Nesco Holdings, Inc. Reports First Quarter Financial Results

FORT WAYNE, Ind., May 7, 2020 /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 the first quarter ended March 31, 2020.

FIRST QUARTER 2020 HIGHLIGHTS

    --  Total revenue of $81.7 million (+32.9% from 2019)
    --  Equipment rental revenue of $47.1 million (+9.7% from 2019)
    --  Equipment sales revenue of $16.7 million (+71.0% from 2019)
    --  Parts, tools, and accessories revenue of $18.0 million (+103.7% from
        2019)
    --  Consolidated net loss of $16.0 million
    --  Adjusted EBITDA of $32.1 million (+5.3% from 2019)
    --  Uncertainty related to future impact of COVID-19 results in withdrawal
        of 2020 guidance

"Nesco experienced solid growth in the first quarter across all segments, resulting in our 15th consecutive quarter of year-over-year Adjusted EBITDA growth," said Lee Jacobson, Chief Executive Officer of Nesco. "We were impacted by COVID-19 in the final month of the quarter, but we still experienced more than 5% equipment rental revenue growth in the first quarter, excluding growth from Truck Utilities. Parts, tools and accessories segment revenue also increased more than 14% in the first quarter, excluding Truck Utilities."

"The electric transmission and distribution, telecom and rail infrastructure end markets Nesco serves are considered critical infrastructure markets according to CISA guidelines, deeming our business operations essential. All our business and service locations remain operational, but we have taken steps intended to maintain the health and safety of our employees and customers. Especially during this time of increased social distancing, Nesco benefits from the fact that none of our service locations across the country require in-person contact or have a staffed sales team because we do not have a store front sales model - while they have reduced in person meetings, Nesco's sales team can effectively do business the same way they always have. Nesco is proud to provide essential services to our critical end markets, and we believe serving these markets will result in a reduced relative business impact from the pandemic compared to businesses that primarily serve construction, oil or industrial end markets. While most existing projects have continued due to their essential status, many of the new utility and telecom projects that typically start in the spring of each year have been delayed due to COVID-19 social distancing measures, leading to a reduced level of equipment on rent as existing projects wrap up. In addition, PTA sales, which are driven in large part by new project starts, have been impacted. We are actively monitoring the situation and have already taken steps to mitigate the impact of the virus on our business by reducing remaining capital spending where practicable as well as enacting cost cutting measures."

FIRST QUARTER 2020 RESULTS

Total Revenue

Total revenue in the first quarter was $81.7 million, an increase of $20.3 million or 32.9% from the first quarter 2019. The Truck Utilities acquisition completed in November 2019 contributed $12.5 million of revenue in the quarter, $4.5 million within the ERS segment and $7.9 million within the PTA segment.

ERS segment revenue increased 21.0% to $63.7 million in the first quarter, compared to $52.6 million for the same period in 2019. Equipment rental revenue increased 9.7% (or 5.4% excluding Truck Utilities) to $47.1 million. This growth is primarily due to a 10.5% increase in average equipment on rent, which grew to $499.8 million in the first quarter, compared to $452.1 million in the same quarter of 2019. Fleet utilization was 75.9% in the first quarter compared to 82.2% in the same period of 2019. First quarter utilization is typically lower than other quarters due to seasonality, absent any unusual activity such as the California fire recovery work in the first quarter of 2019. This quarter followed typical patterns, however, was further impacted by COVID-19 and equipment recently added to the fleet that has not yet gone on rent. The Company's average rental rate per day was steady at $137.8 and $137.5 in the first quarter of 2020 and 2019, respectively. Equipment sales revenue of $16.7 million was an increase from the prior year quarter of 71.0% (or 43.5% excluding Truck Utilities). Equipment sales vary from quarter to quarter, however, in the first quarter of 2020, we focused on disposing certain older fleet units, helping to reduce our average fleet age from 3.6 years as of December 31, 2019 to 3.4 years as of March 31, 2020.

PTA segment revenue grew 103.7% (or 14.2% excluding Truck Utilities) to $18.0 million in the first quarter, compared to $8.8 million for the same period in 2019. PTA revenue growth was driven by a continued increase in penetration of Nesco's equipment rental customer base and a ramping of revenues at the newer PTA locations. COVID-19 social distancing measures limited the first quarter's PTA growth due to fewer new project starts, which is the primary driver of PTA sales revenue.

