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

ORGANIZATION


On July 31, 2019, NESCO Holdings I, Inc. and NESCO Holdings, LP consummated the
previously announced business combination pursuant to that certain Agreement and
Plan of Merger, dated as of April 7, 2019, which was amended on July 10, 2019
(as amended, the "Merger Agreement") by and among Capitol Investment Corp. IV
("Capitol"), Capitol Intermediate Holdings, LLC, a Delaware limited liability
company and wholly-owned subsidiary of Capitol ("Intermediate Holdings"),
Capitol Investment Merger Sub 1, LLC, a Delaware limited liability company and
wholly-owned subsidiary of Capitol ("Merger Sub"), Capitol Investment Merger Sub
2, LLC, a Delaware limited liability company and wholly-owned subsidiary of
Capitol Investment Corp. IV ("New HoldCo"). Pursuant to the Merger Agreement,
(i) Capitol domesticated as a Delaware corporation and was renamed "Nesco
Holdings, Inc." (the "Domestication"), (ii) Merger Sub merged with and into
Holdings I, with Holdings I surviving as a wholly-owned subsidiary of Capitol
(the "Initial Merger"), and (iii) immediately after the Initial Merger, Holdings
I merged with and into New HoldCo, with New HoldCo surviving as an indirect
wholly-owned subsidiary of Capitol (the "Subsequent Merger," and together with
the Initial Merger, the "Mergers," and together with the Domestication and the
other transactions contemplated by the Merger Agreement, the "Transactions"). As
a result of the Transactions, Holdings I became a limited liability company and
a wholly-owned subsidiary of Capitol, with Nesco Owner becoming a securityholder
of Capitol. Upon the closing, Capitol's common stock, warrants and units ceased
trading, and upon the opening of trading on August 1, 2019, common stock and
warrants began trading on the NYSE, respectively, under the symbols "NSCO" and
"NSCO WS," respectively.
For information related to our business operations, see the description of our
business set forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 2019 filed with the SEC on March 16, 2020.
COVID-19
On March 11, 2020, the World Health Organization ("the WHO") declared the rapid
spread of the Coronavirus Disease 2019 ("COVID-19") a global health pandemic.
Beginning in March, governmental authorities began imposing restrictions on
non-essential activities as part of social distancing measures. These measures
have adversely affected the global and North American economies. The end markets
Nesco operates in have been identified by the United States Cybersecurity and
Infrastructure Security Agency ("CISA") as a critical markets that should
continue operating throughout the pandemic, appropriately modified to adhere to
the U.S. Centers for Disease Control workforce and customer protection guidance.
There are many uncertainties regarding the pandemic, and we are closely
monitoring the impact of the pandemic on all aspects of our business, including
how it will impact our customers, employees, suppliers, vendors, business
partners and distribution channels. While we are unable to predict the impact
that COVID-19 will have on our financial position and operating results due to
numerous uncertainties, we have undertaken efforts intended to maintain the
health and safety of our employees and their families and to ensure the
Company's continued financial and operational viability, especially in relation
to our position as a supplier to those critical industries identified in the
Memorandum noted above.
While Nesco's business is considered critical, we are unable to predict the
impact that COVID-19 will have on our financial position and operating results
due to numerous uncertainties. Some of our customers are delaying projects,
deferring capital equipment purchases and eliminating in-person sales meetings.
As a result, our business has been and will continue to be adversely impacted by
the pandemic.  Since the pandemic began, management has been very focused on
mitigating the effects to the business. Specific actions we have taken include a
reduction in planned capital expenditures and investments in inventory for the
year in addition to reductions in headcount and other selling, general and
administrative expenses. We are continually monitoring the situation and will
take additional measures we believe are appropriate as the situation continues
to develop.

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In our ERS segment, some of our end-user customers are delaying projects,
deferring capital equipment purchases, and/or eliminating in-person sales
meetings.  In additional, trade shows, industry conventions, and product
demonstrations have been canceled and are continuing to be canceled.  As a
result, our selling activities and our ability to convert those activities into
actual sales have been and will continue to be adversely impacted by the
pandemic.  In our PTA segment, distribution projects are often in population
centers and several municipalities have elected to postpone non-emergency
distribution repair projects to limit contact with the general public.  While
several PTA projects have been postponed while current social distancing
measures are in effect, we are not aware of any projects that have been
canceled. In addition, management is focused on mitigating the effects of the
COVID-19 pandemic, which has required and will continue to require a large
investment of time, energy, resources, and focus.

