UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported):
July 22, 2019
CAPITOL
INVESTMENT CORP. IV
(Exact
Name of Registrant as Specified in Charter)
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Cayman
Islands
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001-38186
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N/A
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(State or Other Jurisdiction
of Incorporation)
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(Commission File
Number)
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(IRS Employer
Identification No.)
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1300
17th Street, Suite 820
Arlington, VA
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22209
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
202-654-7060
Not
Applicable
(Former
Name or Former Address, if Changed Since Last Report)
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2. below):
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☒
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Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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☐
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Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐
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Pre-commencement communications pursuant to
Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Trading
Symbol(s)
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Name
of each exchange on
which registered
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Units, each consisting
of one Class A ordinary share and one-third of one redeemable warrant
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CIC.U
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New York Stock Exchange
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Class A ordinary
shares, par value $0.0001 per share
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CIC
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New York Stock Exchange
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Redeemable warrants,
exercisable for Class A ordinary shares at an exercise price of $11.50 per share
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CIC WS
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New York Stock Exchange
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Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company ☒
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. ☐
Item 1.01
Entry into a Material Definitive Agreement
The
information set forth under Item 3.02 is incorporated herein by reference.
Item 3.02
Unregistered Sales of Equity Securities
On
July 22, 2019, Capitol Investment Corp. IV (the “Company”) entered into subscription agreements (“Subscription
Agreements”) with (i) each of Capitol Acquisition Management IV LLC, an affiliate of Mark D. Ein, the Company’s Chief
Executive Officer, Capitol Acquisition Founder IV LLC, an affiliate of L. Dyson Dryden, the Company’s President and Chief
Financial Officer, and the other directors of the Company (collectively the “Capitol Purchasers”) and (ii) NESCO Holdings,
LP (“ECP Purchaser”), an affiliate of Equity Capital Partners, the primary shareholder of NESCO Holdings I, Inc. (“Nesco”),
the Company’s merger partner in its proposed initial business combination (“Business Combination”).
Pursuant
to the Subscription Agreements, the Company will, immediately following the consummation of the Business Combination, sell
(i) an aggregate of 1,000,000 shares of common stock of the Company to the Capitol Purchasers at $10.00 per share and (ii)
4,500,000 shares of common stock to the ECP Purchaser at $10.00 per share (2,500,000 shares of which shall be subject to
receipt by the ECP Purchaser or its affiliates of at least $25 million in full repayment of certain outstanding
indebtedness).
The
Company has agreed that as soon as reasonably practicable, but in no event later than 30 days following the closing of the Business
Combination, it shall file a registration statement with the Securities and Exchange Commission covering the resale by certain
purchasers of the shares they are purchasing pursuant to the Subscription Agreements and use its best efforts to have such registration
statement declared effective as promptly as practicable thereafter.
The
shares will be sold to the Capitol Purchasers and the ECP Purchaser in reliance on the exemption from registration provided by
Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), based on the fact that the sale
will have been made without any general solicitation or advertising and based on representations from each investor that (a) it
was an accredited investor, (b) it was purchasing the shares for its own account investment, and not with a view to distribution,
(c) it had been given access to full and complete access to information regarding the Company, and (d) it understood that the
shares will not be registered and may not be sold or otherwise disposed of without registration under the Securities Act or an
applicable exemption therefrom.
The
foregoing description of the Subscription Agreements does not purport to be complete and is qualified in its entirety by reference
to the form of subscription agreement, a copy of which is filed as Exhibit 10.1 to this Form 8-K and is incorporated herein by
reference.
Item
7.01 Regulation FD Disclosure.
On July 22, 2019, the
Company issued joint press releases with Nesco announcing (i) the commencement of an offering (the “Bond Offering”)
by Capitol Investment Merger Sub 2, LLC, an indirect subsidiary of the Company, of $475 million of Senior Secured Second Lien Notes
and (ii) selected preliminary unaudited second quarter 2018 financial results for Nesco. In connection with the Bond Offering,
the Company provided certain updated pro forma financial information relating to the Business Combination and certain additional
information relating to the Nesco’s preliminary financial results for the quarter ended June 30, 2019. The press releases,
pro forma update and additional preliminary second quarter financial results information are included as Exhibits 99.1, 99.2, 99.3
and 99.4, respectively, hereto.
In
connection with the foregoing, Nesco has also agreed to waive the condition to closing of the Business Combination pursuant to
the merger agreement between the parties that the amount of cash available to Capitol upon closing of the Business Combination
must not be less than $265 million after giving effect to payment of amounts that Capitol will be required to pay to redeeming
shareholders, subject to certain other conditions and as long as cash available to Capitol after the closing of the Business Combination
is not less than $200 million.
The
information under this Item 7.01, including the exhibit attached hereto, is being furnished and shall not be deemed
“filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section. The information under this Item 7.01 shall not be incorporated by reference into any
registration statement pursuant to the Securities Act of 1933.
FORWARD
LOOKING STATEMENTS
THIS
REPORT AND THE EXHIBITS HERETO INCLUDE “FORWARD-LOOKING STATEMENTS”. ACTUAL RESULTS MAY DIFFER FROM EXPECTATIONS,
ESTIMATES AND PROJECTIONS AND, CONSEQUENTLY, YOU SHOULD NOT RELY ON THESE FORWARD LOOKING STATEMENTS AS PREDICTIONS OF FUTURE
EVENTS. WORDS SUCH AS “EXPECT,” “ESTIMATE,” “PROJECT,” “BUDGET,” “FORECAST,”
“ANTICIPATE,” “INTEND,” “PLAN,” “MAY,” “WILL,” “COULD,”
“SHOULD,” “BELIEVES,” “PREDICTS,” “POTENTIAL,” “CONTINUE,” AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
NEITHER
THE COMPANY NOR NESCO UNDERTAKE ANY OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY LAW. IMPORTANT FACTORS, AMONG OTHERS, THAT MAY AFFECT ACTUAL RESULTS
INCLUDE NESCO’S ABILITY TO EXECUTE ON ITS BUSINESS PLANS AND NESCO’S ESTIMATES OF EXPENSES AND FUTURE REVENUES AND
PROFITABILITY. OTHER FACTORS INCLUDE THE POSSIBILITY THAT THE PROPOSED TRANSACTIONS DO NOT CLOSE, INCLUDING DUE TO THE FAILURE
TO SATISFY CERTAIN CLOSING CONDITIONS.
THIS
REPORT AND THE EXHIBITS HERETO ARE NOT INTENDED TO BE ALL-INCLUSIVE OR TO CONTAIN ALL THE INFORMATION THAT A PERSON MAY DESIRE
IN CONSIDERING AN INVESTMENT IN THE COMPANY AND IS NOT INTENDED TO FORM THE BASIS OF ANY INVESTMENT DECISION IN THE COMPANY.
ADDITIONAL
INFORMATION CONCERNING THESE AND OTHER RISK FACTORS ARE CONTAINED IN THE COMPANY’S FILINGS WITH THE SEC. ALL SUBSEQUENT
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS CONCERNING THE COMPANY AND NESCO, THE PROPOSED BUSINESS COMBINATION OR OTHER MATTERS
AND ATTRIBUTABLE TO THE COMPANY AND NESCO OR ANY PERSON ACTING ON THEIR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS ABOVE. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE UPON ANY FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE MADE. NEITHER CAPITOL NOR NESCO UNDERTAKE OR ACCEPT ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY
UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT TO REFLECT ANY CHANGE IN THEIR EXPECTATIONS OR ANY CHANGE IN EVENTS, CONDITIONS
OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED, EXCEPT AS REQUIRED BY APPLICABLE LAW.
Item 9.01.
Financial Statements and Exhibits.
(d) Exhibits:
SIGNATURE
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 hereunto duly authorized.
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Dated: July 22, 2019
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CAPITOL INVESTMENT CORP. IV
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By:
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/s/
Mark D. Ein
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Mark D. Ein
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Chief Executive Officer
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3
Exhibit 10.1
Print
Name of Investor:_________________________
SUBSCRIPTION
AGREEMENT
This
Subscription Agreement (“Subscription Agreement”) is being used by Capitol Investment Corp. IV, currently a Cayman
Islands company (the “Company”), for a private placement of shares of common stock of the Company, par value $0.0001
per share (the “Shares”), on the terms and subject to the conditions contained in this Subscription Agreement.
The
above-named investor (“Investor”) hereby agrees as follows:
1.
Subscription for Securities.
Investor hereby subscribes for and agrees to purchase ________ Shares (the “Purchased
Shares”) at a purchase price of $10.00 per share, subject to the terms and conditions set forth in this Subscription Agreement.
2.