Net Loss

The Company reported net loss in the first quarter of $16.0 million, compared to a net loss of $6.7 million for the same period in 2019. The year-over-year increase in net loss was primarily driven by a $6.0 million charge related to the change in fair value of an interest rate collar.

Adjusted EBITDA

Adjusted EBITDA increased to $32.1 million in the three months ended March 31, 2020, as compared to $30.4 million in the same period in 2019. The primary driver of Adjusted EBITDA growth is a $2.6 million, or 7.6%, increase in core rental gross profit excluding depreciation, to $37.2 million ($17.1 million including depreciation). This increase was partially offset by higher selling, general and administrative expenses, largely from the acquisition of Truck Utilities as well as increased expenses related to becoming a public company.

Liquidity and Capitalization

As of March 31, 2020, the Company had total cash of $10.2 million and availability on its asset-based lending facility of $75.4 million. Total debt outstanding, including capital leases, was $790.6 million at the end of the first quarter 2020. The Company's credit facility and senior secured notes both mature in 2024.

Investing Activities

Average fleet count increased to 4,627 units in the first quarter of 2020, from 3,913 units in the same period in 2019. Total purchases of rental fleet and property and equipment in the first quarter were $37.5 million, including $13.7 million of maintenance expenditures and $23.8 million of growth expenditures. The Company received $10.0 million from sale of rental equipment and parts and insurance proceeds of $0.4 million from damaged equipment in the first quarter, resulting in total net capital expenditures of $27.2 million.

FINANCIAL OUTLOOK

Given the unprecedented nature of the COVID-19 pandemic, it is difficult to predict the ultimate impact of the pandemic on Nesco's full year 2020 operations. As a result, the Company is withdrawing full year 2020 guidance.

Nesco is proactively taking steps to mitigate the impact of the pandemic on the business and to conserve capital. The Company has reduced its planned net capital expenditures for the year by approximately one third, reflecting less than half of the amount invested in 2019. Nesco has also reduced headcount and made reductions to other selling, general and administrative expenses. The Company is actively monitoring the business impact and will take additional measures as appropriate. Nesco believes the steps taken to-date provide sufficient liquidity to fund the business in 2020 and beyond.

NON-GAAP FINANCIAL MEASURES

The Company uses a variety of operational and financial metrics, including non-GAAP financial measures such as Adjusted EBITDA, free cash flow, fleet utilization, original equipment cost on rent, among other metrics, to enable it to analyze its performance and financial condition. The Company utilizes these financial measures to manage its business on a day-to-day basis and believes that 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 expanded insight to assess revenue and cost performance, in addition to the standard GAAP-based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, 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 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.

CONFERENCE CALL INFORMATION

The Company has scheduled a conference call at 8:30 A.M. Eastern Time on May 7, 2020, to discuss the first quarter 2020 financial results. The conference call can be accessed by dialing 866-211-4094 (United States) or 647-689-6722 (International) using the conference ID 6538295. A replay of the call will be available on the Company's investor relations website at investors.nescospecialty.com.

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 over 4,600 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 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 their 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 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 acquisition of Truck Utilities 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, as filed with the Securities and Exchange Commission on March 16, 2020, as updated by Nesco's quarterly reports on Form 10-Q.

INVESTOR CONTACT
Noel Ryan, IRC
720.778.2415
investors@nescospecialty.com


                                         
            
              Nesco Holdings, Inc.
                                       
      Condensed Consolidated Balance Sheets (unaudited)




                 (in $000s, except
                  share data)                         March 31, 2020                                December 31, 2019



                 Assets


                 Current Assets



     Cash                                                              $
            10,236                                $
       6,302


      Accounts receivable,
       net of allowance of
       $4,685 and $4,654
       respectively                                           70,282                            71,323



     Inventory                                               30,738                            33,001


      Prepaid expenses and
       other                                                   5,251                             5,217



      Total current assets                                   116,507                           115,843


                 Property and
                  equipment, net                               9,802                             6,561


                 Rental equipment, net                       380,053                           383,420


                 Goodwill and other
                  intangibles, net                           308,014                           308,747


