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Nesco Holdings, Inc. Reports Fourth Quarter and Full Year 2020 Financial Results

03/08/2021
Fourth Quarter Highlights
All metrics compared to fourth quarter 2019 unless otherwise noted
- Total revenue increased 7.8% to $83.3 million
- Equipment Rental and Sales (ERS) segment revenue increased 7.3% to $65.2 million
- Parts, Tools and Accessories (PTA) segment revenue increased 9.6% to $18.0 million
- Adjusted EBITDA decreased 9.2% to $32.3 million
- Net loss of $7.3 million compared to net income of $3.1 million
- Free cash flow increased to $28.5 million from negative $2.6 million
- Announced acquisition of Custom Truck to create industry-leading specialty equipment rental platform with a combined fleet of 8,800 units and more than $1.3 billion in original equipment cost
Full Year 2020 Highlights
All metrics compared to 2019 unless otherwise noted
- Total revenue increased 14.7% to $302.7 million
- Equipment Rental and Sales (ERS) segment revenue increased 9.1% to $236.6 million
- Parts, Tools and Accessories (PTA) segment revenue increased 40.1% to $66.2 million
- Adjusted EBITDA decreased 7.0% to $118.6 million
- Net loss of $21.3 million compared to a net loss of $27.1 million
- Free cash flow increased to $13.3 million from negative $62.5 million
- Available liquidity of $93.6 million as of December 31, 2020

FORT WAYNE, Ind., March 8, 2021 /PRNewswire/ -- Nesco Holdings, Inc. (NYSE: NSCO, "Nesco" or the "Company"), a leading provider of specialty rental equipment to the electric utility, telecom and rail infrastructure end markets, today reported financial results for its fourth quarter and fiscal year ended December 31, 2020.

Total revenue in the fourth quarter was $83.3 million, an increase of 7.8% from the fourth quarter of 2019, as increased equipment sales and growth in PTA more than offset the negative impact of COVID-19 related project delays.

For the full year 2020, the Company reported total revenue of $302.7 million, an increase of 14.7%, primarily due to higher equipment sales and the acquisition of Truck Utilities.

Adjusted EBITDA was $32.3 million in the fourth quarter, a decrease of 9.2% from $35.6 million in the fourth quarter of 2019. For the full year 2020, Adjusted EBITDA was $118.6 million, a decrease of 7.0% from $127.5 million in 2019. In both periods, the declines in adjusted EBITDA were primarily due to lower fleet utilization resulting from project delays associated with COVID-19, partially offset by increases in equipment sales and growth in PTA.

A net loss of $7.3 million for the fourth quarter compared to net income of $3.1 million in the fourth quarter of 2019. The Company reported a net loss of $21.3 million for 2020, compared to a net loss of $27.1 million in 2019. The Company recognized a one-time income tax benefit in the third quarter of $23.7 million related to a reduction of the deferred income tax valuation allowance.

"Our positive momentum in the latter part of the third quarter and throughout the fourth quarter helped us achieve record quarterly revenue in both our ERS and PTA segments," said Lee Jacobson, Chief Executive Officer of Nesco. "The recovery continues to build in 2021 as new project releases gained pace in the second half of January and carried into February. We believe a bright future lies ahead for Nesco, with strong, multi-year tailwinds in our end markets and countless new opportunities from our strategic combination with Custom Truck."

"During the fourth quarter, we continued to capitalize on improving demand across all of our end markets, maintaining disciplined cost control and capital investments, and driving free cash flow," said Josh Boone, Chief Financial Officer of Nesco. "We were successful on all these fronts in the fourth quarter, generating positive free cash flow for the third consecutive quarter and the full year, while improving our liquidity position, to nearly $94 million at year-end."

