is available for rent and our used equipment sales and new equipment purchases are partially driven by our desire to keep an optimal product mix and maintain a competitive fleet age.

The OEC of our ERS fleet was ~~$644.6~~$640.4 million as of ~~March 31,~~June 30, 2020, a ~~$7.3~~$3.1 million, or ~~1.1%~~0.5%, increase from $637.3 million at December 31, 2019. ~~The bucket trucks category represented the largest increase for the three months ended March 31, 2020.~~

Operating Results by Segment - Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019

The Company manages its operations through two business segments: rental and sale of fleet and equipment along with repair and maintenance related to those assets (ERS), and the rental and sale of parts, tools, and accessories (PTA). See Note 3, Segments, to our unaudited condensed consolidated financial statements for additional information.

Equipment Rental and Sales Segment


	Three Months Ended June 30,												Six Months Ended June 30,
(in $000s)	2020		2019		$ change		% change		2020		2019		$ change		% change
Rental revenue	$	43,025	$	44,867	$	(1,842)	(4.1)	%	$	90,078	$	87,762	$	2,316	2.6	%
Sales of rental equipment	4,982		4,332		650		15.0	%	14,075		11,731		2,344		20.0	%
Sales of new equipment	5,418		4,480		938		20.9	%	12,995		6,830		6,165		90.3	%

Total revenues	53,425		53,679		(254)		(0.5)	%	117,148		106,323		10,825		10.2	%
Cost of revenue	21,549		19,561		1,988		10.2	%	48,869		38,215		10,654		27.9	%
Depreciation of rental equipment	18,559		15,889		2,670		16.8	%	37,535		31,550		5,985		19.0	%
Gross Profit	$	13,317	$	18,229	$	(4,912)	(26.9)	%	$	30,744	$	36,558	$	(5,814)	(15.9)	%

Three Months Ended March 31,
(in $000s) 2020 2019 $ change % change
Rental revenue $ 47,053
$ 42,896
$ 4,157
9.7 %
Sales of rental equipment 9,093
7,399
1,694
22.9 %
Sales of new equipment 7,577
2,350
5,227
222.4 %
Total revenues 63,723
52,645
11,078
21.0 %
Cost of revenue 27,320
18,654
8,666
46.5 %
Depreciation of rental equipment 18,976
15,661
3,315
21.2 %
Gross Profit $ 17,427
$ 18,330
$ (903 ) (4.9 )%

Total Revenues.Revenue in our ERS segment represented 78.0%. and ~~85.6%~~85.4% of ~~Nesco’s~~our consolidated revenues for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively. ~~Total~~ERS segment revenue ~~increased~~decreased by ~~$11.1~~$0.3 million for the three months ended ~~March 31,~~June 30, 2020 compared to the same period in 2019. ~~Truck Utilities generated $4.5 million of revenue within the ERS segment.~~

Rental revenue ~~increased $4.2~~decreased $1.8 million primarily as a result of ~~increased demand in the end-markets we serve coupled with increased fleet investment over the past year to meet that demand.~~COVID-19 project delays. Sales of rental and new equipment, which can vary from quarter to quarter, increased ~~$6.9~~$1.6 million.

ERS segment revenue increased by $10.8 million ~~with a focus on disposing of certain older fleet units~~or 10.2%, for the six months ended June 30, 2020 compared to the same period last year. Rental revenue increased by $2.3 million over the prior period driven by end-market demand in the first quarter ~~of 2020, helping result in a decline~~and offset by pandemic-related project delays in the ~~average age~~second quarter. New equipment sales increased by $6.2 million, or 90.3%, compared to the same period in 2019. Used equipment sales increased by $2.3 million due in part to dispose of ~~our fleet from 3.6 years at December 31, 2019 to 3.4 years at March 31, 2020.~~aged units.