Offering; Conversion of Company to Delaware Corporation
. The Shares are being offered to Investor in a private placement
in accordance with the terms set forth in this Subscription Agreement. The Shares are being offered in connection with the Company’s
proposed business combination (the “Business Combination”) with NESCO Holdings I, Inc. (“Nesco”) pursuant
to the Agreement and Plan of Merger, dated as of April 7, 2019, by and among the Company, Capitol Investment Merger Sub 1, LLC,
Capitol Intermediate Holdings, LLC, Capitol Investment Merger Sub 2, LLC, NESCO Holdings, LP and Nesco (the “Merger Agreement”).
In connection with the Business Combination, the Company will convert into a Delaware corporation and the Shares issued hereunder
will be shares of common stock of a Delaware corporation.
3.
Investor Delivery of Documents and Payment
. On the date of the closing of the Mergers (as defined in the Merger
Agreement), the Investor will wire the subscription amount in accordance with the directions provided to Investor by the Company
at least two business days prior to Closing (as defined below).
4.
Closing
. The closing (“Closing”) on the Investor’s investment will occur immediately following
the consummation of the Business Combination. There will be no Closing if the Business Combination is not consummated. At Closing,
the Shares will be delivered promptly to Investor in book-entry form.
5.
Company Representations and Warranties
.
5.1.
Company Organization
. As of the date hereof, the Company is a Cayman Islands company duly organized, validly existing and
in good standing under the laws of the Cayman Islands. Immediately following the Closing, the Company will be a Delaware corporation,
validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority
to own, lease and operate its properties and conduct its business as presently conducted and to enter into, deliver and perform
its obligations under this Subscription Agreement.
5.2.
Due Authorization
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(a)
This Subscription Agreement has been duly authorized, executed and delivered by the Company and is enforceable against the Company
in accordance with its terms, except as may be limited or otherwise affected by (i) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other laws relating to or affecting the rights of creditors generally, and (ii) principles of equity,
whether considered at law or equity.
(b)
The Shares have been duly authorized and, when issued and delivered to the undersigned against full payment therefor in accordance
with the terms of this Subscription Agreement, the Shares will be validly issued, fully paid and non-assessable and will not have
been issued in violation of or subject to any preemptive or similar rights created under the Company’s organizational documents,
as amended, or under the laws of the State of Delaware.
5.3.
Compliance
. The issuance and sale of the Shares and the compliance by the Company with all of the provisions of this Subscription
Agreement and the consummation of the transactions herein will be done in accordance with the New York Stock Exchange rules and
will not conflict with or result in a material breach or material violation of any of the terms or provisions of, or constitute
a material default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property
or assets of the Company or any of its subsidiaries pursuant to the terms of (i) any indenture, mortgage, deed of trust, loan
agreement, license, lease or any other agreement or instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company is subject, which
would have a material adverse effect on the business, properties, financial condition, stockholders’ equity or results of
operations of the Company (a “Material Adverse Effect”) or materially affect the validity of the Shares or the legal
authority of the Company to comply in all material respects with the terms of this Subscription Agreement; (ii) result in any
material violation of the provisions of the organizational documents of the Company; or (iii) result in any violation of any statute
or any judgment, order, rule or regulation of any court or governmental agency or body, domestic or foreign, having jurisdiction
over the Company or any of its properties that would have a Material Adverse Effect or materially affect the validity of the Shares
or the legal authority of the Company to comply with this Subscription Agreement.
5.4.
Reliance on Representations
. The Company understands that the foregoing representations and warranties shall be deemed
material and to have been relied upon by the Investor.
6.
Investor Representations and Warranties
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6.1.
Accredited Investor Status
. Investor is an accredited investor within the meaning of Section 2(a)(15) of the Securities
Act of 1933, as amended, and Rule 501 promulgated thereunder.
6.2.
Information About the Company, Nesco and the Shares
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(a)
The Company has made available to Investor a copy of the Company’s Annual Report on
Form 10-K
for the fiscal year ended
December 31, 2018, its Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2019 and its Registration Statement on
Form S-4
(SEC File No. 333-230817) originally filed with the SEC on April 11, 2019, as amended, including the proxy statement/prospectus
and supplements included therein (collectively, the “Disclosure Documents”). Investor has read the Disclosure Documents
together with this Subscription Agreement, and fully understands the information set forth therein and herein, including the risk
factors described in the Disclosure Documents.
(b)
Investor has been given access to full and complete information regarding the Company and Nesco as Investor has requested and
has utilized such access to Investor’s satisfaction for the purpose of verifying the information included herein and therein,
and Investor has either met with or been given reasonable opportunity to meet with the officers of the Company or Nesco for the
purpose of asking reasonable questions of such officers concerning the terms and conditions of this subscription and the business
of the Company and Nesco and all such questions have been answered to Investor’s full satisfaction. Investor has also been
given an opportunity to obtain any additional relevant information to the extent reasonably available to the Company and Nesco.
After reading of such information and materials, Investor understands that there is no assurance as to the future performance
of the Shares and of the Company and Nesco following the Business Combination.
(c)
Investor is not purchasing the Shares as a result of or subsequent to: (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over television, radio or the Internet or (ii) any seminar
or meeting whose attendees have been invited by any general solicitation or general advertising.
6.3.
Speculative Investment
. Investor is aware that the Shares are a speculative investment that involve a high degree of risk
and Investor may suffer the total loss of its investment. Investor has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment in the Shares and have obtained, in Investor’s
judgment, sufficient information to evaluate the merits and risks of an investment in the Shares. Investor has not utilized any
person as its purchaser representative (as defined in Regulation D) in connection with evaluating such merits and risks and has
relied solely upon its own investigation in making a decision to invest in the Shares. Investor has been urged to seek independent
advice from its professional advisors relating to the suitability of an investment in the Shares in view of its overall financial
needs and with respect to the legal and tax implications of such investment. Investor believes that the investment in the Shares
is suitable for it based upon its investment objectives and financial needs, and Investor has adequate means for providing for
its current financial needs and contingencies and has no need for liquidity with respect to its investment in the Shares. The
investment in the Shares does not constitute a significant portion of Investor’s investment portfolio.
6.4.
Restrictions on Transfer
. Investor understands that (i) the Shares have not been registered under the Securities Act or
the securities laws of certain states in reliance on specific exemptions from registration and (ii) the Shares cannot be resold,
pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under applicable
securities laws of certain states, or an exemption from such registration is available. The book-entry position representing the
Shares will bear a restrictive legend relating to such restrictions. In addition, Investor understands that (i) no securities
administrator of any state or the federal government has recommended or endorsed the Shares or made any finding or determination
relating to the fairness of an investment in the Shares and (ii) the Company is relying on Investor’s representations and
agreements for the purpose of determining whether this transaction meets the requirements of the exemptions afforded by the Securities
Act and certain state securities laws.
6.5.
Investment Representation
. Investor is purchasing the Shares for its own account for investment and not with a view to,
or for sale in connection with, any subsequent distribution of the securities, nor with any present intention of selling or otherwise
disposing of all or any part of the Shares in violation of the Federal securities laws. Investor understands that, although there
is a public market for the Shares, there is no assurance that such market will continue in the future.
6.6.
Disqualifying Events
. Investor is not subject to any of the “Bad Actor” disqualifications described in Rule
506(d)(1)(i) to (viii) under Regulation D of the Securities Act (a “Disqualification Event”), except for a Disqualification
Event covered by Rule 506(d)(2) or (d)(3)
6.7.
Entity Authority
. Investor is authorized and qualified to purchase the Shares and the person signing this Subscription
Agreement on behalf of the Investor has been duly authorized by Investor to do so.
6.8.
OFAC; BSA; Patriot Act
. The Investor is not (i) a person or entity named on the List of Specially Designated Nationals
and Blocked Persons administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”)
or in any Executive Order issued by the President of the United States and administered by OFAC (“OFAC List”), or
a person or entity prohibited by any OFAC sanctions program, (ii) a Designated National as defined in the Cuban Assets Control
Regulations, 31 C.F.R. Part 515, or (iii) a non-U.S. shell bank or providing banking services indirectly to a non-U.S. shell bank
(collectively, a “Prohibited Investor”). The Investor agrees to provide law enforcement agencies, if requested thereby,
such records as required by applicable law, provided that the undersigned is permitted to do so under applicable law. If the Investor
is a financial institution subject to the Bank Secrecy Act (31 U.S.C. Section 5311 et seq.) (the “BSA”), as amended
by the USA PATRIOT Act of 2001 (the “PATRIOT Act”), and its implementing regulations (collectively, the “BSA/PATRIOT
Act”), the Investor maintains policies and procedures reasonably designed to comply with applicable obligations under the
BSA/PATRIOT Act. To the extent required, it maintains policies and procedures reasonably designed for the screening of its investors
against the OFAC sanctions programs, including the OFAC List. To the extent required, it maintains policies and procedures reasonably
designed to ensure that the funds held by the Investor and used to purchase the Shares were legally derived.
