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Nesco Holdings I, Inc. Reports First Quarter 2019 Financial Results and Reaffirms 2019 Outlook

05/13/2019

FORT WAYNE, INDIANA, May 13, 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 endmarkets, today reported Nesco’s financial results for the quarter ended March 31, 2019.

As announced previously, Nesco and Capitol have entered into a definitive agreement in which Nesco will become a publicly listed company. The transaction is expected to close in the second quarter of 2019. For additional information on the transaction, see Capitol’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission (“SEC”) on April 11, 2019, including any amendments thereto (as amended, the “Registration Statement”), which is available on the SEC’s website at www.sec.gov, or Capitol’s website at www.capinvestment.com.

First Quarter 2019 Financial Highlights

  • Revenue of $61.5 million (+6.6% from first quarter of 2018)
  • Adjusted EBITDA of $30.4 million (+4.3% from first quarter of 2018)
  • Full year 2019 revenue and Adjusted EBITDA outlook reaffirmed

Review of First Quarter 2019 Results
Lee Jacobson, Nesco’s CEO, remarked: “Nesco is off to a great start in 2019 and I’m very pleased with our first quarter results which reflected continued robust growth in demand across all our end markets. We look forward to completing our merger with Capitol which will allow us to enter into the next phase of Nesco’s growth story by investing in our fleet to meet the demand we have been unable to serve in recent years and continue our strong trajectory as our end markets continue to grow. We have secured hard commitments from our leading suppliers in accordance with our growth plan and fully expect to realize deliveries to meet that plan. We are also progressing in-line with our plan to establish a parts, tools and accessories presence across the country by 2020
and opened two new facilities in April.”

Total revenue in the first quarter was $61.5 million, an increase of $3.8 million or 6.6% from the first quarter of 2018. The increase was driven by growth of $2.1 million in the Equipment Rental and Sales segment and growth of $1.7 million in the Parts, Tools and Accessories segment.

Equipment Rental and Sales segment total revenue grew 4.3% to $52.1 million for the quarter from $50.0 million for the same period in 2018. This growth was primarily due to an increase in used equipment sales and market share gains in telecom and rail. The prior year’s revenue included a net benefit of $1.3 million of equipment rental revenue related to power restoration work in Puerto Rico.

Parts, Tools and Accessories (“PTA”) segment revenue grew 21.9% to $9.4 million for the quarter from $7.7 million for the same period in 2018. The increase was due to the acquisition of N&L Equipment, which was completed in July 2018, and expanding demand for PTA products among Nesco’s customer base. The strategic acquisition of N&L added a new location and rounded out Nesco’s PTA offering for a complete product suite including insulated and non-insulated tools as well as test and repair services.

Total fleet count in the quarter averaged 4,075 compared to 3,879 in the first quarter of 2018, representing a growth rate of 5.1%. Capital expenditures in the quarter were predominately in the bucket and truck categories, driven by high demand in the transmission and distribution, telecom and rail end-markets. The company recorded an average rental rate per day of $137 and fleet utilization of 80.0% for the quarter. Equipment on rent increased to $453.6 million for the quarter from $445.9 million in 2018 due primarily to increased fleet size.

Adjusted EBITDA, a non-GAAP financial measure, for the three months ended March 31, 2019 grew 4.3% to $30.4 million from $29.2 million in the same period in 2018. A reconciliation between Adjusted EBITDA and GAAP net income is included in the accompanying financial data.

Non-Binding Letter of Intent
On May 13, 2019, Nesco entered into a non-binding letter of intent with a potential acquisition target in the equipment rental business. The purchase price is approximately $42 million, implying an approximately 5x multiple of reported Adjusted EBITDA prior to synergies and the full year impact of recent fleet additions. The acquisition remains subject to further diligence, negotiation of definitive agreements and satisfaction of the conditions negotiated therein. Accordingly, there can be no assurance that the potential acquisition will be concluded. Investors are further cautioned that those portions of the letter of intent that describe the proposed transaction, including the consideration to be issued therein, are non-binding and subject to change. If a definitive agreement is signed, the acquisition would not be expected to close until after consummation of the merger between Nesco and Capitol.