Cost of Revenue.The ~~$8.7~~$2.0 million increase in cost of revenue ~~(excluding the increase in depreciation expense of $3.3 million)~~ for the three months ended ~~March 31,~~June 30, 2020 compared to the prior year is primarily due to increased service costs on units coming off rent as well as costs related to increased sales of rental and new equipment.

Cost of revenue increased by $10.7 million year over year for the six months ending June 30, 2020, primarily due to a ~~$6.6~~$7.4 million increase in cost of sales of ~~rental~~new and ~~new~~rental equipment.

Depreciation.Depreciation of our rental fleet increased by ~~$3.3~~$2.7 million and $6.0 million for the three and six months ended June 30, 2020, compared to the same periods in 2019, primarily due to growth in fleet count.

Gross Profit. Gross profit for the three months ended ~~March 31,~~June 30, 2020, excluding depreciation of $18.6 million, decreased by $2.2 million compared to the same period in 2019 due primarily ~~due~~ to ~~the 13.5% growth~~a reduction in ~~fleet count.~~high margin rental revenue.

Gross profit for the ~~three~~six months ~~ended March 31,~~ending June 30, 2020, excluding depreciation of ~~$19.0~~$37.5 million ~~increased~~decreased by ~~$2.4~~$0.2 million in the first half of 2020 compared to the ~~same period in~~first half of 2019. Margins on equipment sales declined in the first quarter relative to the same period in 2019 due to a combination of an increase in the disposal of older rental units, which typically generate lower margins and a significant supplier rebate offered on the sale of new equipment in 2019 but not repeating in 2020.

Parts, Tools, and Accessories Segment


	Three Months Ended June 30,												Six Months Ended June 30,
(in $000s)	2020		2019		$ change		% change		2020		2019		$ change		% change
Rental revenue	$	3,959	$	3,258	$	701	21.5	%	$	7,900	$	6,005	$	1,895	31.6	%


Parts sales and services	11,097		5,918		5,179		87.5	%	25,176		12,019		13,157		109.5	%
Total revenues	15,056		9,176		5,880		64.1	%	33,076		18,024		15,052		83.5	%
Cost of revenue	10,894		5,705		5,189		91.0	%	23,802		11,460		12,342		107.7	%
Depreciation of rental equipment	1,137		1,055		82		7.8	%	2,273		2,125		148		7.0	%
Gross Profit	$	3,025	$	2,416	$	609	25.2	%	$	7,001	$	4,439	$	2,562	57.7	%

Three Months Ended March 31,
(in $000s) 2020 2019 $ change % change
Rental revenue $ 3,941
$ 2,746
$ 1,195
43.5 %
Parts sales and services 14,079
6,101
7,978
130.8 %
Total revenues 18,020
8,847
9,173
103.7 %
Cost of revenue 12,908
5,755
7,153
124.3 %
Depreciation of rental equipment 1,136
1,070
66
6.2 %
Gross Profit $ 3,976
$ 2,022
$ 1,954
96.6 %

Total Revenues.PTA segment revenue increased ~~$9.2~~$5.9 million or ~~103.7%~~64.1% for the three months ended ~~March 31,~~June 30, 2020 compared to same period in 2019. For the ~~prior year.~~six months ended June 30, 2020 PTA segment revenue increased by $15.1 million, or 83.5%. The increase in revenue is primarily due to the acquisition of Truck ~~Utilities contributed $7.9 million in PTA revenue during the quarter.~~Utilities. The PTA segment would have grown more but experienced headwinds from COVID-19 social distancing measures in ~~late February~~the last part of the first quarter and ~~March~~throughout the second quarter as a result of ~~a slowdown in~~ new ~~projects.~~project delays.

Cost of Revenue.Cost of revenue in the PTA segment increased $5.3 million and $12.5 million for the three and six months ended June 30, 2020, respectively. as a direct result of the increase in parts sales volume, as well as the expansion of operations from two PTA locations to seven over the course of 2019 with an eighth location partially opening during the ~~last year.~~second quarter of 2020.