FINANCIAL OVERVIEW
We use a variety of operational and financial metrics, including non-GAAP
financial measures, such as Adjusted EBITDA, to enable us to analyze our
performance and financial condition. We utilize these financial measures to
manage our business on a day-to-day basis and believe that they are the most
relevant measures of performance. Some of these measures are commonly used in
our industry to evaluate performance. We believe these non-GAAP measures provide
expanded insight to assess performance, in addition to the standard GAAP-based
financial measures. There are no specific rules or regulations for determining
non-GAAP measures, and as such, our non-GAAP financial measures may not be
comparable to measures used by other companies within the industry.
The presentation of non-GAAP financial information should not be considered in
isolation or as a substitute for, or superior to, the financial information
prepared and presented in accordance with GAAP. You should read this discussion
and analysis of our results of operations and financial condition together with
the consolidated financial statements and the related notes thereto also
included within.
Measures Related to our Fleet
We consider the following key operational measures when evaluating our
performance and making day-to-day operating decisions:
Equipment on rent - Equipment on rent is the original equipment cost ("OEC") of
units rented to customers at a given point in time. Average equipment on rent is
calculated as the weighted-average equipment on rent during the stated period.
OEC represents the original equipment cost by fleet type over a period of time,
exclusive of the effect of adjustments to rental equipment fleet acquired in
business combinations. This adjusted measure of OEC is used by our creditors
pursuant to our credit agreements, wherein this is a component of the basis for
determining compliance with our financial loan covenants. Additionally, the
pricing of our rental contracts and equipment sales prices for our equipment is
based upon OEC, and we measure a rate of return from our rentals and sales using
OEC. OEC is a widely used industry metric to compare fleet dollar value
independent of depreciation.
Fleet count - Fleet count represents the average or period end (defined as
either) equipment units held in our rental fleet over any period.
Fleet utilization - Fleet utilization, with respect to the average equipment
units held in our rental fleet over any period, is defined as the total number
of days the rental equipment was rented during the period divided by the total
number of days such rental equipment could have been rented during the same
period, assuming that each piece of equipment could have been rented every day
in the period (i.e. no maintenance or planned downtime is included in the
calculation).
Rental rate per day - Rental rate per day for the period is calculated as total
rental revenue excluding freight and billings to customers for damaged equipment
divided by the total billed rental days.
Fleet age - Fleet age represents the number of years from the manufacturer
chassis year of the rental equipment unit through the current year end. We
evaluate fleet age for each equipment type and our fleet as a whole. In order to
calculate average fleet age by type and average total fleet age, we weight the
fleet age by the number of units within the relevant group.
Gross Profit, Income from Operations and Cash Flow from Operations
Gross profit, income from operations and cash flow from operations are financial
performance measures that we use to monitor our results from operations and to
measure our performance against our debt covenants.
Adjusted EBITDA
Adjusted EBITDA is also a financial performance measure that we use to monitor
our results from operations, to measure our performance against our debt
covenants and in measuring our performance relative to that of our competitors.

