nsco-20200930

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 September 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)

_______________________________


Delaware			84-2531628
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	NSCO	New York Stock Exchange
Redeemable warrants, exercisable for Common Stock, $0.0001 par value	NSCO.WS	New 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 filer

Accelerated filer

☒

Non-accelerated filer

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 outstanding as of October 30, 2020 was 49,033,903.

Nesco Holdings, Inc. and Subsidiaries

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Page Number

Item 1.

Unaudited Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

Unaudited Condensed Consolidated Statements of Stockholders' Deficit for the Three and Nine Months Ended September 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 II

OTHER 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

PART I - FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

Nesco Holdings, Inc.

Condensed Consolidated Balance Sheets (unaudited)


(in $000s, except share data)	September 30, 2020		December 31, 2019
Assets
Current Assets
Cash	$	1,640	$	6,302
Accounts receivable, net of allowance of $4,821 and $4,654 respectively	56,471		71,323
Inventory	30,623		33,001
Prepaid expenses and other	6,170		5,217
Total current assets	94,904		115,843
Property and equipment, net	6,373		6,561
Rental equipment, net	348,932		383,420
Goodwill and other intangibles, net	305,977		308,747
Deferred income taxes	12,708		—
Notes receivable	562		713
Total Assets	$	769,456	$	815,284
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable	$	14,826	$	41,172
Accrued expenses	15,806		27,590
Deferred rent income	1,000		2,270
Current maturities of long-term debt	1,280		1,280
Current portion of capital lease obligations	7,975		5,451
Total current liabilities	40,887		77,763
Long-term debt, net	733,270		713,023
Capital leases	11,848		22,631
Deferred income taxes	—		12,288
Interest rate collar	7,858		1,709
Total long-term liabilities	752,976		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 September 30, 2020 and December 31, 2019	5		5
Additional paid-in capital	434,246		432,577
Accumulated deficit	(458,658)		(444,712)

Total stockholders' deficit	(24,407)		(12,130)
Total Liabilities and Stockholders' Deficit	$	769,456	$	815,284

See accompanying notes to unaudited condensed consolidated financial statements.

Nesco Holdings, Inc.

Condensed Consolidated Statements of Operations (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in $000s, except share and per share data)	2020		2019		2020		2019
Revenue
Rental revenue	$	46,125	$	50,103	$	144,103	$	143,871
Sales of rental equipment	5,510		3,436		19,585		15,167
Sales of new equipment	6,048		1,246		19,043		8,076
Parts sales and services	11,577		7,657		36,753		19,675
Total Revenue	69,260		62,442		219,484		186,789
Cost of Revenue
Cost of rental revenue	13,096		13,545		41,193		37,445
Depreciation of rental equipment	19,467		17,694		59,275		51,369
Cost of rental equipment sales	5,190		2,847		16,454		12,653
Cost of new equipment sales	5,410		1,116		16,841		6,618
Cost of parts sales and services	10,255		5,600		30,839		14,921
Major repair disposals	211		376		1,506		1,522
Total cost of revenue	53,629		41,178		166,108		124,528
Gross Profit	15,631		21,264		53,376		62,261
Operating Expenses
Selling, general and administrative expenses	8,633		9,824		31,269		24,708
Licensing and titling expenses	686		690		2,243		1,926
Amortization and non-rental depreciation	792		745		2,308		2,264
Transaction expenses	110		3,325		1,073		7,394
Asset impairment	—		657		—		657
Other operating expenses	451		434		2,209		1,213
Total Operating Expenses	10,672		15,675		39,102		38,162
Operating Income	4,959		5,589		14,274		24,099
Other Expense
Loss on extinguishment of debt	—		4,005		—		4,005
Interest expense, net	15,853		16,533		47,816		46,376
Other (income) expense, net	(559)		2,567		6,245		2,545
Total other expense	15,294		23,105		54,061		52,926
Loss Before Income Taxes	(10,335)		(17,516)		(39,787)		(28,827)
Income Tax Expense (Benefit)	(25,508)		494		(25,841)		1,330
Net Income (Loss)	$	15,173	$	(18,010)	$	(13,946)	$	(30,157)