New President of Nesco
On May 13, 2019, Nesco entered into an employment agreement pursuant to which Robert Blackadar will serve as President. He will join Nesco on May 20, 2019. Mr. Blackadar brings 25 years of experience in the rental and equipment industry and demonstrated success in driving strong financial and operating results in senior leadership roles across sales and operations. He joins Nesco from Blueline Rental, where he served as Senior Vice President and Division Vice President with responsibility for company-wide operations across the U.S., Canada and Puerto Rico, including fleet management, service, equipment sales and safety. Mr. Blackadar also held responsibility for the financial results of Blueline’s Eastern division, which represented half of the company’s business. As one of the senior leaders of Blueline, he led major growth initiatives and operational improvements across the company’s nationwide network, driving a turnaround in the business and supporting the ultimate sale of the company to United Rentals. Prior to joining Blueline, Mr. Blackadar held a range of leadership and sales roles with United Rentals, Herc Rentals and Ritchie Bros. Auctioneers.

Reaffirmation of 2019 Outlook
Nesco management reaffirms its outlook on revenue and Adjusted EBITDA for the full-year 2019 as set forth in the investor presentation related to the merger with Capitol Investment Corp. IV, filed on April 8, 2019. This guidance is subject to the risks and uncertainties described in the “Forward Looking Statements” below.

Additional Information and Where to Find It
Capitol has filed a preliminary proxy statement/prospectus and other relevant documents with the SEC to be used at its annual meeting of stockholders to approve the proposed transaction with Nesco. The proxy statement will be mailed to stockholders as of a record date to be established for voting on the proposed business combination. INVESTORS AND SECURITY HOLDERS OF CAPITOL AND NESCO ARE URGED TO READ THE REGISTRATION STATEMENT AND OTHER RELEVANT DOCUMENTS THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain free copies of the proxy statement/prospectus and other documents containing important information about Capitol and Nesco through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Capitol and/or Nesco when and if available, can be obtained free of charge on Capitol’s website at www.capinvestment.com or by directing a written request to Capital Investment Corp. IV, 1300 N 17th Street, Suite 820, Arlington VA 22209 or by emailing info@capinvestment.com.

Participants in the Solicitation
Capitol and Nesco and their respective directors and executive officers, under SEC rules, may be deemed to be participants in the solicitation of proxies of Capitol’s stockholders in connection with the proposed business combination. Investors and security holders may obtain more detailed information regarding the names and interests in the proposed transaction of Capitol’s directors and officers in Capitol’s filings with the SEC, including Capitol’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was filed with the SEC on March 4, 2019. Information regarding the persons who may, under SEC rules, be deemed participants in the solicitation of proxies to Capitol’s shareholders in connection with the proposed business combination is set forth in the Registration Statement. Additional information regarding the interests of participants in the solicitation of proxies in connection with the proposed business combination is also included in the Registration Statement.

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 approximately 4,000 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 meaming 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 the forward-looking 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; 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 any 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 receive required security holder approvals, or the failure of other 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.

NESCO Holdings I, Inc. and Subsidiaries


Consolidated Balance Sheets (unaudited)





(in thousands, except share data)

