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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
_______________________________
FORM 10-Q
_______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 001-38186
_______________________________  
Nesco Holdings, Inc.
(Exact name of registrant as specified in its charter)
_______________________________
Delaware84-2531628
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
6714 Pointe Inverness Way, Suite 220
Fort Wayne, IN 46804
(Address of principal executive offices, including zip code)
(800) 252-0043
(Registrant’s telephone number, including area code)
_______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueNSCONew York Stock Exchange
Redeemable warrants, exercisable for Common Stock, $0.0001 par valueNSCO.WSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     NO   o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   x    NO   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filero Accelerated filerx
Non-accelerated filero Smaller reporting company
   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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     YES       NO  x
The number of shares of common stock of NESCO Holdings, Inc. as of July 31, 2020 was 49,033,903.



Nesco Holdings, Inc. and Subsidiaries
TABLE OF CONTENTS
PART IFINANCIAL INFORMATIONPage Number
Item 1.Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and 2019
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019
Unaudited Condensed Consolidated Statements of Stockholders' Deficit for the Three and Six Months Ended June 30, 2020 and 2019
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART IIOTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
SIGNATURES
2


PART I - FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Nesco Holdings, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in $000s, except share data)June 30, 2020December 31, 2019
Assets
Current Assets
Cash$5,300  $6,302  
Accounts receivable, net of allowance of $4,881 and $4,654 respectively
57,438  71,323  
Inventory32,111  33,001  
Prepaid expenses and other5,369  5,217  
Total current assets100,218  115,843  
Property and equipment, net5,795  6,561  
Rental equipment, net369,269  383,420  
Goodwill and other intangibles, net307,327  308,747  
Notes receivable626  713  
Total Assets783,235  $815,284  
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable$14,856  $41,172  
Accrued expenses27,206  27,590  
Deferred rent income1,212  2,270  
Current maturities of long-term debt1,280  1,280  
Current portion of capital lease obligations8,080  5,451  
Total current liabilities52,634  77,763  
Long-term debt, net732,805  713,023  
Capital leases16,290  22,631  
Deferred tax liabilities13,267  12,288  
Interest rate collar8,476  1,709  
Total long-term liabilities770,838  749,651  
Commitments and contingencies (see Note 11)
Stockholders' Deficit
Common stock - $0.0001 par value, 250,000,000 shares authorized, 49,033,903 shares issued and outstanding, at June 30, 2020 and December 31, 2019
5  5  
Additional paid-in capital433,589  432,577  
Accumulated deficit(473,831) (444,712) 
Total stockholders' deficit(40,237) (12,130) 
Total Liabilities and Stockholders' Deficit$783,235  $815,284  
See accompanying notes to unaudited condensed consolidated financial statements.
3


Nesco Holdings, Inc.
Condensed Consolidated Statements of Operations (unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(in $000s, except share and per share data)2020201920202019
Revenue
Rental revenue$46,984  $48,125  $97,978  $93,767  
Sales of rental equipment4,982  4,332  14,075  11,731  
Sales of new equipment5,418  4,480  12,995  6,830  
Parts sales and services11,097  5,918  25,176  12,019  
Total Revenue68,481  62,855  150,224  124,347  
Cost of Revenue
Cost of rental revenue14,311  12,843  28,097  23,900  
Depreciation of rental equipment19,696  16,944  39,808  33,675
Cost of rental equipment sales3,536  3,871  11,264  10,005  
Cost of new equipment sales4,777  3,697  11,431  5,303
Cost of parts sales and services9,224  4,471  20,584  9,321  
Major repair disposals595  384  1,295  1,146  
Total cost of revenue52,139  42,210  112,479  83,350  
Gross Profit16,342  20,645  37,745  40,997  
Operating Expenses
Selling, general and administrative expenses11,018  7,305  22,636  14,884  
Licensing and titling expenses736  583  1,557  1,236  
Amortization and non-rental depreciation800  749  1,516  1,519  
Transaction expenses227  1,559  963  4,069  
Other operating expenses1,042  629  1,758  779  
Total Operating Expenses13,823  10,825  28,430  22,487  
Operating Income2,519  9,820  9,315  18,510  
Other Expense
Interest expense, net15,949  14,850  31,963  29,843  
Other (income) expense, net783  (9) 6,804  (22) 
Total other expense16,732  14,841  38,767  29,821  
Loss Before Income Taxes(14,213) (5,021) (29,452) (11,311) 
Income Tax Expense (Benefit)(1,063) 402  (333) 836  
Net Loss$(13,150) $(5,423) $(29,119) $(12,147) 
Loss per Share:
Basic and diluted$(0.27) $(0.25) $(0.59) $(0.56) 
Weighted-average-common shares outstanding:
Basic and diluted49,033,903  21,660,638  49,033,903  21,660,638  
See accompanying notes to unaudited condensed consolidated financial statements.
4