                 Notes receivable                                691                               713


                 Total Assets                                          $
            815,067                              $
       815,284



                 Liabilities and
                  Stockholder's
                  Deficit


                 Current Liabilities


      Accounts payable                                                  $
            28,038                               $
       41,172


      Accrued expenses                                        15,165                            27,590


      Deferred rent income                                     1,753                             2,270


      Current maturities of
       long-term debt                                          1,601                             1,280


      Current portion of
       capital lease
       obligations                                             7,430                             5,451



      Total current
       liabilities                                            53,987                            77,763


      Long-term debt, net                                    749,111                           713,023


      Capital leases                                          18,898                            22,631


      Deferred tax
       liabilities                                            12,940                            12,288


      Interest rate collar                                     7,671                             1,709



      Total long-term
       liabilities                                           788,620                           749,651




      Commitments and
       contingencies




                 Stockholders' Deficit


      Common stock -
       $0.0001 par value,
       250,000,000 shares
       authorized,
       49,033,903 shares
       issued and
       outstanding, at
       March 31, 2020 and
       December 31, 2019                                           5                                 5


      Additional paid-in
       capital                                               433,136                           432,577


      Accumulated deficit                                  (460,681)                        (444,712)


      Total stockholders'
       deficit                                              (27,540)                         (12,130)


                 Total Liabilities and
                  Stockholders'
                  Deficit                                              $
            815,067                              $
       815,284


                                      
              
                Nesco Holdings, Inc.
                          
              Condensed Consolidated Statements of Operations (unaudited)




                                                              Three Months Ended March 31,


                  (in $000s, except
                   share and per
                   share data)              2020                                2019



                  Revenue


     Rental revenue                                  $
              50,994                             $
       45,642


     Sales of rental
      equipment                            9,093                                            7,399


     Sales of new
      equipment                            7,577                                            2,350


     Parts sales and
      services                            14,079                                            6,101



     Total Revenue                        81,743                                           61,492


                  Cost of Revenue


     Cost of rental
      revenue                             13,786                                           11,057


     Depreciation of
      rental equipment                    20,112                                           16,731


     Cost of rental
      equipment sales                      7,728                                            5,934


     Cost of new
      equipment sales                      6,654                                            1,806


     Cost of parts sales
      and services                        11,360                                            4,850


     Major repair
      disposals                              700                                              762



     Total cost of
      revenue                             60,340                                           41,140



                  Gross Profit            21,403                                           20,352


                  Operating Expenses


     Selling, general
      and administrative
      expenses                            11,618                                            7,579


     Licensing and
      titling expenses                       821                                              653


     Amortization and
      non-rental
      depreciation                           716                                              770


     Transaction
      expenses                               736                                            2,510


     Other operating
      expenses                               716                                              150



     Total Operating
      Expenses                            14,607                                           11,662



                  Operating Income         6,796                                            8,690


                  Other Expense


     Interest expense,
      net                                 16,014                                           14,993


     Other (income)
      expense, net                         6,021                                             (13)



     Total other expense                  22,035                                           14,980



                  Loss Before Income
                   Taxes                (15,239)                                         (6,290)


                  Income Tax Expense         730                                              434


                  Net Loss                         $
              (15,969)                           $
       (6,724)



                  Loss per Share:


     Basic and diluted                               $
              (0.33)                            $
       (0.31)


                  Weighted-average-
                   common shares
                   outstanding:


     Basic and diluted                49,033,903                                       21,660,638


                                      
              
                Nesco Holdings, Inc.
                        
                Condensed Consolidated Statements of Cash Flows (unaudited)




                                                                    Three Months Ended March 31,


                   (in $000s)                     2020                                2019



                   Operating Activities


      Net (loss) income                                  $
              (15,969)                          $
        (6,724)


      Adjustments to
       reconcile net (loss)
       income to net cash
       from operating
       activities:


      Depreciation                              20,377                                          16,996


      Amortization -
       intangibles                                 691                                             724


      Amortization -
       financing costs                             711                                             677


      Provision for losses
       on accounts
       receivable                                  777                                             692


      Share-based payments                         559                                             128


      Gain on sale of
       rental equipment and
       parts                                   (2,213)                                        (1,977)