ACQUISITION OF CUSTOM TRUCK

As previously announced, on December 3, 2020, Nesco entered into a definitive agreement to acquire Custom Truck One Source, LP ("Custom Truck"). The combination will create a leading, one-stop shop for specialty rental equipment serving highly attractive and growing infrastructure end markets, including transmission and distribution ("T&D"), telecom, rail and other national infrastructure initiatives. Due to complementary business lines, customer bases and capabilities, the combined specialty equipment platform is expected to yield significant benefits from increased scale, broader product and service offerings and expanded geographic coverage with a combined fleet of 8,800 specialty equipment rental units and more than $1.3 billion original equipment cost.

The transaction has been approved by Nesco Holdings' shareholders and is on track to close in the first quarter of 2021.

FOURTH QUARTER REVENUE BY SEGMENT 
All metrics compared to fourth quarter 2019 unless otherwise noted

Equipment Rental and Sales Segment (78.4% of revenue)

  • Revenue increased 7.3% to $65.2 million, compared to $60.8 million
  • Equipment rental revenue decreased 5.5% to $47.2 million, compared to $50.0 million
    • Average equipment on rent decreased 2.3% to $502.9 million due to COVID-19 related project delays
    • Fleet utilization declined 5.9% to 77.9%
  • Equipment sales revenue increased 66.2% to $18.0 million due to an increase in new and used equipment sales

Parts, Tools and Accessories Segment (21.6% of revenue)

  • Revenue increased 9.6% to $18.0 million, compared to $16.4 million
  • Parts rental revenue of $4.1 million was flat when compared to the same period in 2019 due to COVID-19 related project delays
  • Parts sales and service revenue increased 12.8% to $13.9 million primarily due to the acquisition of Truck Utilities

FULL YEAR REVENUE BY SEGMENT
All metrics compared to 2019 unless otherwise noted

Equipment Rental and Sales Segment (78.1% of revenue)

  • Revenue increased 9.1% to $236.6 million, compared to $216.8 million
  • Equipment rental revenue decreased 1.5% to $179.9 million, compared to $182.7 million
    • Average equipment on rent increased 0.6% to $482.0 million; the Company invested to grow the fleet in 2019 and in the first half of 2020, which resulted in increased equipment on rent year-over-year despite mid-year headwinds resulting from COVID-19 related project delays
    • Fleet utilization declined 10.1% to 74.6%
  • Equipment sales revenue increased 66.2% to $56.6 million due to an increase in new and used equipment sales and a concerted effort to market and sell aging units

Parts, Tools and Accessories Segment (21.9% of revenue)

  • Revenue increased 40.1% to $66.2 million, compared to $47.2 million
  • Parts rental revenue increased 1.8% to $15.6 million when compared to same period in 2019, mainly due to an expansion of PTA locations in 2019 to create a national footprint, which offset the negative impact of COVID-19 related projected delays
  • Parts sales and service revenue increased 58.4% to $50.6 million, primarily due to the acquisition of Truck Utilities

LIQUIDITY AND CASH FLOW

The Company had cash of $3.4 million and availability of $90.2 million under its asset-based credit facility, for total liquidity of $93.6 million as of December 31, 2020, a $24.6 million sequential quarterly improvement. Net debt outstanding, including capital leases, was $735.5 million as of December 31, 2020, a decrease of $29.3 million compared to the end of the third quarter.

For the full year 2020, Nesco reported positive cash flow from operating activities of $42.8 million, an increase of $24.0 million compared to 2019. Net cash outflow from investing activities of $29.3 million in 2020 improved from $129.7 million when compared to 2019 as Nesco curtailed capital expenditures and increased sales of rental equipment. Free cash flow increased to $13.3 million in 2020 from negative free cash flow of $62.5 million in 2019.

Total net capital expenditures in 2020 were $29.5 million. Gross capital expenditures, which include purchases of rental fleet and property and equipment, were $68.4 million. The Company received $38.9 million from the sale of rental equipment and parts, as well as insurance proceeds from damaged equipment.

CONFERENCE CALL INFORMATION

With the upcoming transaction, the Company will not be hosting a conference call at this time. The Company will be scheduling a conference call at a later date to discuss its financial results, provide a market update, as well as to provide an update related to the acquisition of Custom Truck.