Nesco Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss (unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(in $000s)2020201920202019
Net loss$(13,150) $(5,423) $(29,119) $(12,147) 
Other comprehensive loss:
Interest rate collar (net of taxes of $173 and $285, respectively)
  (476)   (388) 
Other comprehensive loss  (476)   (388) 
Comprehensive loss$(13,150) $(5,899) $(29,119) $(12,535) 
There were no reclassifications from accumulated other comprehensive loss reflected in the Unaudited Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2020 and 2019.

See accompanying notes to unaudited condensed consolidated financial statements.



5


Nesco Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30,
(in $000s)20202019
Operating Activities
Net loss$(29,119) $(12,147) 
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation40,369  34,176  
Amortization - intangibles1,462  1,448  
Amortization - financing costs1,515  1,380  
Provision for losses on accounts receivable1,421  1,112  
Share-based payments1,012  180  
Gain on sale of rental equipment and parts(3,838) (3,260) 
Gain on insurance proceeds - damaged equipment(233) (387) 
Major repair disposal1,295  1,146  
Change in fair value of derivative6,767    
Deferred tax (benefit) expense979  544  
Changes in assets and liabilities:
Accounts receivable10,935  (13,357) 
Inventory(4,313) (8,864) 
Prepaid expenses and other(152) (2,412) 
Accounts payable(6,988) 8,020  
Accrued expenses and other liabilities(385) (683) 
Unearned income(1,058) (1,719) 
Net cash flow from operating activities19,669  5,177  
Investing Activities
Purchase of equipment - rental fleet(55,421) (51,734) 
Proceeds from sale of rental equipment and parts19,005  18,187  
Insurance proceeds from damaged equipment2,191  1,427  
Purchase of other property and equipment(1,089) (3,655) 
Other87    
Net cash flow from investing activities(35,227) (35,775) 
Financing Activities
Borrowings under revolving credit facilities37,574  43,000  
Repayments under revolving credit facilities(19,074) (9,000) 
Repayments of notes payable(232) (365) 
Capital lease payments(3,712) (2,613) 
Finance fees paid  20  
Net cash flow from financing activities14,556  31,042  
Net Change in Cash(1,002) 444  
Cash at Beginning of Period6,302  2,140  
Cash at End of Period$5,300  $2,584  
Supplemental Cash Flow Information
Cash paid for interest$29,502  $28,708  
Cash paid for income taxes156  240  
Non-Cash Investing and Financing Activities
Transfer of inventory to leased equipment5,203  2,618  
Rental equipment and property and equipment purchases in accounts payable2,316  19,021  
Rental equipment sales in accounts receivable2,453  623  
Insurance recoveries accrued in accounts receivable702  224  
See accompanying notes to unaudited condensed consolidated financial statements.
6


Nesco Holdings, Inc.
Condensed Consolidated Statements of Stockholders' Deficit (unaudited)
Additional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Deficit
Common Stock
(in $000s, except share data)SharesAmount
Balance, December 31, 201949,033,903  $5  $432,577  $(444,712) $  $(12,130) 
Net loss—  —  —  (15,969) —  (15,969) 
Share-based payments—  —  559  —  —  559  
Balance, March 31, 202049,033,903  $5  $433,136  $(460,681) $  $(27,540) 
Net loss—  —  —  (13,150) —  (13,150) 
Share-based payments—  —  453  —  —  453  
Balance, June 30, 202049,033,903  $5  $433,589  $(473,831) $  $(40,237) 
Additional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Deficit
Common Stock
SharesAmount
Balance, December 31, 201821,660,638  $2  $259,298  $(417,660) $(396) $(158,756) 
Net loss—  —  —  (6,724) —  (6,724) 
Share-based payments—  —  128  —  —  128  
Interest rate collar—  —  —  —  88  88  
Balance, March 31, 201921,660,638  $2  $259,426  $(424,384) $(308) $(165,264) 
Net loss—  —  —  (5,423) —  (5,423) 
Share-based payments—  —  52  —  —  52  
Interest rate collar—  —  —  —  (476) (476) 
Balance, June 30, 201921,660,638  $2  $259,478  $(429,807) $(784) $(171,111) 
See accompanying notes to unaudited condensed consolidated financial statements.

