NSCO Nesco Holdings Inc

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

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.

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.

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SOURCE Nesco Holdings, Inc.