                                       19
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We believe the presentation of Adjusted EBITDA enhances an investor's
understanding of our financial performance because it is a useful financial
metric to assess our operating performance from period to period by excluding
certain items that we believe are not representative of our core business. Such
items are excluded pursuant to the definition of Adjusted EBITDA in the 2019
Credit Facility and the Indenture, Adjusted EBITDA is the basis for several
financial loan covenants contained in the 2019 Credit Facility. We believe that
Adjusted EBITDA provides investors with a useful tool for assessing the
comparability between periods of our ability to generate cash from operations
sufficient to pay taxes, service debt and undertake capital expenditures. We use
these financial measures for business planning purposes, for loan compliance
purposes, and in measuring our performance relative to that of our competitors.
Nesco's use of the terms EBITDA and Adjusted EBITDA may vary from that of others
in its industry and therefore are limited in their usefulness as comparative
measures. These financial measures should not be considered as alternatives to
net income (loss), operating income (loss) or any other performance measures
derived in accordance with GAAP as measures of operating performance, operating
cash flows or as measures of liquidity. Non-GAAP financial measures should not
be relied upon to the exclusion of U.S. GAAP financial measures. We encourage
investors to review our non-GAAP financial measures together with our U.S. GAAP
results and historical consolidated financial statements, and not in isolation.
Other companies may use similarly titled non-GAAP financial measures that are
calculated differently from the way we calculate such measures. Accordingly, our
non-GAAP financial measures may not be comparable to similar measures used by
other companies.
Adjusted EBITDA includes an adjustment to exclude the effects of purchase
accounting adjustments when calculating the cost of used equipment sold. When
equipment is purchased in connection with a business combination, the equipment
is revalued to its then current fair value for accounting purposes. The
consideration transferred (i.e., the purchase price) in a business combination
is allocated to the fair value of equipment as of the acquisition date, with
depreciation recorded thereafter following our accounting policies; however,
this may not be indicative of our actual cost to acquire new equipment that we
add to our fleet apart from a business acquisition. Additionally, the pricing of
our rental contracts and equipment sales prices for our equipment is based upon
OEC, and we measure a rate of return from our rentals and sales using OEC. As
indicated above, the agreements governing our indebtedness define this
adjustment to EBITDA, as such, and we believe this metric is a better indication
of our true cost of equipment sales due to the removal of the purchase
accounting adjustments.

Consolidated Operating Results Three Months Ended March 31, 2020 and 2019


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


Total Revenue
Total revenue for the three months ended March 31, 2020, increased by $20.3
million, or 32.9%, compared to the same period in 2019. Rental revenue increased
$5.4 million, or 11.7%, compared to the same period in 2019. This increase is
primarily a result of an increase in average equipment on rent, which grew 10.2%
to $499.8 million in the first quarter 2020, compared to $453.6 million in the
same quarter of 2019. Sales of rental equipment, which can vary from quarter to
quarter, increased $1.7 million, or 22.9%, and sales of new

                                       20
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equipment increased $5.2 million, or 222.4%, compared to the same period in
2019. Parts sales and service revenue increased $8.0 million, or 130.8%,
compared to the same period in 2019 as a result of investments to expand our
Parts, Tools and Accessories segment. The Truck Utilities acquisition completed
in November 2019 contributed $12.5 million to total revenue.
Total Cost of Revenue
Total cost of revenue, excluding depreciation of $20.1 million, for the three
months ended March 31, 2020, increased by $15.8 million, or 64.8%, compared to
the same period in 2019 ($19.2 million, or 46.7%, including depreciation). The
increase is primarily due to a 71.0% increase in equipment sales, with $6.6
million of costs related to those sales. Additionally, the 130.8% increase in
parts sales and service revenue resulted in a $6.5 million increase of costs
related those sales.
Operating Expenses
Operating expenses for the three months ended March 31, 2020 increased $2.9
million, or 25.3%, compared to the same period in 2019. The increase is
primarily due to an increase in selling, general and administrative expenses of
$4.0 million. Selling, general and administrative expenses increased due to the
combination of the acquisition of Truck Utilities; growth in personnel expenses
necessary as a new public company in addition to other public company costs; and
increased commissions as a result of higher revenue. Offsetting this increase is
a reduction in transaction expenses of $1.8 million, which were directly related
to the Transactions with Capitol in 2019.
Other Expense
Other expense for the three months ended March 31, 2020 increased $7.1 million,
or 47.1%, compared to the same period in 2019. This is primarily a result of a
change in fair value of an interest rate collar, which is an undesignated
hedging instrument. The resulting expense in the current quarter related to the
collar was approximately $6.0 million. In addition, net interest expense
increased by $1.0 million due to the Senior Secured Notes that were issued in a
private placement in the second half of 2019, as well as the amortization of
associated deferred financing costs.
Income Tax Expense
Income tax expense was $0.7 million for the three months ended March 31, 2020.
Due to our valuation allowance on our net operating loss and interest deduction
limitation carryforwards, we have not recognized a deferred tax benefit when we
report pretax losses because we have determined the realization of tax benefits
for the carryforwards to be uncertain. Our income tax expense reflects an
increase in our deferred tax liabilities associated with our non-tax deductible
tradename intangible asset and goodwill as well as foreign taxes incurred in
Canada and Mexico.
Financial Performance
We believe that our operating model, together with our highly variable cost
structure, enables us to sustain high margins, strong cash flow generation and
stable financial performance throughout various economic cycles. We are able to
generate substantial free cash flow through our earnings, as well as sales of
used equipment. Our highly variable cost structure adjusts with the utilization
of our equipment, thereby reducing our costs to match our revenue. We
principally evaluate financial performance based on five measurements: Adjusted
EBITDA, fleet count, fleet utilization, equipment dollars ("OEC") on rent and
rental rate per day. The following table summarizes these operating metrics.
The presentation of non-GAAP financial information should not be considered in
isolation or as a substitute for, or superior to, the financial information
prepared and presented in accordance with GAAP.