Gross Profit.PTA gross profit, excluding $1.1 million of depreciation, increased ~~$2.0~~$0.7 million, or ~~65.3%~~19.9%, and $2.7 million, or 41.3%, for the three and six months ended June 30, 2020, respectively, compared to the same periods in ~~the first quarter. Margin~~2019. The increase in gross profit is driven by higher revenue in the segment, ~~declined primarily due to~~offset by a mix shift to lower margin parts sales and service ~~revenue, due in part to the acquisition of Truck Utilities.~~revenue.

Liquidity and Capital Resources

Historical Liquidity

Our principal sources of liquidity include cash generated by operating activities and borrowings under our 2019 Credit Facility. We believe that our liquidity sources and operating cash flows are sufficient to address our operating, debt service and capital requirements over the next twelve months, however, we are continuing to monitor the impact of COVID-19 on our business and the financial markets. We have proactively reduced our planned 2020 net capital expenditures (which we define to be purchases of rental and other property and equipment, net of proceeds from disposals of such assets) to ~~approximately half of 2019 net capital expenditures to~~ help manage liquidity and optimize utilization. As of ~~March 31,~~June 30, 2020, we had ~~$10.2~~$5.3 million in cash compared to $6.3 million as of December 31, 2019. As of ~~March 31,~~June 30, 2020, we had ~~$285.7~~$268.5 million of outstanding borrowings under our 2019 Credit Facility with an additional ~~$75.4~~$78.3 million in availability (subject to a borrowing base) compared to $250.0 million of outstanding borrowing under the 2019 Credit Facility as of December 31, 2019.

2019 Credit Facility

On July 31, 2019, we entered into the 2019 Credit ~~Facilty,~~Facility, which provides us with $350.0 million in aggregate principal amount of commitments pursuant to a first lien senior secured asset based revolving credit facility. On March 10, 2020, we entered into an agreement (the “Incremental Agreement”) that amended the syndicate of banks for a new participant that increased the maximum amount of the 2019 Credit Facility by $35.0 million to a total of $385.0 million.

The new 2019 Credit Facility has a five-year term and a floating rate of interest based on either the federal funds rate plus a margin ranging between 50 and 100 basis points or LIBOR plus a margin ranging between 150 and 200 basis points, in each case, depending on excess availability under the facility. Our availability under the 2019 Credit Facility is a percentage of the value of our accounts receivable, our parts inventory, our fleet inventory, and our cash, in each case, subject to certain eligibility criteria and periodic collateral evaluations. A portion of the 2019 Credit Facility may be used for the issuance of letters of credit. The 2019 Credit Facility is guaranteed by our wholly owned domestic subsidiaries, subject to customary exceptions, and is secured by substantially all ~~assets~~ of ~~Nesco~~our assets and the guarantors. We can reduce the aggregate commitments under the 2019 Credit Facility without premium or penalty. The 2019 Credit Facility contains covenants which, among other things, limit the ~~incurrence~~occurrence of additional indebtedness (including acquired indebtedness), issuance of certain preferred stock, the payment of dividends, making restricted payments and investments, the purchase or acquisition or retirement for value of any equity interests, the provision of loans or advances to restricted subsidiaries, the sale or lease or transfer of any properties to any restricted subsidiaries, the transfer or sale of assets, and the creation of certain liens. In addition, the 2019 Credit Facility requires the Company to comply with a financial maintenance covenant requiring the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00; provided that this covenant shall only be tested if availability under the 2019 Credit Facility is less than the greater of (i) 10% of the Line Cap and (ii) $30 million, and shall be tested until availability is no longer less than such amounts for 20 consecutive calendar days.

Senior Secured Notes due 2024

In connection with the closing of the ~~Transactions,~~merger and related transactions, on July 31, 2019 we completed a private offering for Senior Secured Second Lien Notes due 2024 (the "Senior Secured Notes") issued by Capitol Investment Merger Sub 2, LLC, our wholly owned and indirect subsidiary (the "Issuer"). The aggregate principal amount of the Senior Secured Notes was $475.0 million. The Senior Secured Notes bear interest at a rate of 10.0% per annum payable semi-annually, in cash in arrears, on February 1 and August 1 of each year, commencing on February 1, 2020. The Senior Secured Notes do not have registration rights.

