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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 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)
_______________________________
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 filer
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 outstanding as of October 30, 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 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 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)September 30, 2020December 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 
Inventory30,623 33,001 
Prepaid expenses and other6,170 5,217 
Total current assets94,904 115,843 
Property and equipment, net6,373 6,561 
Rental equipment, net348,932 383,420 
Goodwill and other intangibles, net305,977 308,747 
Deferred income taxes12,708  
Notes receivable562 713 
Total Assets$769,456 $815,284 
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable$14,826 $41,172 
Accrued expenses15,806 27,590 
Deferred rent income1,000 2,270 
Current maturities of long-term debt1,280 1,280 
Current portion of capital lease obligations7,975 5,451 
Total current liabilities40,887 77,763 
Long-term debt, net733,270 713,023 
Capital leases11,848 22,631 
Deferred income taxes 12,288 
Interest rate collar7,858 1,709 
Total long-term liabilities752,976 749,651 
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 capital434,246 432,577 
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.
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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)2020201920202019
Revenue
Rental revenue$46,125 $50,103 $144,103 $143,871 
Sales of rental equipment5,510 3,436 19,585 15,167 
Sales of new equipment6,048 1,246 19,043 8,076 
Parts sales and services11,577 7,657 36,753 19,675 
Total Revenue69,260 62,442 219,484 186,789 
Cost of Revenue
Cost of rental revenue13,096 13,545 41,193 37,445 
Depreciation of rental equipment19,467 17,694 59,275 51,369
Cost of rental equipment sales5,190 2,847 16,454 12,653 
Cost of new equipment sales5,410 1,116 16,841 6,618
Cost of parts sales and services10,255 5,600 30,839 14,921 
Major repair disposals211 376 1,506 1,522 
Total cost of revenue53,629 41,178 166,108 124,528 
Gross Profit15,631 21,264 53,376 62,261 
Operating Expenses
Selling, general and administrative expenses8,633 9,824 31,269 24,708 
Licensing and titling expenses686 690 2,243 1,926 
Amortization and non-rental depreciation792 745 2,308 2,264 
Transaction expenses110 3,325 1,073 7,394 
Asset impairment 657  657 
Other operating expenses451 434 2,209 1,213 
Total Operating Expenses10,672 15,675 39,102 38,162 
Operating Income4,959 5,589 14,274 24,099 
Other Expense
Loss on extinguishment of debt 4,005  4,005 
Interest expense, net15,853 16,533 47,816 46,376 
Other (income) expense, net(559)2,567 6,245 2,545 
Total other expense15,294 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 Outstanding49,033,903 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 Outstanding49,307,811 39,909,481 49,033,903 27,743,586 
See accompanying notes to unaudited condensed consolidated financial statements.
4


Nesco Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(in $000s)2020201920202019
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.



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Nesco Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended September 30,
(in $000s)20202019
Operating Activities
Net loss$(13,946)$(30,157)
Adjustments to reconcile net loss to net cash flow from operating activities:
Depreciation60,080 52,104 
Amortization - intangibles2,233 2,172 
Amortization - financing costs2,188 2,099 
Provision for losses on accounts receivable1,813 3,472 
Share-based payments1,669 463 
Gain on sale of rental equipment and parts(4,231)(3,930)
Gain on insurance proceeds - damaged equipment(714)(570)
Major repair disposal1,506 1,522 
Loss on extinguishment of debt 4,005 
Change in fair value of derivative6,149 2,552 
Asset impairment 657 
Deferred tax (benefit) expense(24,417)816 
Accounts receivable9,258 (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 activities14,866 714 
Investing Activities
Purchase of equipment - rental fleet(59,197)(77,752)
Proceeds from sale of rental equipment and parts26,108 22,608 
Insurance proceeds from damaged equipment3,747 1,721 
Purchase of other property and equipment(678)(7,166)
Other151 (1,671)
Net cash flow from investing activities(29,869)(62,260)
Financing Activities
Proceeds from debt 475,000 
Borrowings under revolving credit facilities74,042 243,000 
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 activities10,341 59,607 
Net Change in Cash(4,662)(1,939)
Cash at Beginning of Period6,302 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 taxes156 444 
Non-Cash Investing and Financing Activities
Transfer of inventory to leased equipment6,175 3,767 
Rental equipment and property and equipment purchases in accounts payable4,217 21,227 
Rental equipment sales in accounts receivable902 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.
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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)
Net income (loss)— — — 15,173 — 15,173 
Share-based payments— — 657 — — 657 
Interest rate collar— — — — —  
Balance, September 30, 202049,033,903 $5 $434,246 $(458,658)$ $(24,407)
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)
Net loss prior to reverse recapitalization— — — (10,988)— (10,988)
Net loss post reverse recapitalization— — — (7,022)— (7,022)
Reverse capitalization27,373,265 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.

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.
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.
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 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.


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 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,
20202019
(in $000s)Topic 840Topic 606TotalTopic 840Topic 606Total
Rental:
Rental revenue$44,468 $ $44,468 $47,821 $ $47,821 
Shipping and handling 1,657 1,657  2,282 2,282 
Total rental revenue44,468 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,
20202019
(in $000s)Topic 840Topic 606TotalTopic 840Topic 606Total
Rental:
Rental revenue$138,429 $ $138,429 $137,194 $ $137,194 
Shipping and handling 5,674 5,674  6,677 6,677 
Total rental revenue138,429 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
11


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, 2020December 31, 2019
Parts, tools and accessories inventory$26,781 $30,174 
Equipment inventory3,842 2,827 
Inventory$30,623 $33,001 

Rental and Property and Equipment
Rental equipment consisted of the following:
(in $000s)September 30, 2020December 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, 2020December 31, 2019
Property and equipment$11,575 $10,082 
   Less: accumulated depreciation(7,921)(7,168)
   Construction in progress2,719 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.
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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,
20202019
(in $000s)ERSPTATotalERSPTATotal
Rental revenue(1)
$42,615 $3,510 $46,125 $46,922 $3,181 $50,103 
Sales of rental equipment5,510  5,510 3,436  3,436 
Sales of new equipment6,048  6,048 1,246  1,246 
Parts sales and services 11,577 11,577  7,657 7,657 
Total revenues54,173 15,087 69,260 51,604 10,838 62,442 
Cost of revenue23,342 10,820 34,162 17,091 6,393 23,484 
Depreciation of rental equipment18,530 937 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,
20202019
(in $000s)ERSPTATotalERSPTATotal
Rental revenue(1)
$132,693 $11,410 $144,103 $134,684 $9,187 $143,871 
Sales of rental equipment19,585  19,585 15,167  15,167 
Sales of new equipment19,043  19,043 8,076  8,076 
Parts sales and services 36,753 36,753  19,675 19,675 
Total revenues171,321 48,163 219,484 157,927 28,862 186,789 
Cost of revenue72,211 34,622 106,833 55,306 17,853 73,159 
Depreciation of rental equipment56,065 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.

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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)2020201920202019
Gross profit$15,631 $21,264 $53,376 $62,261 
Selling, general and administrative expenses8,633 9,824 31,269 24,708 
Licensing and titling expenses686 690 2,243 1,926 
Amortization and non-rental depreciation792 745 2,308 2,264 
Transaction expenses110 3,325 1,073 7,394 
Asset impairment 657  657 
Other operating expenses451 434 2,209 1,213 
Other (income) expense(559)2,567 6,245 2,545 
Loss on extinguishment of debt 4,005  4,005 
Interest expense, net15,853 16,533 47,816 46,376 
Loss before income taxes$(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 $000s)2020201920202019
Revenue:
United States$