Item 2. Management’s Discussion and Analysis

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings. References to “we”, “us”, “our” or the “Company” are to Capitol Investment Corp. IV, except where the context requires otherwise. The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this report.

Overview

We are a blank check company formed in the Cayman Islands on May 1, 2017 for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities.

We consummated the Offering on August 21, 2017. All activity through March 31, 2019 relates to our formation, the Offering and simultaneous private placement of Private Placement Warrants (each as described below), our search for a target business with which to complete an initial business combination and activities in connection with the proposed business combination with Nesco.

Recent Developments

On April 7, 2019, we entered into the Merger Agreement by and among the Company, Intermediate Holdings, Merger Sub, New HoldCo, Nesco Owner and Nesco. See Note 7 in Item 1 above for a description of the Merger Agreement and the transactions contemplated thereby.

Results of Operations

We will not generate any operating revenues until the closing and completion of our business combination. We are incurring expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the three months ended March 31, 2019, we had net income of $1,763,028, which consists of interest income on marketable securities held in the Trust Account of $2,274,691 and an unrealized gain on marketable securities held in the Trust Account of $24,491, offset by operating costs of $536,154.

For the three months ended March 31, 2018, we had net income of $955,374, which consists of interest income on marketable securities held in the Trust Account of $1,367,437 and an unrealized gain on marketable securities held in the Trust Account of $1,181, offset by operating costs of $413,244.

Liquidity and Capital Resources

As of March 31, 2019, we had cash of $756,973 held outside the Trust Account. Until the consummation of the Offering, our only source of liquidity was an initial purchase of ordinary shares by the Sponsors, and loans and advances from related parties.

On August 21, 2017, we consummated the Offering of 40,250,000 Units, which included the full exercise by the underwriters of their over-allotment option in the amount of 5,250,000 Units, at a price of $10.00 per Unit, generating gross proceeds of $402,500,000. Simultaneously with the closing of the Offering, we consummated the sale of 6,533,333 Private Placement Warrants to our Sponsors and directors at a price of $1.50 per warrant, generating gross proceeds of $9,800,000.

Following the Offering and private placement, a total of $402,500,000 was placed in the Trust Account and we had $1,052,665 of cash held outside of the Trust Account, after payment of all costs related to the Offering, and available for working capital purposes. We incurred $8,050,000 of underwriting fees at the closing of the Offering (up to an additional $14,087,500 of deferred underwriting fees may be paid upon closing of a business combination) and $565,157 of Offering costs.

For the three months ended March 31, 2019, cash used in operating activities was $461,280. Net income of $1,763,028 was offset by interest earned on marketable securities held in the Trust Account of $2,274,691, an unrealized gain on marketable securities of $24,491 and changes in operating assets and liabilities, which provided of $74,874 of cash.

For the three months ended March 31, 2018, cash used in operating activities was $506,633, resulting primarily from interest earned on marketable securities held in the Trust Account of $1,367,437 and an unrealized gain on marketable securities held in our Trust Account of $1,181, offset by net income of $955,374. Changes in operating assets and liabilities used $93,379 of cash. 

As of March 31, 2019, we had cash and marketable securities held in the Trust Account of $410,026,800. We may withdraw interest to pay our income taxes, if any, and up to $750,000 annually for our working capital needs. In March 2018, our first year of operations, we withdrew $750,000 of interest income from the Trust Account for working capital purposes. In October 2018, our second year of operations, we withdrew a further $750,000 of interest income from the Trust Account for working capital purposes. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account not previously released to us (less taxes payable and deferred underwriting commissions) to complete our initial business combination. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.

We have principally financed our operations from inception using proceeds from the sale of our equity securities to our shareholders prior to the Offering and such amount of proceeds from the Offering that were placed in an account outside of the Trust Account for working capital purposes, interest that has been earned on the funds in the Trust Account released to us for working capital needs, and through loans from our officers, directors and shareholders. In March 2019, the Lenders loaned us an aggregate of $750,000. The loans are unsecured, non-interest bearing and are payable at the consummation of a business combination. Upon consummation of a business combination, the principal balance of the notes may be converted, at the holders’ option, to warrants at a price of $1.50 per warrant (subject to compliance with the terms of the Merger Agreement which restricts the Company’s ability to convert such notes to warrants except in certain cases). The terms of the warrants would be identical to the Private Placement Warrants. If the Lenders convert the entire principal balance of the convertible promissory notes, they would receive warrants to purchase an aggregate of 500,000 ordinary shares. If a business combination is not consummated, the notes will not be repaid by us and all amounts owed thereunder by us will be forgiven except to the extent that we have funds available to us outside of the Trust Account. In May 2019, the Lenders committed to loan the Company an additional $102,000 if needed by the Company for its working capital requirements.

If our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial business combination. In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our Sponsors, officers and directors or their respective affiliates may, but are not obligated to, loan us funds as may be required on a non-interest basis. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of notes evidencing such loans, including the $750,000 of loans made in March 2019, may be convertible into warrants at a price of $1.50 per warrant at the option of the lender (subject to compliance with the terms of the Merger Agreement which restricts the Company’s ability to convert such notes to warrants except in certain casses). The warrants would be identical to the Private Placement Warrants. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our Sponsors, officers, directors or their respective affiliates as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.

Moreover, we may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our Trust Account or because we become obligated to redeem a significant number of our public shares upon completion of the business combination, in which case we may issue additional securities or incur debt in connection with such business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account.

Off-balance sheet financing arrangements

We did not have any off-balance sheet arrangements as of March 31, 2019.

Contractual obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay two affiliates of our executive officers an aggregate monthly fee of $20,000 for office space and office and secretarial support provided to the Company. We began incurring these fees on August 15, 2017 and will continue to incur these fees monthly until the earlier of the completion of a business combination and the Company’s liquidation.

Critical Accounting Policies

The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:

Ordinary shares subject to redemption

We account for our ordinary shares subject to possible conversion in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of our condensed consolidated balance sheets.

Net income (loss) per ordinary share

We apply the two-class method in calculating earnings per share. Ordinary shares subject to possible redemption which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net income (loss) per ordinary share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjusted for the portion of income that is attributable to ordinary shares subject to redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.

Recent accounting pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed consolidated financial statements.