A summary of the key provisions are as follows:

Guarantors - The Senior Secured Notes are guaranteed (the “Guarantees”) by Capitol Intermediate Holdings, LLC, our wholly owned subsidiary ("Holdings") and the wholly owned domestic subsidiaries of the Issuer (together, "Guarantors") that guarantee obligations under the 2019 Credit Facility or any future debt of Nesco or any other Guarantors.

Security - The Senior Secured Notes and the Guarantees are secured on a second-priority basis by all ~~assets~~ of ~~Nesco~~our assets and the Guarantors that secure our obligations under the 2019 Credit Facility.

Ranking - The Senior Secured Notes and the Guarantees are general senior secured obligations. The Senior Secured Notes rank equally in right of payment with all of our existing and future senior debt and rank senior in right of payment to all of our future subordinated obligations. The Guarantees rank equally in right of payment with all of the Guarantors’ existing and future senior obligations and rank senior in right of payment to all of the Guarantors’ existing and future subordinated obligations. The Senior Secured Notes and the Guarantees rank effectively subordinated to all of the Guarantors’ and our first-priority secured debt, including borrowings under the 2019 Credit Facility.

Redemption and Repurchase - The Senior Secured Notes are redeemable, in whole or in part, at any time on or after the Closing Date at specified redemption prices. At any time prior to August 1, 2021, we may redeem all or part of the notes at a redemption price equal to 100.0% of the principal amount, plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. We may also redeem some or all of the notes: from August 1, 2021, but before July 31, 2022, at a redemption price of 105.0% of the principal amount plus accrued and unpaid interest, if any, to the redemption date; from August 1, 2022, but before July 31, 2023, at a redemption price of 102.5% of the principal amount plus accrued and unpaid interest, if any, to the redemption date; and after August 1, 2023, at a redemption price of 100.0% of the principal amount plus accrued and unpaid interest, if any, to the redemption date. In addition, we may redeem up to 40.0% of the Senior Secured Notes until August 1, 2021, at a redemption price of 110.0% of the principal amount plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds from one or more equity offerings. In addition, we may be required to make an offer to purchase the Senior Secured Notes upon the sale of certain assets and upon a change of control.

Covenants - The Senior Secured Notes contain various restrictive covenants.

As of ~~March 31,~~June 30, 2020, ~~we believe~~ we were in compliance with all of the covenants and other provisions of the 2019 Credit Facility and the indenture governing the Senior Secured Notes disclosed above. Any failure to be in compliance with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

Due to the condition and relatively young age of our fleet, we have the ability to significantly reduce or suspend capital expenditures during difficult economic times, to generate additional cash flow during these periods. We believe that ~~our~~ cash generated by our rental operations and cash received from the sale of equipment, as well as funds available under the 2019 Credit Facility will be adequate to meet our operating, investing and financing needs for the foreseeable future. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. Our ability to meet our operating, investing and financing needs depends to a significant extent on our future financial performance, which will be subject in part to general economic, competitive, financial, regulatory and other factors that are beyond our control. In addition to these general economic and industry factors, the principal factors in determining whether our cash flows will be sufficient to meet our liquidity requirements will be changes in governmental regulations for the electric utility transmission and distribution industry, weather, and our customers’ ability to secure materials. In the event that we need access to additional cash, we may not be able to access the credit markets on commercially acceptable terms or at all. We expect to continually assess our performance, the economic environment and market conditions to guide our decisions regarding our uses of cash, including capital expenditures.