7


 Nesco Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements
Note 1: Business and Organization
Organization
Nesco Holdings, Inc. (“Holdings”), a Delaware corporation, serves as the parent for our primary operating company, NESCO, LLC, an Indiana limited liability company, and its wholly owned subsidiaries (collectively, with Holdings, “we,” “our,” “us,” “Nesco,” or the "Company"), and is engaged in the business of providing a range of services and products to customers through rentals of specialty equipment, sales of parts related to the specialty equipment, and repair and maintenance services related to that equipment.
Our wholly-owned subsidiaries include: NESCO, LLC, an Indiana limited liability company, NESCO Holdings I, Inc., a Delaware corporation, NESCO Finance Corporation, a Delaware corporation, NESCO Investments, LLC, a Delaware limited liability company, NESCO International, LLC, a Delaware limited liability company, and NESCO El Alquiler S. de R.L. de C.V., an operating company in Mexico.
We are a specialty equipment rental provider to the electric utility transmission and distribution, telecommunications and rail industries in North America. Our core business relates to our fleet of specialty rental equipment that is utilized by service providers in infrastructure improvement work. Specifically, we offer our specialized equipment to a diverse customer base, including utilities and primarily contractors, for the maintenance, repair, upgrade and installation of critical infrastructure assets, including distribution and transmission electric lines, telecommunications networks and rail systems, as well as a small percentage for lighting and signage. We rent and sell a broad range of new and used equipment, including bucket trucks, digger derricks, line equipment, cranes, pressure diggers, and underground equipment, which forms our Equipment Rental and Sales ("ERS") segment. To complement our fleet, we also provide a one-stop shop for existing and prospective Nesco customers in the same end markets of electric lines, telecommunications networks and rail systems; to purchase or rent parts, tools, and accessories needed to outfit their specialty truck fleet. These activities form our Parts, Tools, and Accessories (“PTA”) segment. We are positioned to serve all 50 U.S. states and 13 Canadian provinces and territories via our network of over 70 locations in the United States and Canada.

Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair statement of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year or for any other period. These interim statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
Use of Estimates
We prepare our consolidated financial statements in conformity with GAAP, which requires us to use judgment to make estimates that directly affect the amounts reported in our consolidated financial statements and accompanying notes. Significant estimates are used for items including, but not limited to, the useful lives and residual values of our rental equipment, and business combinations. In addition, estimates are used to test both long-lived assets, goodwill and indefinite-lived assets for impairment, and to determine the fair value of impaired assets, if any impairment exists. These estimates are based on our historical experience and on various other assumptions we believe to be reasonable under the circumstances. We review our estimates on an ongoing basis using information currently available, and we revise our recorded estimates as updated information becomes available, facts and circumstances change, or actual amounts become determinable. Actual results could differ from our estimates. In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results.
8