NON-GAAP FINANCIAL MEASURES

The Company uses a variety of operational and financial metrics, including financial measures that do not conform with Generally Accepted Accounting Principles (GAAP), to analyze its performance and financial condition. These include adjusted EBITDA, free cash flow, fleet utilization, original equipment cost (OEC) on rent and net capital expenditures, among other metrics. The Company utilizes these financial measures to manage its business on a day-to-day basis and believes they are the most relevant measures of performance.  Some of these measures are commonly used in the specialty rentals industry to evaluate performance. The Company believes these non-GAAP measures provide greater insights about its revenue and cost performance, in addition to standard GAAP-based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, they may not be comparable to measures used by other companies within the industry. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or to be superior to, the financial information prepared and presented in accordance with GAAP.  The definitions of non-GAAP financial measures along with a reconciliation of non-GAAP financial information to GAAP are included in the supplemental financial schedules.

ABOUT NESCO

Nesco is one of the largest providers of specialty equipment, parts, tools, accessories and services to the electric utility transmission and distribution, telecommunications and rail markets in North America. Nesco offers its specialized equipment to a diverse customer base for the maintenance, repair, upgrade and installation of critical infrastructure assets, including electric lines, telecommunications networks and rail systems. Nesco's coast-to-coast rental fleet of more than 4,500 units includes aerial devices, boom trucks, cranes, digger derricks, pressure drills, stringing gear, hi-rail equipment, repair parts, tools and accessories. For more information, please visit investors.nescospecialty.com.

FORWARD-LOOKING STATEMENTS

This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended.  When used in this press release, the words "estimates," "projected," "expects," "anticipates," "forecasts," "plans," "intends," "believes," "seeks," "may," "will," "should," "future," "propose" and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside Nesco's management's control, that could cause actual results or outcomes to differ materially from those discussed in this press release. This press release is based on certain assumptions that Nesco's management has made in light of its experience in the industry, as well as Nesco's perceptions of historical trends, current conditions, expected future developments and other factors Nesco believes are appropriate in these circumstances. As you read and consider this press release, you should understand that these statements are not guarantees of performance or results. Many factors could affect Nesco's actual performance and results and could cause actual results to differ materially from those expressed in this press release. All forward-looking statements attributable to Nesco or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. Important factors, among others, that may affect actual results or outcomes include: the impact of the COVID-19 pandemic on Nesco's business and operations as well as the overall economy; Nesco's ability to complete its pending transaction with Custom Truck and the related private placement of notes; Nesco's ability to execute on its plans to develop and market new products and the timing of these development programs; Nesco's estimates of the size of the markets for its solutions; the rate and degree of market acceptance of Nesco's solutions; the success of other competing technologies that may become available; Nesco's ability to identify and integrate acquisitions, including Nesco's ability to integrate its anticipated transaction with Custom Truck and realize the anticipated benefits thereof; the performance and security of Nesco's services; potential litigation involving Nesco; and general economic and market conditions impacting demand for Nesco's services. For a more complete description of these and other possible risks and uncertainties, please refer to Nesco's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 16, 2020, and as updated by Nesco's quarterly reports on Form 10-Q.

INVESTOR CONTACT

Josh Boone, CFO
(800) 252-0043
investors@nescospecialty.com

 

Nesco Holdings, Inc.

Condensed Consolidated Statements of Operations (unaudited)



Three Months Ended December 31,



Twelve Months Ended December 31,

(in $000s except per share data)