We may, from time to time, refinance, reprice, extend, retire or otherwise modify our outstanding debt to lower our interest payments, reduce our debt or otherwise improve our financial position. These actions may include repricing amendments, extensions, and/or opportunistic refinancing of debt. The amount of debt that may be refinanced, re-priced, extended, retired or otherwise modified, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations.

Historical Cash Flows

The following table summarizes ~~Nesco’s~~our sources and uses of cash for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019:


	Three Months Ended March 31,							Six Months Ended June 30,
(in $000s)	2020			2019			(in $000s)	2020		2019
Net cash flow from operating activities	$	(2,819	)	$	3,905		Net cash flow from operating activities	$	19,669	$	5,177
Net cash flow from investing activities	(27,190		)	(6,935		)	Net cash flow from investing activities	(35,227)		(35,775)
Net cash flow from financing activities	33,943			4,671			Net cash flow from financing activities	14,556		31,042
Net change in cash	$	3,934		$	1,641		Net change in cash	$	(1,002)	$	444

As of ~~March 31,~~June 30, 2020, we had cash of ~~$10.2~~$5.3 million, ~~an increase~~a decrease of ~~$3.9~~$1.0 million from December 31, 2019. Generally, we manage our cash flow by using any excess cash, after considering our working capital and capital expenditure needs, to pay down the outstanding balance under our ~~revolving~~2019 credit ~~facilities.~~

facility.

Cash Flows from Operating Activities

Net cash ~~used~~provided by operating activities was ~~$2.8~~$19.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020, as compared to net cash provided by operating activities of ~~$3.9~~$5.2 million in same period of 2019. The ~~decrease is due to a $9.2 million~~ increase in ~~net loss from 2019 to 2020, as well as a $7.8 million decrease in~~ cash ~~flows~~ from operations ~~from 2019 to 2020 for~~was driven by prudent working capital changes. The decrease in cash flows from operations from 2019 to 2020 is offset by a $10.3 million increase in non-cash expenses. The increase in non-cash items is primarily due to $6.0 million of fair value change in our derivative, and $3.4 million of additional depreciation.management.

Cash Flows from Investing Activities

Net cash used in investing activities was ~~$27.2~~$35.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020, as compared to cash used in investing activities of ~~$6.9~~$35.8 million in 2019. The ~~increase~~decrease in net cash used in investing activities is primarily due to ~~an increase~~decreased property and equipment investments, increased proceeds from the sale of rental equipment and parts and from increased insurance recoveries, partially offset by increased investments in rental equipment fleet purchases of $19.6 million and an increase in purchases of other property and equipment of $2.5 million, partially offset by an increase in equipment sale proceeds of $1.9 million, which includes an increase in insurance proceeds from damaged equipment.during the first quarter.

Cash Flows from Financing Activities

Net cash provided by financing activities was ~~$33.9~~$14.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020, as compared to cash provided by financing activities of ~~$4.7~~$31.0 million in 2019. The ~~increase~~decrease is primarily due to ~~$35.7 million~~borrowings, net of ~~new borrowings~~repayments, on ~~our~~the revolving credit ~~facility.~~facility decreasing by $15.5 million as our cash from operating activities improved.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets, or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any nonfinancial assets.

Critical Accounting Policies

For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019. For a summary of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, to the referenced Annual Report on Form 10-K. There have been no significant changes in our critical accounting policies and estimates during the ~~three months~~quarterly period ended ~~March 31,~~June 30, 2020.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, to our Annual Report on Form 10-K for a discussion of recently issued and adopted accounting pronouncements.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Any statements made in this report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimates,” “targets,” “projects,” “should,” “could,” “would,” “may,” “will,” “forecast,” and other similar expressions. We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this report, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include:

•the risks associated with cyclical demand for our services and vulnerability to industry downturns and regional and national downturns;

•the risk associated with the COVID-19 health pandemic on our business operations and the global economy in general;

• fluctuations in our revenue and operating results;

• unfavorable conditions or further disruptions in the capital and credit markets;

• our ability to generate cash, service our indebtedness and incur additional indebtedness;