March 31, 2019


December 31,
2018

Assets




Current Assets




Cash

$

3,781


$

2,140

Accounts receivable, net of allowance of $1,533 and $7,562

50,768


52,559

Inventory

14,264


11,435

Prepaid expenses and other

5,993


2,483

Total current assets

74,806


68,617

Property and equipment, net

4,151


2,763

Rental equipment, net

321,747


320,722

Other Assets




Goodwill

228,714


228,714

Other intangible assets, net

70,016


70,740

Total other assets

298,730


299,454

Total Assets

$

699,434


$

691,556

Liabilities and Stockholder's Deficit




Current Liabilities




Accounts payable

$

41,321


$

20,867

Accrued expenses

7,564


6,359

Accrued interest expense

4,682


14,024

Deferred rent income

1,325


4,762

Current portion of capital lease obligations

5,025


4,866

Current maturities of long-term debt

2,532


2,531

Total current liabilities

62,449


53,409

  Long term debt, net

763,386


756,872

  Capital leases

27,093


28,418

  Deferred tax liabilities

11,350


11,191

  Other liabilities

420


422

Total long term liabilities

802,249


796,903

Commitments and contingencies


Stockholder's Deficit




Common stock - $0.01 par value, 1,000 shares authorized, 100 shares issued and outstanding, at March 31, 2019 and December 31, 2018


Additional paid-in capital

259,428


259,300

Accumulated deficit

(424,384)


(417,660)

Accumulated other comprehensive loss

(308)


(396)

Total stockholder's deficit

(165,264)


(158,756)

Total Liabilities and Stockholder's Deficit

$

699,434


$

691,556

NESCO Holdings I, Inc. and Subsidiaries


Consolidated Statements of Operations (unaudited)



Three Months Ended

(in thousands, except share and per share data)

March 31, 2019


March 31, 2018

Revenue




Rental revenue

$

44,902


$

44,534

Equipment sales

9,749


7,375

Parts sales and services

6,841


5,776

Total revenue

61,492


57,685

Cost of Revenue




Cost of rental revenue, excluding depreciation

10,838


11,525

Depreciation of rental equipment

16,950


15,588

Cost of equipment sales

7,740


6,359

Cost of parts sales and services

4,850


3,674

Major repair disposal

762


422

Total cost of revenue

41,140


37,568

Gross Profit

20,352


20,117

Operating Expenses




Transaction expenses

2,510


Selling, general, and administrative expenses

8,232


8,473

Amortization expense

724


638

Non-rental depreciation

46


51

Other operating expenses

150


28

Total operating expenses

11,662


9,190

Operating Income

8,690


10,927

Other Expense (Income)




Interest expense, net

14,993


13,384

Other (income) expense, net

(13)


316

Total other expenses

14,980


13,700

Loss Before Income Taxes

(6,290)


(2,773)

Income Tax Expense

434


261

Net Loss

$

(6,724)


$

(3,034)

Loss per share:




    Basic and diluted

$

(67,240.00)


$

(30,340.00)

Weighted-average common shares outstanding:




    Basic and diluted

100


100

NESCO Holdings I, Inc. and Subsidiaries


Consolidated Statements of Cash Flows (unaudited)



Three Months Ended

(in thousands)

March 31, 2019


March 31, 2018

Operating Activities




Net loss

$

(6,724)


$

(3,034)

Adjustments to reconcile net loss to net cash from operating activities:




Depreciation

16,996


15,639

Amortization - intangibles

724


638

Amortization - financing costs

677


851

Provision for losses on accounts receivable

692


892

Share-based payments

128


290

Gain on sale of equipment - rental fleet

(1,977)


(2,774)

Gain on insurance proceeds - damaged equipment

(452)


Major repair disposal

762


422

Deferred tax benefit

271


128

Changes in assets and liabilities:




Accounts receivable

1,823


(2,994)

Inventory

(4,299)


(2,297)

Prepaid expenses and other

(3,413)


3

Accounts payable

10,297


560

Accrued expenses and other liabilities

(8,163)


(11,291)

Deferred rental income

(3,437)


262

Net cash flow from operating activities

3,905


(2,705)





Investing Activities




Purchase of equipment - rental fleet

(13,704)


(7,755)

Proceeds from sale of equipment - rental fleet

7,628


10,940

Insurance proceeds from damaged equipment

797


Purchase of other property and equipment

(1,656)


(2,129)

Net cash flow from investing activities

(6,935)


1,056





Financing Activities




Borrowings under revolving credit facilities

15,000


16,000

Repayments under revolving credit facilities

(9,000)


(13,000)

Repayments of notes payable

(183)


(1,029)

Capital lease payments

(1,166)


(1,028)