Recently Issued Accounting Pronouncements
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. Accordingly, we have elected to comply with certain reduced public company reporting requirements related to effective dates for the adoption of newly issued standards issued by the Financial Accounting Standards Board (the “FASB”). An emerging growth company is permitted to apply the effective dates applicable to non-public entities, which generally are delayed in comparison to public entities that are non-emerging growth entities.
Leases
The FASB’s new guidance to account for leases (“Topic 842”) by entities that are lessees, requires (1) recognition of lease assets and lease liabilities on the balance sheet and (2) disclosure of key information about leasing arrangements. Topic 842 provides two classifications for leases: financing or operating.
Finance leases - The accounting and recognition for leases qualifying as finance leases is similar to the accounting and recognition required under ASC Topic 840, "Leases (“Topic 840”)," for capital leases. As of June 30, 2020, we have capital lease obligations of approximately $24.4 million. When we make our contractually required payments under the capital leases, we allocate a portion to reduce the capital lease obligation and a portion is recognized as interest expense. The assets leased under the capital leases are included in rental equipment, and depreciation thereon is recognized in cost of rental revenue.
Operating leases - Under Topic 842, operating leases result in the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Under Topic 842, operating lease ROU assets and liabilities are recognized at the lease commencement date and measured based on the present value of lease payments over the lease term. The operating lease ROU assets will also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease that we are reasonably certain to exercise. Lease expense under Topic 842 will be recognized on a straight-line basis over the lease term. Upon adoption of Topic 842, we expect to recognize operating lease ROU assets and lease liabilities that reflect the present value of these future payments, which we currently estimate to be in the range of $8.0 million to $10.0 million.
The FASB issued new guidance with respect to deferring the effective date of Topic 842 by one year. Accordingly, we will adopt Topic 842 effective January 1, 2022, using the transition method that allows us to recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. A modified retrospective approach is required for adoption for all leases that exist at or commence after the date of initial application with an option to use certain practical expedients. We expect to use the package of practical expedients that allows us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases.
Under Topic 842, lessor accounting will remain substantially similar to the current accounting; however, certain refinements were made to conform the standard with the recently issued revenue recognition guidance in ASC Topic 606," Revenue from Contracts with Customers (“Topic 606”)," specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components. On July 30, 2018, the FASB issued ASU 2018-11, which created a practical expedient that provides lessors an option not to separate lease and non-lease components when certain criteria are met and instead account for those components as a single lease component. We are currently in the process of evaluating whether our lease arrangements will meet the criteria under the practical expedient to account for lease and non-lease components as a single lease component, which would alleviate the requirement upon adoption of Topic 842 that we reallocate or separately present lease and non-lease components.
Measurement of Current Expected Credit Losses
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," to update the methodology used to measure current expected credit losses (“CECL”). This ASU applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. This ASU replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings (deficit) in the period of adoption. For emerging growth companies electing the modified transition dates of non-public entities, this ASU is effective for fiscal years beginning after December 15, 2022. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.


9


Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350)," intended to simplify the subsequent accounting for goodwill acquired in a business combination. Prior guidance required utilizing a two-step process to review goodwill for impairment. A second step was required if there was an indication that an impairment may exist, and the second step required calculating the potential impairment by comparing the implied fair value of a reporting unit’s goodwill (as if purchase accounting were performed on the testing date) to the carrying amount of the goodwill. The new guidance eliminates the second step from the goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss should not exceed the total amount of goodwill allocated to the reporting unit). The guidance requires prospective adoption and will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption of this guidance is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently assessing the expected impact on our financial statements.

10


Revenue Recognition
Following the adoption of Topic 606, as of January 1, 2018, we recognized revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Topic 840, which addresses lease accounting, for which we will adopt an update to this standard using the modified retrospective approach, as described herein. For the three and six months ended June 30, 2020 and 2019, we recognized rental revenue in accordance with Topic 840, Leases, which is the lease accounting standard.
Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A “performance obligation” is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under Topic 606. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services. As reflected below, most of our revenue is accounted for under Topic 840. Our contracts with customers generally do not include multiple performance obligations. The inset below presents our revenue types based on the accounting standard used to determine the accounting.
Three Months Ended June 30,Three Months Ended June 30,
20202019
(in $000s)Topic 840Topic 606TotalTopic 840Topic 606Total
Rental:
Rental revenue$45,048  $  $45,048  $45,731  $  $45,731  
Shipping and handling  1,936  1,936    2,394  2,394  
Total rental revenue45,048  1,936  46,984  45,731  2,394  48,125  
Sales and services:
Sales of rental equipment  4,982  4,982    4,332  4,332  
Sales of new equipment  5,418  5,418    4,480  4,480  
Parts and services  11,097  11,097    5,918  5,918  
Total sales and services  21,497  21,497    14,730  14,730  
Total revenue$45,048  $23,433  $68,481  $45,731  $17,124  $62,855  
Six Months Ended June 30,Six Months Ended June 30,
20202019
(in $000s)Topic 840Topic 606TotalTopic 840Topic 606Total
Rental:
Rental revenue$93,961  $  $93,961  $89,372  $  $89,372  
Shipping and handling  4,017  4,017    4,395  4,395  
Total rental revenue93,961  4,017  97,978  89,372  4,395  93,767  
Sales and services:
Sales of rental equipment  14,075  14,075    11,731  11,731  
Sales of new equipment  12,995  12,995    6,830  6,830  
Parts and services  25,176  25,176    12,019  12,019  
Total sales and services  52,246  52,246    30,580  30,580  
Total revenue$93,961  $56,263  $150,224  $89,372  $34,975  $124,347  
Rental revenue is primarily comprised of revenues from rental agreements and freight charges billed to customers as well as charges to customers for damaged equipment. Effective July 1, 2019, damage billings are classified in rental revenue, given that the amounts are directly related to the Company's rental arrangements with its customers. Amounts for damages in comparable prior periods have been reclassified to rental revenue from parts and services ($0.6 million and $1.4 million for the three and six months ended June 30, 2019, respectively). Additionally, sales of equipment, which are presented separately between sales of rental equipment and new equipment, were previously presented on a combined basis as equipment sales. For the three and six months ended June 30, 2019, sales of rental equipment were $4.3 million and $11.7 million, respectively, and sales of new equipment were $4.5 million and $6.8 million, respectively.
11