• competition from existing and new competitors;

• our relationships with equipment suppliers and dependence on key suppliers to obtain adequate or timely equipment;

• increases in the cost of new equipment and our ability to procure such equipment in a timely fashion;

• our ability to pass on increased operating costs related to the aging of our fleet;

• our ability to integrate any businesses we acquire;

• our ability to recruit and retain experienced personnel;

• the effect of disruptions in our information technology systems, including our customer relationship management system;

• risks related to legal proceedings or claims, including liability claims;

• our dependence on third-party contractors to provide us with various services;

• a need to recognize additional impairment charges related to goodwill, identified intangible assets and fixed assets;

• our ability to obtain additional capital on commercially reasonable terms;

• laws and regulatory developments that may fail to result in increased demand for our services;

• safety and environmental requirements that may subject us to unanticipated liabilities; and

• other factors discussed under “Risk Factors” ~~herein and~~ in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2019 and our Quarterly Report on Form 10-Q for the three months ended June 30, 2020.

These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

We are subject to interest rate market risk in connection with our long-term debt. Our principal interest rate exposure relates to outstanding amounts under the 2019 Credit Facility, which provides for variable rate borrowings of up to $385.0 million, subject to a borrowing base. Interest rate changes generally impact the amount of our interest payments and, therefore, our future net income and cash flows, assuming other factors are held constant. Assuming the 2019 Credit Facility is fully drawn, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense on the 2019 Credit Facility by approximately $0.3 million per year. As of ~~March 31,~~June 30, 2020, we had ~~$285.7~~$268.5 million of outstanding borrowings against the 2019 Credit Facility.

We manage a portion of our risks from exposures to fluctuations in interest rates as part of our risk management program through the use of derivative financial instruments. The objective of controlling these risks is to limit the impact on earnings and cash flows caused by fluctuations, our primary exposure is from our variable-rate debt. We currently have an interest rate collar agreement in place as a hedge against fluctuations in the required interest payments due on our 2019 Credit Facility. All of our derivative activities are for purposes other than trading.

Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our standard master agreements) on an individual counterparty basis.

Our interest rate collar contract (currently our only derivative contract) was executed under a standard master agreement that contains a cross-default provision to our borrowing agreement with the counterparty, which provides the ability of the counterparty to terminate the interest rate collar agreement upon an event of default under the borrowing agreement.

Exchange rate risk

During the three and six months ended ~~March 31,~~June 30, 2020, we generated ~~$1.4~~$1.0 million and ~~$0.7~~$1.1 million of U.S. dollar denominated revenues in Canadian dollars and Mexican pesos, respectively. Each 100 basis point increase or decrease in the average Canadian dollar to U.S. dollar exchange rate or Mexican peso to U.S. dollar exchange rate for the year would have correspondingly changed our revenues by less than $0.1 million. We do not currently hedge our exchange rate exposure.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("the Exchange Act"). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of ~~March 31,~~June 30, 2020, the end of the period covered by this quarterly report, our disclosure controls and procedures were designed to provide and were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarterly period ended ~~March 31,~~June 30, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, we are involved in a variety of lawsuits, claims and legal proceedings. In our opinion, pending legal matters are not expected to have a material adverse impact on our results of operations, financial condition, liquidity or cash flows.

Item 1A. Risk Factors

Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks ~~described below and~~ in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2019 and our Quarterly Report three months ended March 31, 2020. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

~~Our business and results of operations may be adversely affected by the COVID-19 pandemic, the nature and extent of which are highly uncertain and unpredictable.~~

We are monitoring the global outbreak of the COVID-19 and taking steps to mitigate the risks to us posed by its spread, including by working with our customers, employees, suppliers and other stakeholders. The pandemic could adversely affect, certain elements of our business and our operations due to quarantines, government orders and guidance, facility closures, illness, travel restrictions, implementation of precautionary measures and other restrictions. Furthermore, the pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates and interest rates. Due to the speed with which the situation is developing, the global breadth of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration, ultimate impact and the timing of recovery. Although the CISA has deemed us an essential business during the pandemic, our first priority remains the health and safety of our employees and their families. Employees whose tasks can be done offsite have been instructed to work from home. Our service locations remain operational, and we are maintaining social distancing and enhanced cleaning protocols and usage of personal protective equipment, where appropriate. Therefore, the pandemic could lead to an extended disruption of economic activity and the impact on our consolidated results of operations, financial position and cash flows could be material.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

Item 6. Exhibits

Exhibit No.