                                       21
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Financial performance for the three months ended March 31, 2019 and 2020:


                                                  Three Months Ended March 

31,


(in $000s, except fleet count
and rate per day)                    2020            2019            change            (%)
 Adjusted EBITDA (a)             $    32,061     $    30,434     $     1,627             5.3  %

Average equipment on rent (b) $ 499,756 $ 452,146 $ 47,610

            10.5  %
Average fleet count                    4,627           3,913             714            18.2  %
Average fleet utilization (c)           75.9 %          82.2 %          

(6.3 )% (7.7 )% Average rental rate per day (d) $ 137.77 $ 137.46 $ 0.31

             0.2  %



(a) EBITDA represents net income (loss) before interest, provision for income
taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA as
further adjusted for (1) non-cash purchase accounting impact, (2) transaction
and process improvement costs, including the effect of the cessation of
operations in Mexico, (3) major repairs, (4) share-based payments, (5) other
non-recurring items, and (6) the change in fair value of derivative instruments.
These metrics are subject to certain limitations. See "Financial
Overview-Adjusted EBITDA" and the reconciliation of Adjusted EBITDA to U.S. GAAP
net income (loss) below.
(b) Average equipment on rent is the average original equipment cost of units on
rent during the period. The measure provides a value dimension to the fleet
utilization statistics. This metric has been adjusted to exclude Mexico, which
the Company commenced exit activities in the third quarter of 2019.
(c) Average fleet utilization for the period is calculated as the total number
of invoiced days divided by the total number of available equipment days. This
metric has been adjusted to exclude Mexico, which the Company commenced exit
activities in the third quarter of 2019.
(d) Average rental rate per day for the period is calculated as total rental
revenue excluding freight and damaged billings divided by the total rental days,
which represents the number of billable days in the period aggregated across all
units in the fleet. This metric has been adjusted to exclude Mexico, which the
Company commenced exit activities in the third quarter of 2019.
Adjusted EBITDA
Adjusted EBITDA increased $1.6 million, or 5.3%, from $30.4 million for the
three months ended March 31, 2019 to $32.1 million for the three months ended
March 31, 2020. This increase can be primarily attributed to a $4.4 million
increase in gross profit, excluding depreciation of $20.1 million, for the three
months ended March 31, 2020 as compared to the same period in 2019, driven by
growth across all revenue streams. Core rental gross profit was the main driver
of gross profit growth in the first quarter, contributing $37.2 million of gross
profit excluding depreciation of $20.1 million, a $2.6 million or 7.6% year over
year increase.
The following is a reconciliation from U.S. GAAP net loss to Adjusted EBITDA for
the three months ended March 31, 2020 and 2019 and a reconciliation from
Adjusted EBITDA to U.S. GAAP net cash from operating activities for the three
months ended March 31, 2020 and 2019.
                                                    Three Months Ended March 31,
(in $000s)                                            2020                2019
Net loss                                        $      (15,969 )     $      (6,724 )
Interest expense                                        16,014              14,993
Income tax expense                                         730                 434
Depreciation expense                                    20,377              16,996
Amortization expense                                       691                 724
EBITDA                                                  21,843              26,423
  Adjustments:
  Non-cash purchase accounting impact (1)                  917              