Basic Earnings (Loss) Per Share	$	0.31	$	(0.45)	$	(0.28)	$	(1.09)

Weighted-Average Common Shares Outstanding	49,033,903		39,909,481		49,033,903		27,743,586

Diluted Earnings (Loss) Per Share	$	0.31	$	(0.45)	$	(0.28)	$	(1.09)

Weighted-Average Common Shares Outstanding	49,307,811		39,909,481		49,033,903		27,743,586

See accompanying notes to unaudited condensed consolidated financial statements.

Nesco Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in $000s)	2020		2019		2020		2019
Net income (loss)	$	15,173	$	(18,010)	$	(13,946)	$	(30,157)
Other comprehensive loss:
Interest rate collar (net of taxes of $285 in the nine months ended September 30, 2019)	—		—		—		(388)
Other comprehensive loss	—		—		—		(388)
Comprehensive income (loss)	$	15,173	$	(18,010)	$	(13,946)	$	(30,545)

There were no reclassifications from accumulated other comprehensive loss reflected in the Unaudited Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2020.

During the three and nine months ended September 30, 2019, $0.8 million (net of taxes of $0.3 million) was reclassified from accumulated other comprehensive loss and recorded in the Unaudited Condensed Consolidated Statements of Operations.

See accompanying notes to unaudited condensed consolidated financial statements.

Nesco Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)


	Nine Months Ended September 30,
(in $000s)	2020		2019
Operating Activities
Net loss	$	(13,946)	$	(30,157)
Adjustments to reconcile net loss to net cash flow from operating activities:
Depreciation	60,080		52,104
Amortization - intangibles	2,233		2,172
Amortization - financing costs	2,188		2,099
Provision for losses on accounts receivable	1,813		3,472
Share-based payments	1,669		463
Gain on sale of rental equipment and parts	(4,231)		(3,930)
Gain on insurance proceeds - damaged equipment	(714)		(570)
Major repair disposal	1,506		1,522
Loss on extinguishment of debt	—		4,005
Change in fair value of derivative	6,149		2,552
Asset impairment	—		657
Deferred tax (benefit) expense	(24,417)		816


Accounts receivable	9,258		(13,728)
Inventory	(3,797)		(13,742)
Prepaid expenses and other	(953)		(2,211)
Accounts payable	(8,920)		4,792
Accrued expenses and other liabilities	(11,782)		(4,770)
Unearned income	(1,270)		(4,832)
Net cash flow from operating activities	14,866		714
Investing Activities

Purchase of equipment - rental fleet	(59,197)		(77,752)
Proceeds from sale of rental equipment and parts	26,108		22,608
Insurance proceeds from damaged equipment	3,747		1,721
Purchase of other property and equipment	(678)		(7,166)
Other	151		(1,671)
Net cash flow from investing activities	(29,869)		(62,260)
Financing Activities
Proceeds from debt	—		475,000
Borrowings under revolving credit facilities	74,042		243,000
Repayments under revolving credit facilities	(55,019)		(259,000)
Repayments of notes payable	(964)		(527,348)
Capital lease payments	(7,718)		(3,830)
Proceeds from merger and recapitalization	—		147,268
Finance fees paid	—		(15,483)
Net cash flow from financing activities	10,341		59,607
Net Change in Cash	(4,662)		(1,939)
Cash at Beginning of Period	6,302		2,140
Cash at End of Period	$	1,640	$	201













(in $000s)
Supplemental Cash Flow Information
Cash paid for interest	$	56,815	$	47,861
Cash paid for income taxes	156		444
Non-Cash Investing and Financing Activities
Transfer of inventory to leased equipment	6,175		3,767
Rental equipment and property and equipment purchases in accounts payable	4,217		21,227
Rental equipment sales in accounts receivable	902		169


Settlement of note payable with common stock	—		25,000

Insurance recoveries accrued in accounts receivable	—		189

See accompanying notes to unaudited condensed consolidated financial statements.

Nesco Holdings, Inc.

