Nesco Holdings, a leading provider of specialty rental equipment to the electric utility, telecom and rail infrastructure end markets, posted total revenue in the second quarter of 2020 of $68.5 million compared to $62.9 million in the second quarter of 2019, an 8.9-percent increase. While Nesco was negatively impacted by pandemic-related project delays, it was more than offset by the acquisition of Truck Utilities.
Rental revenue for the second quarter of 2020 was $47 million, compared to $48.1 million in the second quarter of 2019. Adjusted EBITDA was in the quarter was $26.2 million, a decrease of 14.1 percent from $30.5 million in the second quarter 2019. The decline in adjusted EBITDA can be attributed to a combination of lower utilization and higher selling, general and administrative expenses primarily related to becoming a public company. The decline was partially offset by higher equipment sales and the acquisition of Truck Utilities. Nesco's core rental gross profit, excluding depreciation, declined 7.4 percent to $32.7 million.
In the equipment rental and sales segment, which makes up 78 percent of the company’s revenue, revenue decreased 0.5 percent to $53.4 million, compared to $53.7 million a year ago. Equipment rental revenue dropped 4.1 percent to $43 million, compared to $44.9 million in the year-ago quarter. Average equipment on rent decreased 0.8 percent. The company invested in fleet growth in 2019 and in the first half of 2020, but reduced utilization resulting from COVID-19 related project delays resulted in relatively flat equipment on rent year over year.
Fleet utilization declined 8.9 percent to 71.3 percent because of project delays caused by the pandemic. Equipment sales revenue increased 18 percent to $10.4 million, partly because of new dealer inventory investments in 2019.
In the Parts, Tools and Accessories segment, which makes up 22 percent of the company’s revenue increased, revenue jumped 64.1 percent to $15.1 million, compared to $9.2 million in the year-ago quarter. Parts rental revenue increased 21.5 percent to $4 million primarily because of an increased footprint of PT&A locations. Parts sales revenue jumped 87.5 percent to $11.1 million primarily because of the acquisition of Truck Utilities.
“Our second quarter results reflect the resiliency and sustainability of both our critical infrastructure markets and our business model," said Lee Jacobson, CEO of Nesco. "Given the unprecedented economic environment, we are encouraged with our second quarter results and exceptionally proud of our dedicated team members for their tireless efforts. We continue to prioritize our team's health and safety while delivering for our customers during this challenging period and have streamlined our business operations and reduced overhead as a result of the temporary slowdown in activity. We are focused on driving free cash flow to ensure ample liquidity to navigate through the pandemic.”
"We remain disciplined in our working capital management and curtailed capital expenditures in the latter part of the second quarter, which helped drive $14.4 million of free cash flow in the second quarter," said Josh Boone, chief financial officer of Nesco. "Our flexible business model, combined with the investments made in 2019 and the first quarter of 2020 to expand our fleet, position us to capitalize on a typically stronger back half of the year, which we expect to be bolstered by projects that were temporarily put on hold due to the pandemic. Additionally, we have over $80 million of available liquidity with no near-term debt maturities and expect to generate free cash flow for the remainder of 2020. We are in a comfortable financial position that provides flexibility to support continued growth in the business and reduce leverage. We remain committed to a long-term leverage target of 3.0x-3.5x."
Nesco implemented several initiatives during the second quarter and beginning of the third quarter to reduce costs in the face of the pandemic, including a reduction in capital expenditures relative to pre-COVID planned spend, improvements in working capital, a freeze on all non-essential hiring, a headcount reduction and cuts to travel and other non-essential expenses. The company expects to realize $2.5 million of annualized benefits from the headcount-related portion of cost cuts alone.
Nesco has taken steps to ensure the health and safety of its team members, while keeping all business and service locations operational throughout the pandemic with little to no disruptions. Nesco continues to fully support its customers' needs to help them provide critical infrastructure maintenance and construction services and to-date has not experienced any meaningful interruptions to its supply chain.
For the first six months of the year, rental revenue was $98 million, compared to $93.8 million in the first six months of 2019, a 4.5-percent increase. Total revenue for the first six months was $150.2 million, compared to $124.3 for the first six months of 2019, a 20.9-percent jump.
Based in Fort Wayne, Ind., Nesco Specialty Rentals is No. 17 on the RER 100.