611


  Transaction and process improvement costs (2)          2,079               2,510
  Major repairs (3)                                        700                 762
  Share-based payments (4)                                 559                 128
Change in fair value of derivative (5)                   5,963                   -
Adjusted EBITDA                                 $       32,061       $      30,434



                                       22

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                                                     Three Months Ended March 31,
(in $000s)                                              2020               2019
Adjusted EBITDA                                   $      32,061       $      30,434
Adjustments:
Change in fair value of derivative (5)                   (5,963 )                 -
Share-based payments (4)                                   (559 )              (128 )
Major repairs (3)                                          (700 )              (762 )
Transaction and process improvement costs (2)            (2,079 )            (2,510 )
Non-cash purchase accounting impact (1)                    (917 )              (611 )
EBITDA                                                   21,843              26,423
Add:
Interest expense                                        (16,014 )           (14,993 )
Income tax benefit (expense)                               (730 )              (434 )
Amortization - financing costs                              711             

677


Share-based payments                                        559             

128

Loss (gain) on sale of rental equipment and parts (2,213 )

  (1,977 )
Gain on insurance proceeds - damaged equipment             (120 )              (452 )
Major repair disposal                                       700             

762


Change in fair value of derivative                        5,963             

-


Deferred tax (benefit) expense                              652             

271


Bad debt expense, net of recoveries                         777             

692


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

3,905





(1) Represents the non-cash impact of purchase accounting, net of accumulated
depreciation, on the cost of equipment sold. The equipment acquired received a
purchase step-up in basis, which is a non-cash adjustment to the equipment cost
pursuant to our credit agreement.
(2) 2020: Represents transaction costs related to our acquisition of Truck
Utilities (which include post-acquisition integration expenses incurred during
the current quarterly period); 2019: Represents transaction expenses related to
merger activities associated with the Transaction with Capitol that was
consummated on July 31, 2019. These expenses are comprised of professional
consultancy, legal, tax and accounting fees. Also included are costs of startup
activities (which include training, travel, and process setup costs) associated
with the rollout of new PTA locations that occurred throughout the prior year
into the current quarterly period. Finally, the expenses associated with the
Company's closure of its Mexican operations, which closure activities commenced
in the third quarter of 2019, are also included. Pursuant to our credit
agreement, the cost of undertakings to effect such cost savings, operating
expense reductions and other synergies, as well as any expenses incurred in
connection with acquisitions, are amounts to be included in the calculation of
Adjusted EBITDA.
(3) Represents the undepreciated cost of replaced vehicle chassis and components
from heavy maintenance, repair and overhaul activities associated with our
fleet, which is an adjustment pursuant to our credit agreement.
(4) Represents non-cash stock compensation expense associated with the issuance
of stock options and restricted stock units.
(5) Represents the charge to earnings for our interest rate collar (which is an
undesignated hedge) in the three months ended March 31, 2020.




                                       23
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Equipment on rent
Average equipment on rent was $499.8 million for the three months ended March
31, 2020, an increase of $46.1 million or 10.2% over the same period in 2019.
The increase is due to increased fleet size, including the equipment acquired in
connection with our acquisition of Truck Utilities, and continued demand from
our equipment rental customers.
Fleet count
Average fleet count was 4,627 for the three months ended March 31, 2020, an
increase of 714 units from an average fleet count of 3,913 over the same period
in 2019. Bucket trucks represented the largest category of our capital
expenditures for the three months ended March 31, 2020, driven by demand in
transmission and distribution, telecom and rail end-markets.
Fleet utilization
Fleet utilization was 75.9% for the three months ended March 31, 2020, compared
to 82.2% in the same period of 2019. Every product category saw an increase in
rented days year over year. First quarter utilization is typically lower than
other quarters due to seasonality, absent any unusual activity such as the
California fire recovery work in the first quarter of 2019. This quarter
followed typical patterns, however, was further impacted by COVID-19 and
equipment recently added to the fleet that has not yet gone on rent.
Rental rate per day
Average rental rate per day was $137.8 for the three months ended March 31,
2020, a 0.2% increase from $137.5 for the same period in 2019. Consolidated rate
remained steady year over year.
Fleet age
We use fleet age by type to assist in our decision to sell and purchase a
particular fleet category to ensure our fleet age remains competitive. Our
overall average fleet age was 3.4 years as of March 31, 2020, compared to 3.7
years at March 31, 2019. We believe the current age of our fleet is young and
gives us flexibility from a capital allocation and sales perspective.
Fleet composition
We own a diverse selection of equipment in order to meet the needs of our
customers. Bucket trucks, digger derricks, line equipment and
rail-mounted equipment make up a significant percentage of our fleet portfolio.
We also carry cranes, pressure diggers, underground equipment, and other
miscellaneous fleet items, making us a full service specialty equipment
provider. All of our equipment is available for rent and our used equipment
sales and new equipment purchases are partially driven by our desire to keep an
optimal product mix and maintain a competitive fleet age.
The OEC of our ERS fleet was $644.6 million as of March 31, 2020, a $7.3
million, or 1.1%, increase from $637.3 million at December 31, 2019. The bucket
trucks category represented the largest increase for the three months ended
March 31, 2020.