2020


2019



2020


2019

Revenue









Rental revenue

$

51,387



$

54,125




$

195,490



$

197,996


Sales of rental equipment

11,948



8,600




31,533



23,767


Sales of new equipment

6,056



2,232




25,099



10,308


Parts sales and services

13,864



12,289




50,617



31,964


Total revenues

83,255



77,246




302,739



264,035


Cost of revenue









Cost of rental revenue

17,837



13,313




59,030



50,829


Depreciation of rental equipment

19,257



19,270




78,532



70,568


Cost of rental equipment sales

9,161



7,649




25,615



20,302


Cost of new equipment sales

4,951



1,902




21,792



8,520


Cost of parts sales and services

8,311



10,131




39,150



25,052


Major repair disposals

671



694




2,177



2,216


Total cost of revenue

60,188



52,959




226,296



177,487


Gross profit

23,067



24,287




76,443



86,548


Operating expenses









Selling, general, and administrative

12,195



9,960




43,464



34,667


Licensing and titling

702



690




2,945



2,617


Amortization and non-rental depreciation

940



858




3,248



3,122


Transaction expenses

5,554



247




6,627



7,641


Asset impairment








657


Other operating expenses

702



613




2,911



1,826


Total operating expenses

20,093



12,368




59,195



50,530


Operating income

2,974



11,919




17,248



36,018


Other expense









Loss on extinguishment of debt








4,005


Interest expense, net

15,384



16,985




63,200



63,361


Other expense, net

(846)



(855)




5,399



1,690


Total other expense

14,538



16,130




68,599



69,056


Loss before income taxes

(11,564)



(4,211)




(51,351)



(33,038)


Income tax expense (benefit)

(4,233)



(7,316)




(30,074)



(5,986)


Net Income (Loss)

$

(7,331)



$

3,105




$

(21,277)



$

(27,052)


Income (Loss) Per Share:









    Basic and diluted

$

(0.15)



$

0.06




$

(0.43)



$

(0.82)


 

Nesco Holdings, Inc.

Condensed Consolidated Balance Sheets (unaudited)


(in $000s, except share data)

December 31, 2020


December 31, 2019

Assets




Current Assets




Cash

$

3,412



$

6,302


Accounts receivable, net of allowance of $6,372 and $4,654, respectively

60,933



71,323


Inventory

31,367



33,001


Prepaid expenses and other

7,530



5,217


Total current assets

103,242



115,843


Property and equipment, net

6,269



6,561


Rental equipment, net

335,812



383,420


Goodwill and other intangible assets, net

305,631



308,747


Deferred income taxes

16,952




Notes receivable

498



713


Total assets

$

768,404



$

815,284


Liabilities and Stockholders' Deficit




Current Liabilities




Accounts payable

$

31,829



$

41,172


Accrued expenses

31,991



27,590


Deferred rent income

975



2,270


Current maturities of long-term debt

1,280



1,280


Current portion of capital lease obligations

5,276



5,451


Total current liabilities

71,351



77,763


Long term debt, net

715,858



713,023


Capital leases

5,250



22,631


Deferred income taxes



12,288


Interest rate collar

7,012



1,709


Total long-term liabilities

728,120



749,651






Commitments and contingencies








Stockholders' Deficit




Common stock - $0.0001 par value, 250,000,000 shares authorized, 49,156,753 and 49,033,903 issued and outstanding, at December 31, 2020 and 2019, respectively

5



5


Additional paid-in capital

434,917



432,577


Accumulated deficit

(465,989)



(444,712)


Total stockholders' deficit

(31,067)



(12,130)


Total Liabilities and Stockholders' Deficit

$

768,404



$

815,284


 

Nesco Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)



Twelve Months Ended December 31,

(in $000s)

2020


2019

Operating activities




Net loss

$

(21,277)



$

(27,052)


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




Depreciation

79,559



71,548


Amortization - intangibles

3,153



3,008


Amortization - financing costs

3,290



2,913


Provision for losses on accounts receivable

3,765



3,292


Share-based payments

2,357



1,014


Gain on sale of equipment - rental fleet

(7,215)



(5,542)


Gain on insurance proceeds - damaged equipment

(781)



(538)


Major repair disposals

2,177



2,216


Loss on extinguishment of debt



4,005


Asset impairment



657


Change in fair value of derivative

5,303



1,709


Deferred tax (benefit) expense

(28,810)



(6,861)


Changes in assets and liabilities:




Accounts receivable

7,061



(17,073)


Inventory

(9,642)



(22,683)


Prepaid expenses and other

(2,313)



(2,578)


Accounts payable

3,113



7,547


Accrued expenses and other liabilities

4,384



6,560


Unearned income

(1,295)