      Gain on insurance
       proceeds -damaged
       equipment                                 (120)                                          (452)


      Major repair disposal                        700                                             762


      Change in fair value
       of derivative                             5,963


      Deferred tax
       (benefit) expense                           652                                             271


      Changes in assets and
       liabilities:


      Accounts receivable                        1,207                                           1,823



     Inventory                                    176                                         (4,299)


      Prepaid expenses and
       other                                      (34)                                        (3,413)


      Accounts payable                         (3,352)                                         10,297


      Accrued expenses and
       other liabilities                      (12,427)                                        (8,163)


      Unearned income                            (517)                                        (3,437)



      Net cash flow from
       operating activities                    (2,819)                                          3,905


                   Investing Activities


      Purchase of equipment
       -rental fleet                          (33,347)                                       (13,704)


      Proceeds from sale of
       rental equipment and
       parts                                     9,960                                           7,628


      Insurance proceeds
       from damaged
       equipment                                   365                                             797


      Purchase of other
       property and
       equipment                               (4,168)                                        (1,656)



      Net cash flow from
       investing activities                   (27,190)                                        (6,935)


      Financing Activities


      Borrowings under
       revolving credit
       facilities                               35,680                                          15,000


      Repayments under
       revolving credit
       facilities                                                                             (9,000)


      Repayments of notes
       payable                                                                                  (183)


      Capital lease
       payments                                (1,737)                                        (1,166)


      Finance fees paid                                                                            20



      Net cash flow from
       financing activities                     33,943                                           4,671



                   Net Change in Cash            3,934                                           1,641


                   Cash at Beginning of
                    Period                       6,302                                           2,140


                   Cash at End of Period                   $
              10,236                             $
        3,781





                   Supplemental Cash
                    Flow Information


      Cash paid for
       interest                                            $
              24,977                            $
        23,570


      Cash paid for income
       taxes                                        76                                             136


                   Non-Cash Investing
                    and Financing
                    Activities


      Transfer of parts
       inventory to leased
       equipment                                 2,087                                           1,470


      Rental equipment and
       property and
       equipment purchases
       in accounts payable                      11,861                                          20,868


      Rental equipment
       sales in accounts
       receivable                                5,627                                           3,050


      Insurance recoveries
       accrued in accounts
       receivable                                                                                 424


                         
        
                Nesco Holdings, Inc.
                    
          Adjusted EBITDA Reconciliation (unaudited)




                                                Three Months Ended March 31,


                   (in
                   $000s)     2020                    2019





      Net
      loss                           $
              (15,969)                    $
       (6,724)


      Interest
      expense               16,014                              14,993


      Income
      tax
      expense                  730                                 434


      Depreciation
      expense               20,377                              16,996


      Amortization
      expense                  691                                 724


     EBITDA                 21,843                              26,423


        Adjustments:


         Non-
         cash
         purchase
         accounting
         impact
         (1)                  917                                 611


         Transaction
         and
         process
         improvement
         costs
         (2)                2,079                               2,510


         Major
         repairs
         (3)                  700                                 762


         Share-
         based
         payments
         (4)                  559                                 128


      Change
      in
      fair
      value
      of
      derivative
      (5)                   5,963


      Adjusted
      EBITDA                           $
              32,061                      $
       30,434


                            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





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





              (2)              2020: Represents transaction costs
                                  related to our acquisition of
                                  Truck Utilities (which include
                                  post-acquisition integration
                                  expenses incurred during the
                                  current quarterly period); 2019:
                                  Represents transaction expenses
                                  related to merger activities
                                  associated with the Transaction
                                  with Capitol that was consummated
                                  on July 31, 2019. These expenses
                                  are comprised of professional
                                  consultancy, legal, tax and
                                  accounting fees. Also included are
                                  costs of startup activities (which
                                  include training, travel, and
                                  process setup costs) associated
                                  with the rollout of new PTA
                                  locations that occurred throughout
                                  the prior year into the current
                                  quarterly period. Finally, the
                                  expenses associated with the
                                  Company's closure of its Mexican
                                  operations, which closure
                                  activities commenced in the third
                                  quarter of 2019, are also
                                  included. Pursuant to our credit
                                  agreement, the cost of
                                  undertakings to effect such cost
                                  savings, operating expense
                                  reductions and other synergies, as
                                  well as any expenses incurred in
                                  connection with acquisitions, are
                                  amounts to be included in the
                                  calculation of Adjusted EBITDA.