Condensed Consolidated Statements of Stockholders' Deficit (unaudited)


					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Deficit
	Common Stock
(in $000s, except share data)	Shares		Amount
Balance, December 31, 2019	49,033,903		$	5	$	432,577	$	(444,712)	$	—	$	(12,130)
Net loss	—		—		—		(15,969)		—		(15,969)
Share-based payments	—		—		559		—		—		559

Balance, March 31, 2020	49,033,903		$	5	$	433,136	$	(460,681)	$	—	$	(27,540)
Net loss	—		—		—		(13,150)		—		(13,150)
Share-based payments	—		—		453		—		—		453
Balance, June 30, 2020	49,033,903		$	5	$	433,589	$	(473,831)	$	—	$	(40,237)
Net income (loss)	—		—		—		15,173		—		15,173
Share-based payments	—		—		657		—		—		657
Interest rate collar	—		—		—		—		—		—
Balance, September 30, 2020	49,033,903		$	5	$	434,246	$	(458,658)	$	—	$	(24,407)


					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Deficit
	Common Stock
	Shares		Amount

Balance, December 31, 2018	21,660,638		$	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, 2019	21,660,638		$	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, 2019	21,660,638		$	2	$	259,478	$	(429,807)	$	(784)	$	(171,111)
Net loss prior to reverse recapitalization	—		—		—		(10,988)		—		(10,988)
Net loss post reverse recapitalization	—		—		—		(7,022)		—		(7,022)
Reverse capitalization	27,373,265		3		172,266		—		—		172,269
Share-based payments	—		—		283		—		—		283
Interest rate collar	—		—		—		—		784		784
Balance, September 30, 2019	$	49,033.903	$	5	$	432,027	$	(447,817)	$	—	$	(15,785)

See accompanying notes to unaudited condensed consolidated financial statements.

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.

The wholly-owned subsidiaries of Holdings 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.

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 September 30, 2020, we have capital lease obligations of approximately $19.8 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.

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.

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 nine months ended September 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 September 30,						Three Months Ended September 30,
	2020						2019
(in $000s)	Topic 840		Topic 606		Total		Topic 840		Topic 606		Total
Rental:
Rental revenue	$	44,468	$	—	$	44,468	$	47,821	$	—	$	47,821
Shipping and handling	—		1,657		1,657		—		2,282		2,282
Total rental revenue	44,468		1,657		46,125		47,821		2,282		50,103
Sales and services:
Sales of rental equipment	—		5,510		5,510		—		3,436		3,436
Sales of new equipment	—		6,048		6,048		—		1,246		1,246
Parts and services	—		11,577		11,577		—		7,657		7,657
Total sales and services	—		23,135		23,135		—		12,339		12,339
Total revenue	$	44,468	$	24,792	$	69,260	$	47,821	$	14,621	$	62,442

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2020						2019
(in $000s)	Topic 840		Topic 606		Total		Topic 840		Topic 606		Total
Rental:
Rental revenue	$	138,429	$	—	$	138,429	$	137,194	$	—	$	137,194
Shipping and handling	—		5,674		5,674		—		6,677		6,677
Total rental revenue	138,429		5,674		144,103		137,194		6,677		143,871
Sales and services:
Sales of rental equipment	—		19,585		19,585		—		15,167		15,167
Sales of new equipment	—		19,043		19,043		—		8,076		8,076
Parts and services	—		36,753		36,753		—		19,675		19,675
Total sales and services	—		75,381		75,381		—		42,918		42,918
Total revenue	$	138,429	$	81,055	$	219,484	$	137,194	$	49,595	$	186,789

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.