(3,350)


Net cash flow from operating activities

42,829



18,792






Investing activities




Cash paid for business acquisition, net of cash required



(48,425)


Purchase of equipment - rental fleet

(67,546)



(106,641)


Proceeds from sale of equipment and parts

34,923



26,794


Insurance proceeds from damaged equipment

4,010



1,658


Purchase of property and equipment

(874)



(3,065)


Other

173




Net cash flow from investing activities

(29,314)



(129,679)






Financing activities




Proceeds from issuance of long-term debt



475,000


Borrowings under revolving credit facilities

86,178



313,000


Repayments under revolving credit facilities

(85,208)



(272,000)


Repayments of short-term debt

(1,146)



(527,531)


Capital lease payments

(15,950)



(5,201)


Proceeds from merger and recapitalization



147,269


Finance fees paid

(279)



(15,488)


Net cash flow from financing activities

(16,405)



115,049


Net change in cash

(2,890)



4,162


Cash at Beginning of Period

6,302



2,140


Cash at End of Period

$

3,412



$

6,302











Twelve Months Ended December 31,

(in $000s)

2020


2019

Supplemental Cash Flow Information




Cash paid for interest

$

60,340



$

53,595


Cash paid for income taxes

646



455


Non-Cash Investing and Financing Activities:




Transfer of inventory to rental equipment

10,851



5,804


Rental equipment and property and equipment purchases in accounts payable

9,122



21,643


Rental equipment sales in accounts receivable

5,120



4,684


Extinguishment of capital lease obligations

1,608




Customer note receivable



972


Settlement of note payable with common stock



25,000


 

 

Nesco Holdings, Inc. 

Adjusted EBITDA Reconciliation (unaudited)



Three Months Ended December 31,


Twelve Months Ended December 31,

(in $000s)

2020


2019


2020


2019

Net loss

$

(7,331)



$

3,105



$

(21,277)



$

(27,052)


Interest expense

15,384



16,985



63,200



63,361


Income tax expense (benefit)

(4,233)



(7,316)



(30,074)



(5,986)


Depreciation expense

19,479



19,444



79,559



71,548


Amortization expense

920



836



3,153



3,008


EBITDA

24,219



33,054



94,561



104,879


Adjustments:








   Non-cash purchase accounting impact (1)

1,025



940



2,510



1,802


   Transaction and process improvement costs (2)

6,562



1,190



11,660



15,866


   Major repairs (3)

671



694



2,177



2,216


   Share-based payments (4)

688



551



2,357



1,014


Change in fair value of derivative (5)

(846)



(843)



5,303



1,709


Adjusted EBITDA

$

32,319



$

35,586



$

118,568



$

127,486


Adjusted EBITDA is defined as net income (loss) plus interest expense, provision for income taxes, depreciation and amortization, and further adjusted for (1) non-cash purchase accounting impact, (2) transaction and process improvement costs, including the effect of the cessation of operations in Mexico, (3) major repairs, (4) share-based payments, (5) other non-recurring items, if any, and (6) the change in fair value of derivative instruments.  This non-GAAP measure is subject to certain limitations.

(1)

Represents the non-cash impact of purchase accounting, net of accumulated depreciation, on the cost of equipment sold.  The equipment acquired received a   purchase step-up in basis, which is a non-cash adjustment to the equipment cost pursuant to our credit agreement.

(2)

2020: Represents transaction costs related to the pending acquisition of Custom Truck, as well as, our acquisition of Truck Utilities; 2019: Represents transaction expenses related to merger activities associated with the transaction with Capitol that was consummated on July 31, 2019. These expenses are comprised of professional consultancy, legal, tax and accounting fees. Also included are costs of startup activities (which include training, travel, and process setup costs) associated with the rollout of new PTA locations that occurred throughout the prior year into the first half of the current year. Finally, the expenses associated with the closure of its Mexican operations, which closure activities commenced in the third quarter of 2019, are also included for the periods presented. Pursuant to our credit agreement, the cost of undertakings to effect such cost savings, operating expense reductions and other synergies, as well as any expenses incurred in connection with acquisitions, are amounts to be included in the calculation of Adjusted EBITDA.