7.
Trust Fund Waiver
. The Investor understands that the Company has established a trust fund, currently in an amount
of approximately $402 million, for the benefit of the Company’s public shareholders and that, except for certain limited
distributions of interest earned on the funds held in the trust fund, the Company may disburse monies from the trust fund only
(i) to the public shareholders in the event they elect to have their shares redeemed in connection with a business combination,
(ii) to the public shareholders upon the liquidation of the Company if the Company fails to consummate a business combination
within the required time period or (iii) to the Company after, or concurrently with, the consummation of a business combination.
For and in consideration of the Company agreeing to the terms contained in this Subscription Agreement and for other valuable
consideration the receipt of which is duly acknowledged, the Investor agrees that, as a result of its execution and delivery of
this Subscription Agreement, it does not have any right, title, interest or claim of any kind in or to any monies in the trust
fund (“Claim”) and waives any Claim it may have in the future as a result of, or arising out of, this Subscription
Agreement. This section shall survive the termination of this Subscription Agreement for any reason.
8.
Severability; Remedies
. In the event any part or parts of this Subscription Agreement are found to be void, the
remaining provisions of this Subscription Agreement are nevertheless binding with the same effect as though the void part or parts
were deleted.
9.
Governing Law
. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware
regardless of the law that might otherwise govern under applicable principles of conflicts of law thereof.
10.
Counterparts
. This Subscription Agreement may be executed in one or more counterparts, each of which will be deemed
an original but all of which together will constitute one and the same instrument. The execution of this Subscription Agreement
may be by actual or facsimile signature.
11.
Benefit
. Except as otherwise set forth herein, this Subscription Agreement is binding upon and inures to the benefit
of the parties hereto and their respective heirs, executors, personal representatives, successors and assigns. This Subscription
Agreement may be assigned by Investor at any time.
12.
Notices
. All notices, offers, acceptance and any other acts under this Subscription Agreement (except payment) must
be in writing, and is sufficiently given if delivered to the addressees in person, by overnight courier service, electronic transmission
(including via email) or, if mailed, postage prepaid, by certified mail (return receipt requested), and will be effective three
days after being placed in the mail if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy or other electronic transmission (including via email), in each case addressed to a party. All communications
to Investor should be sent to Investor’s address on the signature page hereto. All communications to the Company should
be sent to:
Capitol
Investment Corp. IV
1300
17th Street, Suite 820
Arlington,
VA 22209
Attention:
Mark D. Ein
Telephone:
(202) 654–7060
Email:
mark@venturehousegroup.com
13.
Oral Evidence
. This Subscription Agreement constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior oral and written agreements between the parties hereto with respect to the
subject matter hereof. This Subscription Agreement may not be changed, waived, discharged, or terminated orally, but rather, only
by a statement in writing signed by the party or parties against which enforcement or the change, waiver, discharge or termination
is sought.
14.
Paragraph Headings
. Paragraph headings herein have been inserted for reference only and will not be deemed to limit
or otherwise affect, in any matter, or be deemed to interpret in whole or in part, any of the terms or provisions of this Subscription
Agreement.
15.
Survival of Representations, Warranties and Agreements
. The representations, warranties and agreements contained
herein will survive the delivery of, and the payment for, the Shares.
[SIGNATURE
PAGES FOLLOW]
SIGNATURE
PAGE
I/We
am(are) affirming that all the information contained herein is true and correct to the best of my/our knowledge and belief, including
the attached schedule. If I am signing on behalf of an entity or trust I represent I have the authority to make investment decisions
for the entity. I also understand that a background/credit check maybe conducted for the purposes of detecting and deterring money
laundering.
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The
foregoing subscription is accepted and the Company hereby agrees to be bound by its terms.
CAPITOL
INVESTMENT CORP. IV
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6
Exhibit 99.1
Capitol Investment
Corp. IV Announces Offering of $475 Million of
Senior Secured Second Lien Notes
WASHINGTON D.C. and FORT WAYNE, INDIANA,
July 22, 2019 – In anticipation of the previously announced proposed business combination (the “proposed business combination”)
of Nesco Holdings I, Inc. (“Nesco”) with and into a subsidiary of Capitol Investment Corp. IV (NYSE: CIC; “Capitol”),
Capitol Investment Merger Sub 2, LLC, the indirect subsidiary of Capitol (the “Issuer”), announced today that it intends
to offer $475 million aggregate principal amount of senior secured second lien notes due 2024 (the “Notes”). The net
proceeds from the offering of the Notes, together with borrowings under a new asset-based lending facility to be entered into by
the Issuer, as well as at least $200 million of cash equity contributions, will be used to fund the proposed business combination-related
transactions, to refinance Nesco’s existing indebtedness and to pay related fees and expenses.
The Notes have not been registered under
the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and, unless so registered,
may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or pursuant
to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and state
securities laws.
This press release shall not constitute
an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Notes in any jurisdiction in which
such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such
jurisdiction. This notice is being issued pursuant to and in accordance with Rule 135c under the Securities Act.
Forward Looking Statements
This press release includes “forward
looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities
Litigation Reform Act of 1995 and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. When used in this press release, the words “estimates,” “projected,”
“expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,”
“seeks,” “may,” “will,” “should,” “future,” “propose”
and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify
forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results,
and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside
Capitol’s or Nesco’s management’s control, that could cause actual results or outcomes to differ materially
from those discussed in this press release. All forward-looking statements attributable to Capitol, Nesco or persons acting on
their behalf are expressly qualified in their entirety by the foregoing cautionary statements. Important factors, among others,
that may affect actual results or outcomes include: the inability to complete the transactions contemplated by the proposed business
combination between Capitol and Nesco (the “proposed business combination”), including descriptions of the equity
and debt financing transactions (including the Notes offering) contemplated in connection with the consummation of the proposed
business combination; the inability to recognize the anticipated benefits of the proposed business combination, which may be affected
by, among other things, the amount of cash available following redemptions by Capitol stockholders; the ability to meet the NYSE’s
listing standards following the consummation of the transactions contemplated by the proposed business combination; costs related
to the proposed business combination; the inability to enter into or complete the proposed transaction governed by the non-binding
letter of intent; the inability to recognize the anticipated benefits of the transaction contemplated by the non-binding letter
of intent; Nesco’s ability to execute on its plans to develop and market new products and the timing of these development
programs; Nesco’s estimates of the size of the markets for its solutions; the rate and degree of market acceptance of Nesco’s
solutions; the success of other competing technologies that may become available; Nesco’s ability to identify and integrate
acquisitions; the performance and security of Nesco’s services; potential litigation involving Capitol or Nesco; and general
economic and market conditions impacting demand for Nesco’s services. Other factors include the possibility that the proposed
transaction does not close, including due to the failure to satisfy certain closing conditions. Neither Capitol nor Nesco undertake
any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise,
except as required by law.
Exhibit 99.2
Nesco Holdings
I, Inc. Pre-Releases Selected Preliminary Unaudited Second Quarter 2019 Financial Results
WASHINGTON D.C. and FORT WAYNE, INDIANA,
July 22, 2019 – Capitol Investment Corp. IV (NYSE: CIC; “Capitol”), a public investment vehicle, and Nesco Holdings
I, Inc. (“Nesco”), a leading provider of specialty rental equipment to the electric utility, telecom and rail end-markets,
today issue this press release pre-releasing selected preliminary unaudited financial results for Nesco’s second quarter
ended June 30, 2019.
Second Quarter 2019 Preliminary Unaudited
Financial Highlights
|
|
●
|
Revenue estimated between $62.5 and $63.5 million (an increase of approximately 13% from second
quarter of 2018 at the midpoint)
|
|
|
●
|
Adjusted EBITDA estimated between $30.0 and $31.0 million (an increase of approximately 7% from
second quarter of 2018 at the midpoint)
|
|
|
●
|
Reaffirm full year 2019 revenue and Adjusted EBITDA outlook of $270 million and $137 million, respectively
(excluding the impact of any potential acquisitions)
|
Review of Second Quarter 2019 Results
“We are pleased to deliver strong
preliminary results for the second quarter of 2019,” said Lee Jacobson, Nesco’s CEO. “Our second quarter results
reflect continued robust growth in demand across all our end markets. In addition to the previously announced opening of two new
Parts, Tools and Accessories facilities in April, we began realizing deliveries of new equipment ahead of our growth plan. Our
planned acquisition is also progressing well and we expect to complete it soon after our merger with Capitol. We remain committed
to achieving our long-term financial goals and executing on our strategic initiatives and look forward to completing our merger
with Capitol and entering into the next phase in Nesco’s growth story.”