Operating Results by Segment - Three Months Ended March 31, 2020 and 2019
The Company manages its operations through two business segments: rental and
sale of fleet and equipment along with repair and maintenance related to those
assets (ERS), and the rental and sale of parts, tools, and accessories (PTA).
See Note 3, Segments, to our unaudited condensed consolidated financial
statements for additional information.

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Equipment Rental and Sales Segment


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



Revenue in our ERS segment represented 78.0% and 85.6% of Nesco's consolidated
revenues for the three months ended March 31, 2020 and 2019, respectively. Total
revenue increased by $11.1 million for the three months ended March 31, 2020
compared to the same period in 2019. Truck Utilities generated $4.5 million of
revenue within the ERS segment.
Rental revenue increased $4.2 million as a result of increased demand in the
end-markets we serve coupled with increased fleet investment over the past year
to meet that demand. Sales of rental equipment, which can vary from quarter to
quarter, increased $6.9 million with a focus on disposing of certain older fleet
units in the first quarter of 2020, helping result in a decline in the average
age of our fleet from 3.6 years at December 31, 2019 to 3.4 years at March 31,
2020.
The $8.7 million increase in cost of revenue (excluding the increase in
depreciation expense of $3.3 million) for the three months ended March 31, 2020
compared to the prior year is primarily due to a $6.6 million increase in cost
of sales of rental and new equipment.
Depreciation of our rental fleet increased by $3.3 million for the three months
ended March 31, 2020, compared to the same period in 2019, primarily due to the
13.5% growth in fleet count.
Gross profit for the three months ended March 31, 2020, excluding depreciation
of $19.0 million, increased by $2.4 million compared to the same period in 2019.
Margins on equipment sales declined in the first quarter relative to the same
period in 2019 due to a combination of an increase in the disposal of older
rental units, which typically generate lower margins and a significant supplier
rebate offered on the sale of new equipment in 2019 but not repeating in 2020.
Parts, Tools, and Accessories Segment
                                     Three Months Ended March 31,
(in $000s)                              2020                2019             $ change       % change
Rental revenue                   $          3,941     $        2,746     $        1,195        43.5 %
Parts sales and services                   14,079              6,101              7,978       130.8 %
Total revenues                             18,020              8,847              9,173       103.7 %
Cost of revenue                            12,908              5,755              7,153       124.3 %
Depreciation of rental equipment            1,136              1,070                 66         6.2 %
Gross Profit                     $          3,976     $        2,022     $        1,954        96.6 %


PTA segment revenue increased $9.2 million or 103.7% for the three months ended
March 31, 2020 compared to same period in the prior year. Truck Utilities
contributed $7.9 million in PTA revenue during the quarter. The PTA segment
experienced headwinds from COVID-19 social distancing measures in late February
and March as a result of a slowdown in new projects.
Cost of revenue in the PTA increased as a direct result of the increase in
volume, as well as the expansion of operations from two PTA locations to seven
over the course of the last year.