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)	September 30, 2020		December 31, 2019
Parts, tools and accessories inventory	$	26,781	$	30,174
Equipment inventory	3,842		2,827
Inventory	$	30,623	$	33,001

Rental and Property and Equipment

Rental equipment consisted of the following:


(in $000s)	September 30, 2020		December 31, 2019
Rental equipment	$	661,153	$	658,564
Less: accumulated depreciation	(312,221)		(275,144)
Rental equipment, net	$	348,932	$	383,420

Property and equipment consisted of the following:


(in $000s)	September 30, 2020		December 31, 2019
Property and equipment	$	11,575	$	10,082
Less: accumulated depreciation	(7,921)		(7,168)
Construction in progress	2,719		3,647
Property and equipment, net	$	6,373	$	6,561

On September 27, 2019, we commenced closure of the Company's operations in Mexico due to continued delays in contracts from the Mexican government. In the three and nine month periods ended September 30, 2019, an impairment loss of $0.7 million was recorded to reduce the carrying amount of rental equipment to its fair value, which was determined based on a recent analysis of market activity (i.e., Level 3 fair value as defined in Note 9 herein) for the equipment at these operations. This charge is included in Impairment loss on the Unaudited Condensed Consolidated Statements of Operations.

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.

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 September 30,						Three Months Ended September 30,
	2020						2019
(in $000s)	ERS		PTA		Total		ERS		PTA		Total
Rental revenue(1)	$	42,615	$	3,510	$	46,125	$	46,922	$	3,181	$	50,103
Sales of rental equipment	5,510		—		5,510		3,436		—		3,436
Sales of new equipment	6,048		—		6,048		1,246		—		1,246
Parts sales and services	—		11,577		11,577		—		7,657		7,657
Total revenues	54,173		15,087		69,260		51,604		10,838		62,442
Cost of revenue	23,342		10,820		34,162		17,091		6,393		23,484
Depreciation of rental equipment	18,530		937		19,467		16,636		1,058		17,694
Gross Profit	$	12,301	$	3,330	$	15,631	$	17,877	$	3,387	$	21,264

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2020						2019
(in $000s)	ERS		PTA		Total		ERS		PTA		Total
Rental revenue(1)	$	132,693	$	11,410	$	144,103	$	134,684	$	9,187	$	143,871
Sales of rental equipment	19,585		—		19,585		15,167		—		15,167
Sales of new equipment	19,043		—		19,043		8,076		—		8,076
Parts sales and services	—		36,753		36,753		—		19,675		19,675
Total revenues	171,321		48,163		219,484		157,927		28,862		186,789
Cost of revenue	72,211		34,622		106,833		55,306		17,853		73,159
Depreciation of rental equipment	56,065		3,210		59,275		48,186		3,183		51,369
Gross Profit	$	43,045	$	10,331	$	53,376	$	54,435	$	7,826	$	62,261

(1) Amounts for equipment rental revenue of $0.7 million and $1.9 million for the three and nine months ended September 30, 2019, respectively, previously reported in the PTA segment as rental revenue have been reclassified to the ERS segment to align the reportable segment information to the information our CODM began receiving on a regular basis in 2019.

Total assets by segment are not disclosed herein because asset by operating segment data is not reviewed by the CODM to assess performance and allocate resources.

Gross profit is the primary operating result whereby our segments are evaluated for performance and resource allocation. The following table presents a reconciliation of consolidated gross profit to consolidated loss before income taxes:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in $000s)	2020		2019		2020		2019

Gross profit	$	15,631	$	21,264	$	53,376	$	62,261
Selling, general and administrative expenses	8,633		9,824		31,269		24,708
Licensing and titling expenses	686		690		2,243		1,926
Amortization and non-rental depreciation	792		745		2,308		2,264
Transaction expenses	110		3,325		1,073		7,394
Asset impairment	—		657		—		657
Other operating expenses	451		434		2,209		1,213
Other (income) expense	(559)		2,567		6,245		2,545
Loss on extinguishment of debt	—		4,005		—		4,005
Interest expense, net	15,853		16,533		47,816		46,376
Loss before income taxes	$	(10,335)	$	(17,516)	$	(39,787)	$	(28,827)

We are positioned to serve all 50 U.S. states and 13 Canadian provinces and territories using our network of locations in North America. The following tables present revenue by country and total assets by country:


	Three Months Ended September 30,		Nine Months Ended September 30,
(in $000s)	2020	2019	2020	2019

Revenue:
United States	$