Finance fees paid

20


(70)

Net cash flow from financing activities

4,671


873

Net Increase (Decrease) in Cash

1,641


(776)

Cash at Beginning of Period

2,140


960

Cash at End of Period

$

3,781


$

184





Supplemental Cash Flow Information




Cash paid for interest

$

23,570


$

21,780

Cash paid for income taxes

136


116

Non-Cash Investing Activities




Rental equipment transfers from parts inventory

1,470


1,083

Rental equipment purchases in accounts payable

20,868


6,404

Rental equipment sales in accounts receivable

3,050


809

Insurance recoveries accrued in accounts receivable

424


Capital leases


6,413

Reconciliation of Net Loss to Adjusted EBITDA




Three Months Ended
March 31,

(in thousands)


2019


2018

Net loss


 

$

(6,724)


 

$

(3,034)

Interest expense


 

14,993


 

13,384

Income tax expense (benefit)


 

434


 

261

Depreciation expense


 

16,996


 

15,639

Amortization expense


 

724


 

638

EBITDA


 

26,423


 

26,888

Adjustments:





Non cash purchase accounting impact


 

611


 

832

Transaction and process improvement costs


 

2,510


 

443

Major repairs


 

762


 

422

Share-based payments


 

128


 

290

Other non recurring items


 


 

300

Adjusted EBITDA


 

$

30,434


 

$

29,175






Key Fleet Metrics



Three Months Ended
March 31,


2019


2018

Fleet count:





Year to date average

4,075



3,879


Fleet utilization:






Year to date average

80.0

%


82.1

%

Equipment on rent (in thousands):






Year to date average

$

453,646



$

445,878


Rental rate per day:






Year to date average

$

137



$

139










Segment Revenue



Three Months Ended

March 31,

(in thousands)

2019


2018

Equipment Rental and Sales




     Rental

$

41,653


$

41,705

     Sales and services

10,489


8,309


52,142


50,014

Parts, Tools and Accessories




     Rental

3,249


2,829

     Sales and services

6,101


4,842


9,350


7,671

Total Revenues

$

61,492


$

57,685

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 we use to monitor our results from operations and to measure our performance against our debt covenants. This common metric is intended to align Nesco’s shareholder, debt holders, and management.

The presentation of these financial measures enhances an investor’s understanding of our financial performance because these measures are useful financial metrics to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business. Such items are excluded pursuant to the definition of Adjusted EBITDA in our 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 our ability to generate cash from operations sufficient to pay taxes, to service debt and to undertake capital expenditures. We use these financial measures for business planning purposes, for loan compliance purposes, and in measuring our performance relative to that of our competitors.

In analyzing and planning for our business, we supplement our use of financial measures based on U.S. GAAP with non-GAAP financial and other measures, as well as, use measures related to our specialized fleet of rental equipment, which are defined below. 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. Our non-GAAP financial measures should not be relied upon to the exclusion of U.S. GAAP financial measures. We encourage investors to review our non-GAAP financial measures together with our U.S. GAAP results and historical consolidated financial statements, and not in isolation. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by other companies.

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

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, (4) share-based payments, and (5) other non-recurring items. These metrics are subject to certain limitations.

Fleet count represents the average equipment units held in our rental fleet over any period.

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

Equipment on rent is the original equipment cost (“OEC”) of units rented to customers at a given point in time.

Average equipment on rent is calculated as the weighted average equipment on rent during the stated period. OEC represents the original equipment cost by fleet type over a period of time, exclusive of the effect of adjustments to rental equipment fleet acquired in business combinations. This adjusted measure of OEC is used by our creditors pursuant to our credit agreements, wherein this is a component of the basis for determining compliance with our financial loan covenants. Additionally, the pricing of our rental contracts and equipment sales prices for our equipment is based off of OEC, and we measure a rate of return from our rentals and sales using OEC. OEC is a widely-used industry metric to compare fleet dollar value independent of depreciation.

Rental rate per day for the period is calculated as total rental revenue divided by the total billed rental days.

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