Inventory
Parts, tools and accessories inventory is primarily comprised of items purchased for resale or rent to customers. During the second quarter ended June 30, 2020, in connection with a new inventory management system, we elected to change our method for these inventories, which were previously valued using the first-in, first-out (“FIFO”) method, to the moving average cost method. We believe the change is preferable because it better reflects movement of the inventory and the corresponding value which provides a better reflection of periodic income from operations. This change was not applied retrospectively to prior periods, as the effect of the change was not material to our consolidated financial statements, including interim periods.
Also included within parts, tools and accessories inventory are materials and components that we carry to service our rental fleet and new equipment held for sale. These materials and components are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.
Equipment inventory consists of equipment bought specifically for resale to customers. These new purchases are recorded directly to inventory when received. Equipment inventory is stated at the lower of cost or net realizable value, with cost determined on a specific identification basis.
Inventory consisted of the following:
(in $000s)June 30, 2020December 31, 2019
Parts, tools and accessories inventory$27,324  $30,174  
Equipment inventory4,787  2,827  
Inventory$32,111  $33,001  

Rental and Property and Equipment
Rental equipment consisted of the following:
(in $000s)June 30, 2020December 31, 2019
Rental equipment$669,231  $658,564  
   Less: accumulated depreciation(299,962) (275,144) 
Rental equipment, net$369,269  $383,420  
Property and equipment consisted of the following:
(in $000s)June 30, 2020December 31, 2019
Property and equipment$11,058  $10,082  
   Less: accumulated depreciation(7,684) (7,168) 
   Construction in progress2,421  3,647  
Property and equipment, net$5,795  $6,561  

Note 3: Segments
We have two reportable business segments, Equipment Rental and Sales (“ERS”) and Parts, Tools, and Accessories (“PTA”). ERS provides rental solutions to utilities and contractors serving multiple infrastructure end-markets, including electric transmission and distribution, telecom, rail, lighting and signage. We rent and sell specialized equipment to utilities and utility contractors that build and maintain critical transmission and distribution infrastructure. Utilizing our national platform and rental fleet, we expanded our focus on equipment rental to the telecom, rail, lighting and signage end-markets. The majority of our existing equipment can be used across multiple end-markets and many of our customers operate in these multiple end-markets. We rent and sell a broad range of new and used equipment including bucket trucks, digger derricks, line equipment, cranes, pressure diggers, rail mounted equipment and underground equipment. Our PTA segment offers customers sale and rental solutions for parts, tools, and accessories to complement our specialty equipment line doing business servicing these same end-markets.
12


Our reportable segments align with the information our chief operating decision maker (“CODM”) receives on a regular basis to evaluate the performance of the business and to allocate resources. The accounting principles applied at the operating segment level in determining gross profit are generally the same as those applied at the consolidated financial statement level. There are no inter-segment revenues, and cost allocations to operating segment cost of revenue are minimal; that is, revenue, cost of equipment and parts sold or rented, depreciation of rental equipment and gross profit are directly attributed to each of the operating segments. The following tables present our financial information by segment:
Three Months Ended June 30,Three Months Ended June 30,
20202019
(in $000s)ERSPTATotalERSPTATotal
Rental revenue(1)(2)
$43,025  $3,959  $46,984  $44,867  $3,258  $48,125  
Sales of rental equipment4,982    4,982  4,332    4,332  
Sales of new equipment5,418    5,418  4,480    4,480