Nesco has not yet finalized its financial statement close process
for the quarter ended June 30, 2019. As a result, the information in this press release is preliminary and based upon information
available to Nesco as of the date of this press release. In connection with the finalization process, Nesco may identify items
that would require adjustments to its preliminary financial results announced herein. Nesco’s financial results may be different,
and those differences could be material. The preliminary financial results have been prepared by and are the responsibility of
Nesco’s management. Nesco’s independent registered public accounting firm has not audited, reviewed, compiled or performed
any procedures with respect to the accompanying preliminary financial data.
Second Quarter 2019 Earnings Release and Conference Call
Details
Nesco expects to release its full second quarter 2019 financial
and operating results on or before August 9, 2019. Nesco also plans to hold a conference call in connection with its release of
its full second quarter 2019 results.
No Offer or Solicitation
This communication shall neither constitute
an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction
in which the offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws
of any such jurisdiction.
About Nesco
Nesco is one of the largest providers of
specialty equipment, parts, tools, accessories and services to the electric utility transmission and distribution, telecommunications
and rail markets in North America. Nesco offers its specialized equipment to a diverse customer base for the maintenance, repair,
upgrade and installation of critical infrastructure assets including electric lines, telecommunications networks and rail systems.
Nesco’s coast-to-coast rental fleet of more than 4,200 units includes aerial devices, boom trucks, cranes, digger derricks,
pressure drills, stringing gear, hi-rail equipment, repair parts, tools and accessories. For more information, please visit https://nescospecialty.com.
About Capitol Investment Corp. IV
Capitol Investment Corp. IV is a public
investment vehicle formed for the purpose of effecting a merger, acquisition or similar business combination. Capitol is led by
Chairman and Chief Executive Officer Mark D. Ein, and President and Chief Financial Officer L. Dyson Dryden. Capitol’s securities
are quoted on the New York Stock Exchange under the ticker symbols CIC, CIC WS and CIC.U. The company, which raised $402.5 million
of cash proceeds in an initial public offering in August 2017, is the Capitol team’s fourth publicly traded investment vehicle.
The Capitol team’s three prior deals are all in the top 10 of the best performing SPACs out of over 130 raised since October
2009 in terms of total returns since merger. The first, Capitol Acquisition Corp., created Two Harbors Investment Corp. (NYSE:
“TWO”), a leading mortgage real estate investment trust (REIT) and the second, Capitol Acquisition Corp. II, merged
with Lindblad Expeditions, Inc. (NASDAQ: “LIND”), a global leader in expedition travel. The third vehicle, Capitol
Acquisition Corp. III, merged with Cision Ltd. (NYSE: “CISN”), a leading global provider of cloud-based earned media
solutions. For more information, please visit https://capinvestment.com.
Forward Looking Statements
This press release includes “forward
looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities
Litigation Reform Act of 1995 and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. When used in this press release, the words “estimates,” “projected,”
“expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,”
“seeks,” “may,” “will,” “should,” “future,” “propose” and
variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify
forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and
involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside
Capitol’s or Nesco’s management’s control, that could cause actual results or outcomes to differ materially from
those discussed in this press release. This press release is based on certain assumptions that Nesco has made in light of its experience
in the industry as well as Nesco’s perceptions of historical trends, current conditions, expected future developments and
other factors Nesco believes are appropriate in these circumstances. As you read and consider this press release, you should understand
that these statements are not guarantees of performance or results. Many factors could affect Nesco’s actual performance
and results and could cause actual results to differ materially from those expressed in this press release. All forward-looking
statements attributable to Capitol, Nesco or persons acting on their behalf are expressly qualified in their entirety by the foregoing
cautionary statements. Important factors, among others, that may affect actual results or outcomes include: the inability to complete
the transactions contemplated by the proposed business combination between Capitol and Nesco (the “proposed business combination”);
the inability to recognize the anticipated benefits of the proposed business combination, which may be affected by, among other
things, the amount of cash available following redemptions by Capitol stockholders; the ability to meet the NYSE’s listing
standards following the consummation of the transactions contemplated by the proposed business combination; costs related to the
proposed business combination; the inability to enter into or complete the proposed transaction governed by the non-binding letter
of intent; the inability to recognize the anticipated benefits of the transaction contemplated by the non-binding letter of intent;
Nesco’s ability to execute on its plans to develop and market new products and the timing of these development programs;
Nesco’s estimates of the size of the markets for its solutions; the rate and degree of market acceptance of Nesco’s
solutions; the success of other competing technologies that may become available; Nesco’s ability to identify and integrate
acquisitions; the performance and security of Nesco’s services; potential litigation involving Capitol or Nesco; and general
economic and market conditions impacting demand for Nesco’s services. Other factors include the possibility that the proposed
transaction does not close, including due to the failure to satisfy certain closing conditions. Neither Capitol nor Nesco undertake
any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise,
except as required by law.
Select Preliminary Unaudited Second Quarter
2019 Financial Results
|
|
|
Three Months Ended
June 30,
|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
|
Revenue
|
|
$
|
62.5 – $63.5
|
|
|
$
|
55.8
|
|
|
Net loss
|
|
|
(5.8) – (4.8)
|
|
|
|
(5.4
|
)
|
|
Adjusted EBITDA
|
|
|
30.0 – 31.0
|
|
|
|
28.4
|
|
Reconciliation of Net Loss to Adjusted
EBITDA
|
|
|
Three Months Ended
June 30,
|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
|
Net loss
|
|
$
|
(5.8) – (4.8)
|
|
|
$
|
(5.4
|
)
|
|
Interest expense
|
|
|
14.9
|
|
|
|
14.1
|
|
|
Income tax expense (benefit)
|
|
|
0.4
|
|
|
|
0.5
|
|
|
Depreciation expense
|
|
|
17.2
|
|
|
|
15.8
|
|
|
Amortization expense
|
|
|
0.7
|
|
|
|
0.7
|
|
|
EBITDA
|
|
|
27.4 – 28.4
|
|
|
|
25.7
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Non cash purchase accounting impact
|
|
|
0.1
|
|
|
|
1.0
|
|
|
Transaction and process improvement costs
|
|
|
2.0
|
|
|
|
1.1
|
|
|
Major repairs
|
|
|
0.4
|
|
|
|
0.3
|
|
|
Share-based payments
|
|
|
0.1
|
|
|
|
0.3
|
|
|
Adjusted EBITDA
|
|
$
|
30.0 – 31.0
|
|
|
$
|
28.4
|
|
Key Operational and Financial Metrics
Non-GAAP Measures:
Earnings before interest, taxes, depreciation
and amortization (EBITDA) and Adjusted EBITDA are non-GAAP financial measures as defined under the rules of the SEC. Adjusted EBITDA
is a financial performance measure that Nesco uses to monitor its results from operations and to measure its performance against
its debt covenants. This common metric is intended to align Nesco’s shareholder, debt holders and management.
Nesco believes the presentation of these financial measures
enhances an investor’s understanding of its financial performance because these measures are useful financial metrics to
assess its operating performance from period to period by excluding certain items that it believes are not representative of its
core business. Such items are excluded pursuant to the definition of Adjusted EBITDA in Nesco’s credit agreements; Adjusted
EBITDA is the basis for several financial covenants therein. These financial measures will provide investors with a useful tool
for assessing the comparability between periods of Nesco’s ability to generate cash from operations sufficient to pay taxes,
to service debt and to undertake capital expenditures. Nesco uses these financial measures for business planning purposes, for
loan compliance purposes and in measuring its performance relative to that of its competitors.
In analyzing and planning for its business, Nesco supplements
its use of financial measures based on U.S. GAAP with non-GAAP financial and other measures. Nesco’s 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 or operating cash flows or as measures of liquidity.
Nesco’s non-GAAP financial measures should not be relied upon to the exclusion of U.S. GAAP financial measures. Nesco encourages
investors to review its non-GAAP financial measures together with its 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 Nesco calculates such measures. Accordingly, Nesco’s 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 Nesco’s accounting policies; however, this may not be indicative of
Nesco’s actual cost to acquire new equipment that Nesco adds to its fleet apart from a business acquisition. Additionally,
the pricing of Nesco’s rental contracts and equipment sales prices for Nesco’s equipment is based off of original equipment
cost (or, “OEC”), and Nesco measures a rate of return from its rentals and sales using OEC. As indicated above, Nesco’s
credit agreements define this adjustment to EBITDA, as such, and Nesco believes this metric is a better indication of its true
cost of equipment sales due to the removal of the purchase accounting adjustments.
Adjusted EBITDA:
EBITDA represents net income before
interest, income tax (benefit) provision, depreciation and amortization. Adjusted EBITDA is defined as net income (loss) plus interest
expense, provision for income taxes, depreciation, and amortization, as further adjusted for (1) non-cash purchase accounting impact,
(2) transaction and process improvement costs, (3) major repairs and (4) share-based payments. These metrics are subject to certain
limitations.