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





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





              (5)              Represents the charge to earnings
                                  for our interest rate collar
                                  (which is an undesignated hedge)
                                  in the three months ended March
                                  31, 2020.


                   
        
              Fleet Metrics (unaudited)




                                           Three Months Ended March 31,


                          2020                 2019



                 (in
                 $000s,
                 except
                 fleet
                 count
                 and
                 rate
                 per
                 day)


     Average
     equipment
     on
     rent                      $
              499,756                      $
      452,146


     Average
     fleet
     count               4,627                             3,913


     Average
     fleet                   %                                %
     utilization          75.9                              82.2


     Average
     rental
     rate
     per
     day                        $
              137.77                       $
      137.46

OPERATIONAL AND FINANCIAL METRICS

Average equipment on rent is the average original equipment cost of units on rent during the period. The measure provides a value dimension to the fleet utilization statistics.

Average fleet count is the average number of units in the fleet during the period.

Average fleet utilization for the period is calculated as the total number of invoiced days divided by the total number of available equipment days.

Average rental rate per day for the period is calculated as total rental revenue excluding freight and damaged billings divided by the total rental days, which represents the number of billable days in the period aggregated across all units in the fleet.

These metrics have been adjusted to exclude Mexico, for which the Company commenced exit activities in the third quarter of 2019.


                                                                                 
          
             Segment Performance (unaudited)




                                                 Three Months Ended March 31,                                        Three Months Ended March 31,


                                                                                      2020                                                           2019


                             
        ERS   
      PTA            Total   
              ERS    
          PTA            Total



                  (in $000s)


     Rental
      revenue(1)(2)                   $
      47,053                                   $
          3,941                                $
              50,994         $
     42,896   $
     2,746 $
     45,642


     Sales of rental
      equipment                 9,093                                                      9,093                        7,399                                  7,399


     Sales of new
      equipment                 7,577                                                      7,577                        2,350                                  2,350


     Parts sales and
      services                                           14,079                           14,079                                                   6,101       6,101



     Total revenues            63,723                     18,020                           81,743                       52,645                       8,847      61,492





     Cost of revenue           27,320                     12,908                           40,228                       18,654                       5,755      24,409


     Depreciation of
      rental equipment         18,976                      1,136                           20,112                       15,661                       1,070      16,731


     Gross Profit                     $
      17,427                                   $
          3,976                                $
              21,403         $
     18,330   $
     2,022 $
     20,352




              (1)              Rental revenue is primarily
                                  comprised of revenues from rental
                                  agreements and freight charges
                                  billed to customers as well as
                                  charges to customers for damaged
                                  equipment. Effective in 2019,
                                  billings to customers for damages
                                  are classified in rental revenue,
                                  given that the amounts are
                                  directly related to the Company's
                                  rental arrangements with its
                                  customers. Amounts for damages in
                                  the comparable prior period have
                                  been reclassified to rental
                                  revenue from [parts sales and
                                  services] ([$0.7] million for the
                                  three months ended March 31,
                                  2019).





              (2)              Amounts for equipment rental
                                  revenue of $0.5 million for the
                                  three months ended March 31, 2019
                                  previously reported in the PTA
                                  segment as rental revenue have
                                  been reclassified to the ERS
                                  segment to align the business is
                                  managed.


                          
      
             Net Capital Expenditures (unaudited)




                                              Three Months Ended March 31,


                  (in 000s)    2020                           2019



     Purchase of
      equipment -rental
      fleet                         $
             33,347                                   $
      13,704


     Purchase of other
      property and
      equipment               4,168                                      1,656



     Total Capital
      Expenditures           37,515                                     15,360


     Less: Proceeds from
      sale of rental
      equipment and parts   (9,960)                                   (7,628)


     Less: Insurance
      proceeds from
      damaged equipment       (365)                                            $
     (797)


     Net Capital
      Expenditures                  $
             27,190                                    $
      6,935

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SOURCE Nesco Holdings, Inc.