(3)

Represents the undepreciated cost of replaced vehicle chassis and components from heavy maintenance, repair and overhaul activities associated with our fleet, which is an adjustment pursuant to our credit agreement.

(4)

Represents non-cash stock compensation expense associated with the issuance of stock options and restricted stock units.

(5)

Represents the charge to earnings for our interest rate collar (which is an undesignated hedge).

 

Fleet Metrics (unaudited)




Three Months Ended December 31,


Twelve Months Ended December 31,

(in $000s)


2020


2019


2020


2019

Average OEC on rent


$

502,949



$

514,552



$

482,016



$

478,967


Fleet utilization


77.9

%


83.8

%


74.6

%


84.7

%

OEC on rent yield


35.7

%


37.0

%


36.0

%


36.9

%

OPERATIONAL AND FINANCIAL METRICS

Average OEC on rent.  OEC on rent is the original equipment cost of units rented to customers at a given point in time. Average OEC on rent is calculated as the weighted-average OEC on rent during the stated period.

Fleet utilization.  Fleet utilization is defined as the total number of days the rental equipment was rented during a specified period of time divided by the total number of days available during the same period and weighted based on OEC.

OEC on rent yield.  OEC on rent yield ("ORY") is a measure of return realized by our on rental fleet during a 12-month period. ORY is calculated as rental revenue (excluding freight recovery and ancillary fees) during the stated period divided by the Average OEC on Rent for the same period. For period less than 12 months, the ORY is adjusted to an annualized basis.

Segment Performance (unaudited)



Three Months Ended December 31,


2020


2019

(in $000s)

ERS

PTA

Total


ERS

PTA

Total

Rental revenue

$

47,240


$

4,147


$

51,387



$

49,985


$

4,140


$

54,125


Sales of rental equipment

11,948



11,948



8,600



8,600


Sales of new equipment

6,056



6,056



2,232



2,232


Parts sales and services


13,864


13,864




12,289


12,289


Total revenue

65,244


18,011


83,255



60,817


16,429


77,246


Cost of revenue

31,336


9,595


40,931



21,279


12,410


33,689


Depreciation of rental equipment

18,311


946


19,257



18,030


1,240


19,270


Gross Profit

$

15,597


$

7,470


$

23,067



$

21,508


$

2,779


$

24,287


 


Twelve Months Ended December 31,


2020


2019

(in $000s)

ERS

PTA

Total


ERS

PTA

Total

Rental revenue

$

179,933


$

15,557


$

195,490



$

182,720


$

15,276


$

197,996


Sales of rental equipment

31,533



31,533



23,767



23,767


Sales of new equipment

25,099



25,099



10,308



10,308


Parts sales and services


50,617


50,617




31,964


31,964


Total revenue

236,565


66,174


302,739



216,795


47,240


264,035


Cost of revenue

103,547


44,217


147,764



76,573


30,346


106,919


Depreciation of rental equipment

74,376


4,156


78,532



66,228


4,340


70,568


Gross Profit

$

58,642


$

17,801


$

76,443



$

73,994


$

12,554


$

86,548


 

Net Capital Expenditures (unaudited)



Twelve Months Ended December 31,

(in $000s)

2020


2019

Purchase of equipment - rental fleet

$

67,546



$

106,641


Purchase of other property and equipment

874



3,065


Total Capital Expenditures

68,420



109,706


Less:




Proceeds from sale of equipment and parts

(34,923)



(26,794)


Insurance proceeds from damaged equipment

(4,010)



(1,658)


Net Capital Expenditures

$

29,487



$

81,254


 

Free Cash Flow (unaudited)



Twelve Months Ended December 31,

(in $000s)

2020


2019

Net cash flow from operating activities

$

42,829



$

18,792


Net capital expenditures

(29,487)



(81,254)


Free cash flow

$

13,342



$

(62,462)






 

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SOURCE Nesco Holdings, Inc.

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