5
Exhibit 99.3
Unaudited
Pro Forma Combined Financial Information
We
are providing the following unaudited pro forma combined financial information relating to the transactions (“Transactions”)
contemplated by the Agreement and Plan of Merger, dated as of April 7, 2019, as amended, involving Nesco and Capitol.
The
unaudited pro forma combined balance sheet as of March 31, 2019 gives pro forma effect to the Transactions as if they had been
consummated as of that date. The unaudited pro forma combined statements of operations for the three months ended March 31, 2019
and the year ended December 31, 2018 give pro forma effect to the Transactions as if they had occurred as of January 1, 2018.
This information should be read together with Nesco’s and Capitol’s respective audited and unaudited financial statements
and related notes, “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
”
and other financial information included in Capitol’s definitive proxy statement/prospectus dated June 24, 2019, as supplemented.
Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the proxy statement/prospectus.
The
unaudited pro forma combined balance sheet as of March 31, 2019 has been prepared using the following:
|
|
●
|
Nesco’s
unaudited historical consolidated balance sheet as of March 31, 2019; and
|
|
|
●
|
Capitol’s
unaudited historical consolidated balance sheet as of March 31, 2019.
|
The
unaudited pro forma combined statement of operations for the three months ended March 31, 2019 has been prepared using the following:
|
|
●
|
Nesco’s
unaudited historical consolidated statement of operations for the three months ended March 31, 2019; and
|
|
|
●
|
Capitol’s
unaudited historical consolidated statement of operations for the three months ended March 31, 2019.
|
The
unaudited pro forma combined statement of operations for the year ended December 31, 2018 has been prepared using the following:
|
|
●
|
Nesco’s
audited historical consolidated statement of operations for the year ended December 31, 2018; and
|
|
|
●
|
Capitol’s
audited historical statement of operations for the year ended December 31, 2018.
|
Description
of the Transactions
On
April 7, 2019, Capitol entered into the Merger Agreement by and among Capitol, Holdings, Merger Sub, Initial Merger Sub, Nesco
Owner, and Nesco, which was amended on July 10, 2019, pursuant to which (i) Capitol will domesticate as a Delaware corporation
and will be renamed “Nesco Holdings, Inc.”, (ii) Initial Merger Sub will merge with and into Nesco, with Nesco surviving
as a wholly-owned subsidiary of Capitol and (iii) immediately after the Initial Merger, Nesco will merge with and into Merger
Sub, with Merger Sub surviving as a wholly-owned indirect subsidiary of Capitol. As a result of the Transactions, Initial Merger
Sub, having merged into the Issuer, will effectively become an indirectly wholly owned subsidiary of Capitol, with Nesco Owner
becoming a securityholder of Capitol.
In
connection with the Domestication the outstanding Class A ordinary shares of Capitol will be automatically converted into shares
of common stock of Capitol (which will be renamed “Nesco Holdings, Inc.”) on a one-for-one basis. The outstanding
warrants of Capitol will automatically convert into warrants to purchase shares of common stock of Capitol, on a one-for-one basis,
beginning 30 days after the consummation of the Transactions. The outstanding Class B ordinary shares of Capitol will automatically
convert into common stock of Capitol, on a one-for-one basis, upon consummation of the Transactions. Additionally, pursuant to
the Merger Agreement, in connection with the Transactions each outstanding share of Nesco’s common stock will be converted
into the right to receive a pro rata portion of (i) 21,660,638 shares of common stock of Capitol, and (ii) warrants to purchase
2,500,000 shares of common stock.
Nesco
Owner will also have the right to receive: (1) up to 1,800,000 additional shares of Capitol’s common stock, for a period
of five years following the closing of the Transactions, in increments of 900,000 shares, if the trading price of Capitol’s
common stock exceeds $13.00 per share or $16.00 per share for any 20 trading days during a 30 consecutive trading day period,
or upon a change of control (as defined in the Merger Agreement) of Capitol if the consideration paid or payable to Capitol’s
stockholders equals or exceeds $13.00 per share or $16.00 per share (less any shares previously issued), and (2) an additional
1,651,798 shares of Capitol’s common stock if during the seven-year period following the closing of the Transactions, the
trading price of Capitol’s common stock exceeds $19.00 per share for any 20 trading days during a 30 consecutive trading
day period or if a sale transaction of the combined company occurs in which the consideration paid per share to holders of common
stock exceeds $19.00 per share.
In
connection with the Transactions, Nesco Owner, the Sponsors and certain directors of Capitol will purchase 5.5 million
shares of Capitol’s common stock at $10.00 per share for a total consideration of $55.0 million.
Accounting
for the Domestication and Mergers
The
Domestication is for the sole purpose of changing the legal domicile of Capitol and, as such, neither it, nor the exchange of
Capitol securities described above, is expected to have any accounting impact.
The
Mergers will be accounted for as a reverse merger, in accordance with GAAP. Under this method of accounting, Capitol will be treated
as the “acquired” company for financial reporting purposes. This determination was primarily based on Nesco Owner
being expected to have a majority interest of the combined company, Nesco Owner being represented on the Board of Directors of
the combined company by up to four members in addition to the CEO of Nesco, Nesco’s senior management comprising the senior
management of the combined company, the relative size of Nesco compared to Capitol, and Nesco’s operations comprising the
ongoing operations of the combined company. Accordingly, for accounting purposes, the Transactions will be treated as the equivalent
of Nesco issuing stock for the net assets of Capitol. The net assets of Capitol will be stated at historical cost, with no goodwill
or other intangible assets recorded. Operations prior to the Transactions will be those of Nesco.
As
the issuance of 3,451,798 of additional shares of Capitol’s common stock is contingent on the future performance of the
trading price of Capitol’s common stock, they have been classified as an equity arrangement and therefore have not been
recorded in the unaudited pro forma combined financial statements.
In
addition to the merger of Capitol and Nesco, the Transactions involve utilizing the cash on Capitol’s balance sheet and
funds from borrowings under the new ABL Facility and the issuance of the notes to redeem Nesco’s existing senior second
lien secured notes, repay the Existing Nesco Indebtedness and pay certain fees and expenses. The combined company, post recapitalization,
will have lower debt balances and leverage.
Basis
of Pro Forma Presentation
The
historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable
to the Transactions, are factually supportable, and as it relates to the unaudited pro forma combined statement of operations,
are expected to have a continuing impact on the results of the combined company. The adjustments presented on the unaudited pro
forma combined financial statements have been identified and presented to provide relevant information necessary for an accurate
understanding of the combined company upon consummation of the Transactions.
The
unaudited pro forma combined financial information is for illustrative purposes only. The financial results may have been different
had the companies always been combined. You should not rely on the unaudited pro forma combined financial information as being
indicative of the historical financial position and results that would have been achieved had the companies always been combined
or the future financial position and results that the combined company will experience. Nesco and Capitol have not had any historical
relationship prior to the Transactions. Accordingly, no pro forma adjustments were required to eliminate activities between the
companies.
There
is no historical activity with respect to Intermediate Holdings, Merger Sub or New HoldCo, and accordingly, no adjustments were
required with respect to these entities in the pro forma combined financial statements.
The
unaudited pro forma combined financial information has been prepared after giving effect of the redemption of 26,091,034 Capitol’s
ordinary shares at a redemption price of approximately $10.19 per share. Included in the shares outstanding and weighted average
shares outstanding as presented in the pro forma combined financial statements are 26,160,638 ordinary shares to be issued to
Nesco’s shareholders.
As
a result of the Transactions and immediately following the closing of the Transactions, Nesco Owner and certain members of current
Nesco management will own approximately 53.4% of the Capitol shares to be outstanding immediately after the Transactions and Capitol
shareholders will own approximately 46.6% of the Capitol shares, based on the number of Capitol shares outstanding as of March
31, 2019 (in each case, not giving effect to any shares issuable to them upon exercise of warrants).
Prior
to the consummation of the Transactions, all of Nesco’s outstanding phantom units and all Class B units of Nesco Owner will
be cancelled and no consideration will be paid in respect thereof (except for a one-time payment by Nesco Owner to Bruce Heinemann
of approximately $0.5 million).