Description

10.1

~~Secured Asset Based Loan Credit~~

Employment Agreement dated as of July 31, 2019, among Capitol Investment Merger Sub 2, LLC, JPMorgan Chase Bank, N.A., Fifth Third Bank, Morgan Stanley Senior Funding, Inc., Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Island Branch,between the Com pany and ~~Citigroup Global Markets Inc.~~Joshua A. Boone (incorporated by reference from Exhibit 10.1 to the Company's Form 8-K filed ~~on March 12, 2020)~~June 8, 2020)

10.2

Nesco Holdings, Inc. Amended and Restated 2019 Omnibus Incentive Plan (incorporated by reference from Annex A to the Company's definitive proxy statement filed May 1, 2020)

18.1 ⁺

L etter from Deloitte &Touche LLP, Ind ependent Registered Public Accounting Firm, Regarding Change in Accounting Principle

31.1 ⁺

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 ⁺

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32 ⁺

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002..

101.INS ⁺

XBRL Instance Document

101.SCH ⁺

XBRL Taxonomy Extension Schema Document

101.CAL ⁺

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF ⁺

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB ⁺

XBRL Taxonomy Extension Label Linkbase Document

101.PRE ⁺

XBRL Taxonomy Extension Presentation Linkbase Document

⁺ Filed or furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NESCO HOLDINGS, INC.

(Registrant)

Date:

~~5/7/~~8/6/2020

/s/ Lee Jacobson

Lee Jacobson, Chief Executive Officer

Date:

~~5/7/~~8/6/2020

/s/ ~~Bruce Heinemann~~Joshua A. Boone

~~Bruce Heinemann,~~Joshua A. Boone, Chief Financial Officer and Secretary

3437



(in $000s)	Three Months Ended March 31, 2019
Total revenue	$	72,505
Net loss	(6,415		)
Basic and diluted net loss per share	(0.30		)



	March 31,			December 31,			March 31,		December 31,
(in $000s)	2020			2019			2020		2019
2019 Credit Facility	$	285,680		$	250,000		3.2	%	4.2	%
Senior Secured Notes due 2024	475,000			475,000			10.0	%	10.0	%
Notes Payable	3,543			3,525
Total debt outstanding	764,223			728,525
Deferred finance fees	(13,511		)	(14,222		)
Net debt	750,712			714,303
Less current maturities	(1,601		)	(1,280		)
Long-term debt	$	749,111		$	713,023



(in $000s)	Three Months Ended March 31, 2020			% of revenue	Three Months Ended March 31, 2019			% of revenue
Rental revenue	$	50,994		62.4%	$	45,642		74.2%
Sales of rental equipment	9,093			11.1%	7,399			12.0%
Sales of new equipment	7,577			9.3%	2,350			3.8%
Parts sales and services	14,079			17.2%	6,101			9.9%
Total Revenue	81,743			100.0%	61,492			100.0%
Cost of revenue	40,228			49.2%	24,409			39.7%
Depreciation of rental equipment	20,112			24.6%	16,731			27.2%
Gross Profit	21,403			26.2%	20,352			33.1%
Operating expenses	14,607				11,662
Operating Income	6,796				8,690
Other Expense	22,035				14,980
Loss Before Income Taxes	(15,239		)		(6,290		)
Income Tax Expense	730				434
Net Loss	$	(15,969	)		$	(6,724	)