Nesco Specialty Rentals, provider of specialty rental equipment to the electric utility, telecom and rail infrastructure end markets, reported total revenue in the third quarter of $69.3, an increase of $6.8 million, or 10.9 percent from the third quarter of 2019, as increased equipment sales and the acquisition of Truck Utilities more than offset the negative impact of COVID-19-related project delays that continued into July and August.
Adjusted EBITDA was $28.0 million, a decrease of 8.6 percent from $30.7 million in the third quarter of 2019. The decline in adjusted EBITDA was primarily because of lower fleet utilization resulting from project delays associated with COVID-19, which was partially offset by increases in equipment sales and the acquisition of Truck Utilities as well as cost-cutting measures in the second and third quarters.
Nesco reported net income of $15.2 million, compared to a net loss of $18.0 million for the same period in 2019.
In the Equipment Rental and Sales Segment of the company, which accounts for 78.2 percent of revenue, revenue increased 5 percent to $54.2 million, compared to $51.6 million a year ago. Equipment rental revenue was $42.6 million, compared to $46.9 million in the third quarter of 2019, a 9.2-percent decline. Average equipment on rent decreased 4.1 percent in the third quarter to $464.3 million. The company invested to grow the fleet in 2019 and in the first half of 2020, but lower utilization resulting from COVID-19-related project delays resulted in reduced equipment on rent year over year.
Fleet utilization dropped 7 percent to 72.1 percent because of project delays resulting from COVID-19-related pandemic. Rental rates per day declined 0.7 percent to $137.16. Equipment sales revenue increased 146.9 to $11.6 million because of a hike in new equipment sales.
In the Parts, Tools and Accessories segment of the business, accounting for 21.8 percent of revenue, revenue increased 39.2 percent to $15.1 million, compared to $10.8 million in the third quarter of 2019. Parts rental revenue increased 10.3 percent to $3.5 million, primarily because of an expansion of PTA locations in 2019 to create a national footprint. Parts sales revenue increased 51.2 percent to $11.6 million, primarily because of the acquisition of Truck Utilities.
"In the third quarter we saw sequentially improving demand and the beginning of a return to normal seasonality trends as new projects ramped up," said Lee Jacobson, CEO of Nesco. "The pandemic continued to impact our business through July and early August, but we saw substantial improvement in late August that continued into September and October. While our average original equipment cost on rent for the third quarter was down 4.1 percent year-over-year to $464 million, we exited the third quarter with $489 million of original equipment cost on rent, an increase of more than 10 percent from the start of the quarter, with momentum continuing into the fourth quarter. We have good visibility into planned project starts and are excited about the recovery that is now under way."
"We maintained a disciplined approach to costs and capital investments in the third quarter, which helped drive positive free cash flow for the second consecutive quarter and enabled us to reduce debt and maintain strong liquidity," said Josh Boone, chief financial officer of Nesco. "Additionally, we continue to optimize our working capital balances and dispose of underperforming assets, putting the organization in a solid financial position. For the remainder of the year and beyond, we are focused on executing on our disciplined capital allocation strategy of investing in our fleet to maximize asset level returns, balanced with free cash flow generation and debt reduction. We are confident in our ability to maximize shareholder value and are committed to a long-term leverage target of 3.0x to 3.5x."
Nesco has withdrawn its previous full year 2020 guidance because of the unpredictable nature of the pandemic. While a recovery from the pandemic appears to be underway, Nesco said, and there is more visibility into future projects and demand, Nesco plans to reinstate earnings guidance later on as it assesses the continuously changing economic and market conditions.
"As we look to the remainder of the year, we are well positioned to capitalize on new project starts and improving market demand,” Jacobson noted. “Momentum is building in our core markets and long-term tailwinds should continue to be a catalyst for our financial results in 2021 and beyond. Our focus on navigating through the pandemic and short-term execution continues in the fourth quarter. We remain focused on long-term strategic growth, generating free cash flow, reducing leverage and driving shareholder value."
For the first nine months of 2020, Nesco posted total revenue of $219.5 million compared to $186.8 million in the first nine months of 2019, a 17.5-percent increase. Rental revenue for the first nine months of 2020 was $144.1 million compared to $143.9 million for the first nine months of 2019, an increase of 1.6 percent when not rounding off the numbers, 1.4 percent after rounding them off.
Nesco Specialty Rentals, based in Fort Wayne, Ind., is No. 17 on the RER 100.