PRO
FORMA COMBINED BALANCE SHEET
AS
OF MARCH 31, 2019
(UNAUDITED)
(in
thousands)
|
|
|
(A)
Nesco
|
|
|
(B)
Capitol
|
|
|
Pro
Forma Adjustments
|
|
|
Pro
Forma Balance Sheet
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,781
|
|
|
$
|
757
|
|
|
$
|
410,027
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608,776
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(765,000
|
)
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,000
|
)
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,800
|
)
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(265,789
|
)
(7)
|
|
$
|
3,752
|
|
|
Accounts receivable, net
|
|
|
50,768
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,768
|
|
|
Inventory
|
|
|
14,264
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,264
|
|
|
Prepaid expenses and
other
|
|
|
5,993
|
|
|
|
12
|
|
|
|
—
|
|
|
|
6,005
|
|
|
Total Current Assets
|
|
|
74,806
|
|
|
|
769
|
|
|
|
(786
|
)
|
|
|
74,789
|
|
|
Marketable securities held in Trust Account
|
|
|
—
|
|
|
|
410,027
|
|
|
|
(410,027
|
)
(1)
|
|
|
—
|
|
|
Property and equipment, net
|
|
|
4,151
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,151
|
|
|
Rental equipment, net
|
|
|
321,747
|
|
|
|
—
|
|
|
|
—
|
|
|
|
321,747
|
|
|
Goodwill
|
|
|
228,714
|
|
|
|
—
|
|
|
|
—
|
|
|
|
228,714
|
|
|
Other intangible assets, net
|
|
|
70,016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70,016
|
|
|
Total
Assets
|
|
$
|
699,434
|
|
|
$
|
410,796
|
|
|
$
|
(410,813
|
)
|
|
$
|
699,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholder’s (Deficit)/Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
48,885
|
|
|
$
|
177
|
|
|
$
|
(2,510
|
)
(6)
|
|
$
|
46,552
|
|
|
Accrued interest expense
|
|
|
4,682
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,682
|
|
|
Deferred rent income
|
|
|
1,325
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,325
|
|
|
Current maturities
of long-term debt
|
|
|
7,557
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,557
|
|
|
Total Current Liabilities
|
|
|
62,449
|
|
|
|
177
|
|
|
|
(2,510
|
)
|
|
|
60,116
|
|
|
Long-term debt and other debt
|
|
|
790,479
|
|
|
|
750
|
|
|
|
(750
|
)
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608,776
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(760,148
|
)
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,000
|
)
(5)
|
|
|
617,107
|
|
|
Deferred tax liabilities
|
|
|
11,350
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,350
|
|
|
Deferred underwriting fee
|
|
|
—
|
|
|
|
14,087
|
|
|
|
(14,087
|
)
(6)
|
|
|
—
|
|
|
Other liabilities
|
|
|
420
|
|
|
|
—
|
|
|
|
—
|
|
|
|
420
|
|
|
Total
Liabilities
|
|
|
864,698
|
|
|
|
15,014
|
|
|
|
(190,719
|
)
|
|
|
688,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares subject to redemption
|
|
|
—
|
|
|
|
390,782
|
|
|
|
(390,782
|
)
(7)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder’s (Deficit)/Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
(10)
|
|
|
4
|
|
|
Class A Ordinary Shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Class B Ordinary Shares
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
(10)
|
|
|
—
|
|
|
Additional paid-in capital
|
|
|
259,428
|
|
|
|
—
|
|
|
|
124,992
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
(3)(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,997
|
(9)
|
|
|
445,167
|
|
|
(Accumulated deficit)/Retained Earnings
|
|
|
(424,384
|
)
|
|
|
4,999
|
|
|
|
(5,203
|
)
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,852
|
)
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,999
|
)
(9)
|
|
|
(434,439
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(308
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(308
|
)
|
|
Total
Stockholder’s (Deficit)/Shareholders’ Equity
|
|
|
(165,264
|
)
|
|
|
5,000
|
|
|
|
170,688
|
|
|
|
10,424
|
|
Total
Liabilities and Stockholder’s
(Deficit) /Shareholders’ Equity
|
|
$
|
699,434
|
|
|
$
|
410,796
|
|
|
$
|
(410,813
|
)
|
|
$
|
699,417
|
|
Pro
Forma Adjustments to the Unaudited Combined Balance Sheet
(in
thousands, except share data)
|
|
(A)
|
Derived
from the unaudited consolidated balance sheet of Nesco as of March 31, 2019.
|
|
|
(B)
|
Derived
from the unaudited consolidated balance sheet of Capitol as of March 31, 2019.
|
|
|
(1)
|
Reflects
the release of cash from marketable securities held in the trust account.
|
|
|
(2)
|
Reflects the debt
financing from entering into the $350.0 million revolving credit facility, the issuance of $475.0 million of notes and the
$808.8 million in uses of funds including: (a) the redemption of $525.0 million of the senior secured second lien notes
(“Existing Nesco Notes”), the repayment of $215.0 million outstanding under the revolving credit facility
(“Existing Nesco ABL Facility”), and the repayment of $25.0 million outstanding under the Existing Tranche B
Revolving Credit Agreement, (b) $22.0 million of debt financing fees and expenses and(c) $21.8 million in deferred
underwriting fees and other expenses. The sources of funds in the Transaction are: (a) $145.0 million of cash held in
Capitol’s trust account after giving effect to redemptions by Capitol shareholders, (b) $475.0 million from the
issuance of senior secured second lien notes in connection with the Transaction, (c) $55.0 million from the issuance of 5.5
million shares of common stock at $10.00 per share to Nesco Owner, the Sponsors and certain directors of Capitol and
(d) a draw on the first lien senior secured asset based revolving credit facility with a maturity of five years
(“ABL Facility”) for the remaining amount required of $133.8 million. As of June 30, 2019, the borrowings under
the Existing Nesco ABL Facility were $243.0, and therefore, the draw under the ABL facility is expected to be $161.8
million.
|
|
|
(3)
|
Reflects the
issuance of 5,500,000 shares of common stock to Nesco Owner, the Sponsors and certain directors of Capitol for $55.0
million or $10.00 per share.
|
|
|
(4)
|
Reflects
the repayment of prior existing long-term debt and corresponding amortization of the related remaining deferred financing costs
in connection with the Transactions. The amortization of the deferred financing costs is reflected as an adjustment to accumulated
deficit and is not shown as an adjustment to the statement of operations since it is a nonrecurring charge resulting directly
from the Transactions. With respect to income taxes, this adjustment will change the amount of Nesco’s income tax loss carryforwards;
however, the tax effect of this adjustment has not been reflected as the associated deferred tax asset is offset by a valuation
allowance.
|
|
|
(5)
|
Reflects
the underwriting fees and expenses associated with the debt transactions in footnote 2. These fees and expenses include the ABL
Facility underwriting fee, bridge commitment fee related to the commitment letter entered into in connection with the Transactions
and notes underwriting fee of $19.0 million. In addition, this adjustment reflects financing transaction related legal and advisory
expenses of $3.0 million. This adjustment is not reflected in the statement of operations since it is a nonrecurring charge resulting
directly from the Transaction. With respect to income taxes, this adjustment will change the amount of Nesco’s income tax
loss carryforwards; however, the tax effect of this adjustment has not been reflected as the associated deferred tax asset is
offset by a valuation allowance.
|
|
|
(6)
|
Reflects
the payment of fees and expenses related to the Transactions, including the deferred underwriting fee, legal, financial advisory,
accounting and other professional fees. The direct, incremental costs of the Transactions related to the legal, financial advisory,
accounting and other professional fees of up to approximately $5.2 million are reflected as an adjustment to accumulated deficit
and is not shown as an adjustment to the statement of operations since it is a nonrecurring charge resulting directly from the
Transactions. With respect to income taxes, this adjustment will change the amount of Nesco’s income tax loss carryforwards;
however, the tax effect of this adjustment has not been reflected as the associated deferred tax asset is offset by a valuation
allowance.
|
|
|
(7)
|
In
connection with the redemption of Capitol shares, approximately $265.8 million would be paid out in cash. The redeemable Capitol
shares which are transferred to permanent equity but are not redeemed will automatically convert into common stock in the Transaction.
|
|
|
(8)
|
Reflects
the conversion of promissory notes due to related parties into warrants.
|
|
|
(9)
|
Reflects
recapitalization of Nesco through (a) the contribution of all the share capital in Nesco to Capitol, (b) the issuance of the
merger consideration of 21,660,638 shares of common stock, with an adjustment recorded to par value and additional paid in
capital, (c) the issuance of 5,500,000 shares of common stock to Nesco Owner, the Sponsors and certain directors of Capitol
and for $55.0 million or $10.00 per share, with an adjustment recorded to par value and additional paid in capital, and (d)
the elimination of the historical retained earnings of Capitol, the accounting acquiree.
|
|
|
(10)
|
Reflects
the conversion of 7,714,299 Class B ordinary shares into Class A ordinary shares, on a one-for-one basis, at the consummation
of the Transactions, with an adjustment recorded to par value and additional paid in capital. The Class A ordinary shares automatically
convert into common stock in the Transactions.