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PTA gross profit, excluding $1.1 million of depreciation, increased $2.0 million, or 65.3%, in the first quarter. Margin in the segment declined primarily due to a mix shift to lower margin parts sales and service revenue, due in part to the acquisition of Truck Utilities.


                                       26
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Liquidity and Capital Resources
Historical Liquidity
Our principal sources of liquidity include cash generated by operating
activities and borrowings under our 2019 Credit Facility. We believe that our
liquidity sources and operating cash flows are sufficient to address our
operating, debt service and capital requirements over the next twelve months,
however, we are continuing to monitor the impact of COVID-19 on our business and
the financial markets. We have reduced our planned 2020 net capital expenditures
(which we define to be purchases of rental and other property and equipment, net
of proceeds from disposals of such assets) to approximately half of 2019 net
capital expenditures to help manage liquidity and optimize utilization. As of
March 31, 2020, we had $10.2 million in cash compared to $6.3 million as of
December 31, 2019. As of March 31, 2020, we had $285.7 million of outstanding
borrowings under our 2019 Credit Facility with an additional $75.4 million in
availability (subject to a borrowing base) compared to $250.0 million of
outstanding borrowing under the 2019 Credit Facility as of December 31, 2019.
2019 Credit Facility
On July 31, 2019, we entered into the 2019 Credit Facilty, which provides us
with $350.0 million in aggregate principal amount of commitments pursuant to a
first lien senior secured asset based revolving credit facility. On March 10,
2020, we entered into an agreement (the "Incremental Agreement") that amended
the syndicate of banks for a new participant that increased the maximum amount
of the 2019 Credit Facility by $35.0 million to a total of $385.0 million.
The new 2019 Credit Facility has a five-year term and a floating rate of
interest based on either the federal funds rate plus a margin ranging between 50
and 100 basis points or LIBOR plus a margin ranging between 150 and 200 basis
points, in each case, depending on excess availability under the facility. Our
availability under the 2019 Credit Facility is a percentage of the value of our
accounts receivable, our parts inventory, our fleet inventory, and our cash, in
each case, subject to certain eligibility criteria and periodic collateral
evaluations. A portion of the 2019 Credit Facility may be used for the issuance
of letters of credit. The 2019 Credit Facility is guaranteed by our wholly owned
domestic subsidiaries, subject to customary exceptions, and is secured by
substantially all assets of Nesco and the guarantors. We can reduce the
aggregate commitments under the 2019 Credit Facility without premium or penalty.
The 2019 Credit Facility contains covenants which, among other things, limit the
incurrence of additional indebtedness (including acquired indebtedness),
issuance of certain preferred stock, the payment of dividends, making restricted
payments and investments, the purchase or acquisition or retirement for value of
any equity interests, the provision of loans or advances to restricted
subsidiaries, the sale or lease or transfer of any properties to any restricted
subsidiaries, the transfer or sale of assets, and the creation of certain liens.
In addition, the 2019 Credit Facility requires the Company to comply with a
financial maintenance covenant requiring the Company and its restricted
subsidiaries to maintain a fixed charge coverage ratio of at least 1.00;
provided that this covenant shall only be tested if availability under the 2019
Credit Facility is less than the greater of (i) 10% of the Line Cap and (ii) $30
million, and shall be tested until availability is no longer less than such
amounts for 20 consecutive calendar days.
Senior Secured Notes due 2024
In connection with the closing of the Transactions, on July 31, 2019 we
completed a private offering for Senior Secured Second Lien Notes due 2024 (the
"Senior Secured Notes") issued by Capitol Investment Merger Sub 2, LLC, our
wholly owned and indirect subsidiary (the "Issuer"). The aggregate principal
amount of the Senior Secured Notes was $475.0 million. The Senior Secured Notes
bear interest at a rate of 10.0% per annum payable semi-annually, in cash in
arrears, on February 1 and August 1 of each year, commencing on February 1,
2020. The Senior Secured Notes do not have registration rights.
A summary of the key provisions are as follows:
Guarantors - The Senior Secured Notes are guaranteed (the "Guarantees") by
Capitol Intermediate Holdings, LLC, our wholly owned subsidiary ("Holdings") and
the wholly owned domestic subsidiaries of the Issuer (together, "Guarantors")
that guarantee obligations under the 2019 Credit Facility or any future debt of
Nesco or any other Guarantors.
Security - The Senior Secured Notes and the Guarantees are secured on a
second-priority basis by all assets of Nesco and the Guarantors that secure our
obligations under the 2019 Credit Facility.
Ranking - The Senior Secured Notes and the Guarantees are general senior secured
obligations. The Senior Secured Notes rank equally in right of payment with all
of our existing and future senior debt and rank senior in right of payment to
all of our future subordinated obligations. The Guarantees rank equally in right
of payment with all of the Guarantors' existing and future senior obligations
and rank senior in right of payment to all of the Guarantors' existing and
future subordinated obligations. The Senior Secured Notes and the Guarantees
rank effectively subordinated to all of the Guarantors' and our first-priority
secured debt, including borrowings under the 2019 Credit Facility.