|
PRO
FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2019
(UNAUDITED)
(in
thousands, except share and per share data)
|
|
|
(A)
Nesco
|
|
|
(B)
Capitol
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Income Statement
|
|
|
Total revenue
|
|
$
|
61,492
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61,492
|
|
|
Cost of revenue
|
|
|
41,140
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,140
|
|
|
Gross profit
|
|
|
20,352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,352
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction expenses
|
|
|
2,510
|
|
|
|
—
|
|
|
|
(2,510
|
)
(1)
|
|
|
—
|
|
|
Selling, general and administrative expenses
|
|
|
8,232
|
|
|
|
536
|
|
|
|
(50
|
)
(1)
|
|
|
8,718
|
|
|
Amortization expense
|
|
|
724
|
|
|
|
—
|
|
|
|
—
|
|
|
|
724
|
|
|
Non-rental depreciation
|
|
|
46
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46
|
|
|
Other operating expenses
|
|
|
150
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150
|
|
|
Total operating expenses
|
|
|
11,662
|
|
|
|
536
|
|
|
|
(2,560
|
)
|
|
|
9,638
|
|
|
Operating income (loss)
|
|
|
8,690
|
|
|
|
(536
|
)
|
|
|
2,560
|
|
|
|
10,714
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
—
|
|
|
|
2,275
|
|
|
|
(2,275
|
)
(2)
|
|
|
—
|
|
|
Unrealized gain on marketable securities
|
|
|
—
|
|
|
|
24
|
|
|
|
(24
|
)
(2)
|
|
|
—
|
|
|
Interest expense
|
|
|
(14,993
|
)
|
|
|
—
|
|
|
|
13,511
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,335
|
)
(4)
|
|
|
(13,817
|
)
|
|
Other
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
(Loss) income before income taxes
|
|
|
(6,290
|
)
|
|
|
1,763
|
|
|
|
1,437
|
|
|
|
(3,090
|
)
|
|
Provision for income taxes
|
|
|
434
|
|
|
|
—
|
|
|
|
—
|
(5)
|
|
|
434
|
|
|
Net (loss) income
|
|
$
|
(6,724
|
)
|
|
$
|
1,763
|
|
|
$
|
1,437
|
|
|
$
|
(3,524
|
)
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
|
|
|
|
11,909,851
|
|
|
|
37,124,052
|
(6)
|
|
|
49,033,903
|
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
$
|
(0.07
|
)
|
PRO
FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2018
(UNAUDITED)
(in
thousands, except share and per share data)
|
|
|
(C)
Nesco
|
|
|
(D)
Capitol
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Income Statement
|
|
|
Total revenue
|
|
$
|
246,297
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
246,297
|
|
|
Cost of revenue
|
|
|
164,679
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164,679
|
|
|
Gross profit
|
|
|
81,618
|
|
|
|
—
|
|
|
|
—
|
|
|
|
81,618
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction expenses
|
|
|
440
|
|
|
|
—
|
|
|
|
—
|
|
|
|
440
|
|
|
Selling, general and administrative expenses
|
|
|
34,959
|
|
|
|
1,554
|
|
|
|
—
|
|
|
|
36,513
|
|
|
Amortization expense
|
|
|
2,826
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,826
|
|
|
Non-rental depreciation
|
|
|
219
|
|
|
|
—
|
|
|
|
—
|
|
|
|
219
|
|
|
Other operating expenses
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
Total operating expenses
|
|
|
38,454
|
|
|
|
1,554
|
|
|
|
—
|
|
|
|
40,008
|
|
|
Operating income (loss)
|
|
|
43,164
|
|
|
|
(1,554
|
)
|
|
|
—
|
|
|
|
41,610
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
—
|
|
|
|
6,684
|
|
|
|
(6,684
|
)(2)
|
|
|
—
|
|
|
Unrealized gain on marketable securities
|
|
|
—
|
|
|
|
43
|
|
|
|
(43
|
)(2)
|
|
|
—
|
|
|
Interest expense
|
|
|
(56,698
|
)
|
|
|
—
|
|
|
|
47,600
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,340
|
)(4)
|
|
|
(58,438
|
)
|
|
Other
|
|
|
(287
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(287
|
)
|
|
(Loss) income before income taxes
|
|
|
(13,821
|
)
|
|
|
5,173
|
|
|
|
(8,467
|
)
|
|
|
(17,115
|
)
|
|
Provision for income taxes
|
|
|
1,705
|
|
|
|
—
|
|
|
|
|
(5)
|
|
|
1,705
|
|
|
Net (loss) income
|
|
$
|
(15,526
|
)
|
|
$
|
5,173
|
|
|
$
|
(8,467
|
)
|
|
$
|
(18,820
|
)
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
|
|
|
|
11,932,714
|
|
|
|
37,101,189
|
(6)
|
|
|
49,033,903
|
|
|
Basic and diluted net income (loss) per share
|
|
|
|
|
|
$
|
0.02
|
|
|
|
|
|
|
$
|
(0.38
|
)
|
Pro
Forma Adjustments to the Unaudited Combined Statements of Operations
(in thousands, except share data)
|
|
(A)
|
Derived
from the unaudited consolidated statement of operations of Nesco for the three months ended March 31, 2019.
|
|
|
(B)
|
Derived
from the unaudited consolidated statement of operations of Capitol for the three months ended March 31, 2019.
|
|
|
(C)
|
Derived
from the audited consolidated statement of operations of Nesco for the year ended December 31, 2018.
|
|
|
(D)
|
Derived
from the audited statement of operations of Capitol for the year ended December 31, 2018.
|
|
|
(1)
|
Represents
an adjustment to eliminate direct, incremental costs of the Transactions which are reflected in the historical consolidated financial
statements of Nesco and Capitol in the amount of $2,510 and $50, respectively, for the three months ended March 31, 2019. There
were no such amounts recorded for the year ended December 31, 2018.
|
|
|
(2)
|
Represents
an adjustment to eliminate interest income and unrealized gain on marketable securities held in the trust account as of the beginning
of the period.
|
|
|
(3)
|
Represents
an adjustment to eliminate interest expense on the Existing Nesco ABL Facility, Existing Nesco Tranche B Revolving Credit Facility
and Existing Nesco Notes as of the beginning of the period, as these will be repaid upon consummation of the Transactions.
|
|
|
(4)
|
Represents
an adjustment to record interest expense on the debt financing from the ABL Facility and the notes offered hereby. Based on an
assumed weighted average interest rate of 8.0%. A 0.25% increase (decrease) in the assumed rate would have increased (decreased)
interest expense by $1.5 million.
|
|
|
(5)
|
To
record the tax effect of the pro forma adjustments applied at Nesco’s blended federal and state income tax rate of 0% for
the three months ended March 31, 2019 and for the year ended December 31, 2018. Nesco has historically determined that it has
not been able to realize its deferred tax assets on a more likely than not basis and has recognized a valuation allowance against
those assets. The reduction in loss before income taxes from the pro forma adjustments reduces the historical net operating loss
recognized and the related valuation allowance on the combined entity’s deferred tax assets, resulting in an effective tax
rate of 0%.
|
|
|
(6)
|
The
calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that Capitol’s initial
public offering occurred as of January 1, 2018. In addition, as the Transactions are being reflected as if they had occurred on
this date, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares
have been outstanding for the entire period presented. This calculation is retroactively adjusted to eliminate the number of shares
redeemed in the Transactions for the entire period.
|
The following
presents the calculation of basic and diluted weighted average common shares outstanding. The computation of diluted loss per
share excludes the effect of warrants to purchase 19,950,000 shares of common stock because the inclusion of these securities
would be anti-dilutive.
|
Three Months Ended March 31, 2019 and Year Ended December 31, 2018
|
|
|
|
|
Weighted average shares calculation, basic and diluted
|
|
|
|
|
|
Capitol Public Shares
|
|
|
14,158,966
|
|
|
Capitol Sponsor shares
|
|
|
8,714,299
|
|
|
Capitol shares issued in Transactions
|
|
|
26,160,638
|
|
|
Weighted average shares outstanding
|
|
|
49,033,903
|
|
|
Percent of shares owned by Nesco Owner and Nesco management
|
|
|
53.4
|
%
|
|
Percent of shares owned by Capitol
|
|
|
46.6
|
%
|
8
Exhibit 99.4
Preliminary Results for the Three
Months and Six Months Ended June 30, 2019
The following includes
preliminary financial results of Nesco for the three months and six months ended June 30, 2019. Nesco has not finalized its financial
statements for the three and six months ended June 30, 2019 and, consequently, you should not place undue reliance on this preliminary
information. For the three months ended June 30, 2019, Nesco expects its revenue to be in the range of $62.5 million to $63.5 million,
net loss to be between $5.8 million to $4.8 million and Adjusted EBITDA to be between $30.0 million and $31.0 million. For the
six months ended June 30, 2019, Nesco expects its revenue to be in the range of $124.0 million to $125.0 million, net loss to be
between $12.5 million to $11.5 million, Adjusted EBITDA to be between $60.4 million and $61.4 million and Run-Rate Adjusted EBITDA
for the twelve-month period ended June 30, 2019, to be between $130.9 million and $132.1 million.
Nesco’s business
plan includes investment in new equipment units to grow its fleet and an expansion of its PTA segment by adding locations. In the
quarter ended June 30, 2019, Nesco accelerated several of the initiatives included in its business plan for 2019. This included
(1) accelerating its equipment purchase program, shifting capital expenditures planned for the second half of 2019 into the second
quarter of 2019, providing an opportunity to capture additional revenue and EBITDA from new units being added to the fleet sooner
than the base plan called for and (2) accelerating the roll-out of new PTA locations, providing an opportunity to capture additional
revenue and EBITDA sooner than in the plan. The investments under Nesco’s business plan and the acceleration of these initiatives
resulted in an increase in the borrowings under Nesco’s revolving credit facility (the “Existing Nesco ABL Facility”)
from $215.0 million as of March 31, 2019 to $243.0 million as of June 30, 2019.
Nesco has prepared an
adjustment to Adjusted EBITDA in order to reflect the full-year impact to Adjusted EBITDA of the additional capital expenditures
related to equipment added to the fleet during the twelve-month period ended June 30, 2019. This adjustment is calculated assuming
that the net units added to the fleet in the period had been part of the fleet from the first day of the period. The adjustment
is calculated by subtracting the average fleet count for the twelve-month period ended June 30, 2019 from the ending fleet count
as of June 30, 2019, and multiplying that number by the average rate per day for the period, multiplied by the average utilization
for the period, multiplied by 365 days in the period, and applying an 80.0% estimated Adjusted EBITDA margin on that incremental
revenue.
The following table reconciles (i) Nesco’s
estimated net income to its estimate of Adjusted EBITDA for the three and six months ended June 30, 2019, (ii) Nesco’s net
income to Adjusted EBITDA for the three and six months ended June 30, 2018 and (iii) Nesco’s estimated net income to
its estimate of Adjusted EBITDA for the twelve months ended June 30, 2019.
|
|
|
Three Months Ended June 30, 2019
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended
June 30, 2019
|
|
|
Six
Months
Ended
June 30,
|
|
|
Twelve Months Ended
June 30, 2019
|
|
|
(In millions)
|
|
Low
|
|
|
High
|
|
|
2018
|
|
|
Low
|
|
|
High
|
|
|
2018
|
|
|
Low
|
|
|
High
|
|
|
Net loss
|
|
$
|
(5.8
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
(5.4
|
)
|
|
$
|
(12.5
|
)
|
|
$
|
(11.5
|
)
|
|
$
|
(8.4
|
)
|
|
$
|
(19.6
|
)
|
|
$
|
(18.6
|
)
|
|
Interest expense
|
|
|
14.9
|
|
|
|
14.9
|
|
|
|
14.1
|
|
|
|
29.8
|
|
|
|
29.8
|
|
|
|
27.5
|
|
|
|
59.1
|
|
|
|
59.1
|
|
|
Income tax expense (benefit)
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
1.8
|
|
|
|
1.8
|
|
|
Depreciation expense
|
|
|
17.2
|
|
|
|
17.2
|
|
|
|
15.8
|
|
|
|
34.2
|
|
|
|
34.2
|
|
|
|
31.4
|
|
|
|
67.1
|
|
|
|
67.1
|
|
|
Amortization expense
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
2.9
|
|
|
|
2.9
|
|
|
EBITDA
|
|
|
27.4
|
|
|
|
28.4
|
|
|
|
25.7
|
|
|
|
53.8
|
|
|
|
54.8
|
|
|
|
52.6
|
|
|
|
111.3
|
|
|
|
112.3
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash purchase accounting impact
(a)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
1.0
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
1.8
|
|
|
|
2.5
|
|
|
|
2.5
|
|
|
Transaction and process improvement costs
(b)
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
1.1
|
|
|
|
4.5
|
|
|
|
4.5
|
|
|
|
1.5
|
|
|
|
5.6
|
|
|
|
5.6
|
|
|
Major repairs
(c)
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
0.8
|
|
|
|
1.8
|
|
|
|
1.8
|
|
|
Share-based payments
(d)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
Other non-recurring items
(e)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
|
|
0.3
|
|
|
|
2.6
|
|
|
|
2.6
|
|
|
Adjusted EBITDA
|
|
$
|
30.0
|
|
|
$
|
31.0
|
|
|
$
|
28.4
|
|
|
$
|
60.4
|
|
|
$
|
61.4
|
|
|
$
|
57.6
|
|
|
$
|
124.5
|
|
|
$
|
125.5
|
|
|
(a)
|
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 the credit agreement governing the Existing Nesco ABL Facility and
the indenture governing the senior secured second lien notes (“Existing Nesco Notes”).
|
|
(b)
|
For the three and six months ended June 30, 2019, represents
transaction costs related to Nesco’s agreement and plan of merger with Capitol. For the twelve months ended December 31,
2018, represents transaction costs related to amendments of credit facilities and expenses incurred related to internal process
improvements, realignments and transaction costs related to the N&L Line Equipment and Bethea Tool and Equipment acquisitions.
Pursuant to the credit agreement governing the Existing Nesco ABL Facility and the indenture governing the Existing Nesco Notes,
expenses incurred in connection with acquisitions, are amounts to be included in the calculation of Adjusted EBITDA.
|
|
(c)
|
Represents the undepreciated cost of replaced chassis components
from heavy maintenance, repair and overhaul activities associated with our fleet, which is an adjustment pursuant to the credit
agreement governing the Existing Nesco ABL Facility and the indenture governing the Existing Nesco Notes.
|
|
(d)
|
Represents non-cash stock compensation expense associated
with the issuance of the Class B Profits Interest Awards by NESCO Holdings, LP on February 26, 2014, which is an adjustment pursuant
to the credit agreement governing the Existing Nesco ABL Facility and the indenture governing the Existing Nesco Notes. See Note
11, Share-Based Compensation Plans, to Nesco’s audited consolidated financial statements for additional information.
|
|
(e)
|
For the six months ended June 30, 2019 and 2018 and the
twelve months ended June 30, 2019, represents other adjustments pursuant to the credit agreement governing the Existing Nesco
ABL Facility and the indenture governing the Existing Nesco Notes. For the year ended December 31, 2018, this adjustment includes
rental expense incurred in 2018 for fleet equipment that had been rented under the terms of an operating lease that was terminated
in October 2018.
|
The following table
presents the adjustments to Nesco’s estimated Adjusted EBITDA for the twelve months ended June 30, 2019 to derive Run-Rate
Adjusted EBITDA for the twelve months ended June 30, 2019.
|
|
|
For the Twelve Months Ended
June 30, 2019
|
|
|
(In millions, except units, per day amounts, utilization days and Adjusted EBITDA margin)
|
|
Low
|
|
|
High
|
|
|
Ending units (A)
|
|
|
4,257
|
|
|
|
4,257
|
|
|
Average units (B)
|
|
|
4,054
|
|
|
|
4,054
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate per day (C)
|
|
$
|
138
|
|
|
$
|
140
|
|
|
Utilization (D)
|
|
|
79.5
|
%
|
|
|
80.5
|
%
|
|
Days (E)
|
|
|
365
|
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
Run-rate revenue adjustment (A – B) x C x D x E
|
|
$
|
8.1
|
|
|
$
|
8.3
|
|
|
Adjusted EBITDA margin on incremental revenue
|
|
|
80.0
|
%
|
|
|
80.0
|
%
|
|
Run-rate EBITDA adjustment
|
|
$
|
6.5
|
|
|
$
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
124.5
|
|
|
$
|
125.5
|
|
|
Plus: Run-rate EBITDA adjustment
|
|
|
6.5
|
|
|
|
6.6
|
|
|
Run-Rate Adjusted EBITDA
|
|
$
|
130.9
|
|
|
$
|
132.1
|
|
Estimates of results
are inherently uncertain and subject to change, and Nesco undertakes no obligation to update this information. Nesco’s estimates
may differ from actual results. Actual results remain subject to the completion of management’s and the audit committee’s
final review, as well as the quarterly review by Nesco’s independent registered public accounting firm. In light of the foregoing,
you are cautioned not to place undue reliance on the estimates. The estimates set forth above were prepared by Nesco’s management
and are based upon a number of assumptions.
The preliminary financial
data has been prepared by, and is the responsibility of, management. Neither Deloitte & Touche LLP nor Marcum LLP, Nesco’s
and Capitol’s auditors, respectively, has audited, reviewed, compiled or performed any procedures with respect to the accompanying
preliminary financial data. Accordingly, neither Deloitte & Touche LLP nor Marcum LLP expresses an opinion or any other form
of assurance with respect thereto.