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Redemption and Repurchase - The Senior Secured Notes are redeemable, in whole or
in part, at any time on or after the Closing Date at specified redemption
prices. At any time prior to August 1, 2021, we may redeem all or part of the
notes at a redemption price equal to 100.0% of the principal amount, plus an
applicable premium, plus accrued and unpaid interest, if any, to the redemption
date. We may also redeem some or all of the notes: from August 1, 2021, but
before July 31, 2022, at a redemption price of 105.0% of the principal amount
plus accrued and unpaid interest, if any, to the redemption date; from August 1,
2022, but before July 31, 2023, at a redemption price of 102.5% of the principal
amount plus accrued and unpaid interest, if any, to the redemption date; and
after August 1, 2023, at a redemption price of 100.0% of the principal amount
plus accrued and unpaid interest, if any, to the redemption date. In addition,
we may redeem up to 40.0% of the Senior Secured Notes until August 1, 2021, at a
redemption price of 110.0% of the principal amount plus accrued and unpaid
interest, if any, to the redemption date, with the net cash proceeds from one or
more equity offerings. In addition, we may be required to make an offer to
purchase the Senior Secured Notes upon the sale of certain assets and upon a
change of control.
Covenants - The Senior Secured Notes contain various restrictive covenants.
As of March 31, 2020, we believe we were in compliance with all of the covenants
and other provisions of the 2019 Credit Facility and the indenture governing the
Senior Secured Notes disclosed above. Any failure to be in compliance with any
material provision or covenant of these agreements could have a material adverse
effect on our liquidity and operations.
Due to the condition and relatively young age of our fleet, we have the ability
to significantly reduce or suspend capital expenditures during difficult
economic times, to generate additional cash flow during these periods. We
believe that our cash generated by our rental operations and cash received from
the sale of equipment, as well as funds available under the 2019 Credit Facility
will be adequate to meet our operating, investing and financing needs for the
foreseeable future. To the extent additional funds are necessary to meet our
long-term liquidity needs as we continue to execute our business strategy, we
anticipate that they will be obtained through the incurrence of additional
indebtedness, additional equity financings or a combination of these potential
sources of funds. Our ability to meet our operating, investing and financing
needs depends to a significant extent on our future financial performance, which
will be subject in part to general economic, competitive, financial, regulatory
and other factors that are beyond our control. In addition to these general
economic and industry factors, the principal factors in determining whether our
cash flows will be sufficient to meet our liquidity requirements will be changes
in governmental regulations for the electric utility transmission and
distribution industry, weather, and our customers' ability to secure materials.
In the event that we need access to additional cash, we may not be able to
access the credit markets on commercially acceptable terms or at all. We expect
to continually assess our performance, the economic environment and market
conditions to guide our decisions regarding our uses of cash, including capital
expenditures.
We may, from time to time, refinance, reprice, extend, retire or otherwise
modify our outstanding debt to lower our interest payments, reduce our debt or
otherwise improve our financial position. These actions may include repricing
amendments, extensions, and/or opportunistic refinancing of debt. The amount of
debt that may be refinanced, re-priced, extended, retired or otherwise modified,
if any, will depend on market conditions, trading levels of our debt, our cash
position, compliance with debt covenants and other considerations.
Historical Cash Flows
The following table summarizes Nesco's sources and uses of cash for the three
months ended March 31, 2020 and 2019:

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