Essex Rental Corp. (Nasdaq: ESSX) reported total revenue for the three months ended June 30, 2012 was $27.2 million, a 21.7% increase compared to Q2 2011. CEO Ron Schad said the results validate the decision to add rough terrain cranes, boom trucks and tower cranes, as well as third-party aftermarket parts and service, to the Essex business portfolio.
"Utilization in equipment categories that represent the majority of our orderly liquidated value (OLV) continues to improve gradually, albeit off a low base," said Schad. "Specifically, in the second quarter of 2012 we experienced sequential quarterly increases in utilization for crawler cranes, rough terrain cranes and large tower cranes, which are our three largest equipment types as measured by original equipment cost.
- Excluding impact of 2011's levee project, utilization of crawler cranes increased to 39.4% in Q2 2012, compared to 34.8% for Q2 2011;
- Utilization of rough terrain cranes increased to 67.6% in the Q2 2012, compared to 54.8% for the Q1 2012;
- Utilization of heavy tower cranes and elevator lifts increased to 55.1% in the Q2 2012, compared to 47.9% for the Q1 2012;
Other Q2 2012 Highlights
- Average monthly crawler crane rental rates increased by $808 or 5.0% to $17,041 on a sequential quarterly basis, compared to $16,233 for Q1 2012. On a year over year basis, average monthly crawler crane rental rate increased $1,694 or 11.0% from $15,347 for the Q2 2011. Average monthly crawler crane rental rates are at their highest level since the Q1 2010;
- New, used and rental equipment sales totaled $8.6 million for Q2 2012, a 61.4% increase from $5.3 million for Q2 2011;
- EBITDA before non-cash compensation and non-recurring expenses for Q2 2012 increased to $4.3 million as compared to $1.8 million for Q2 2011 and $2.6 million for Q1 2012;
- Total Essex debt decreased by $7.9 million over the six months ended June 30, 2012, due in part to the disposition of excess rental equipment at an average of 108.2% of OLV.
"We were pleased with the level of rental fleet asset sales, particularly of non-core assets including aerial work platforms and forklifts that were acquired as part of the Coast acquisition," said Schad. "Proceeds from these sales were used to reduce debt."
Second Quarter 2012 Overview
Equipment rentals segment revenues were $21.6 million for Q2 2012 versus $14.6 million for Q2 2011. Equipment rentals segment revenues include rental, transportation, used rental equipment sales and repairs and maintenance of rental equipment. The 48.0% year-over-year increase in equipment rentals segment revenues is due to an increase in days on rent for crawler crane, tower crane, and rough terrain equipment and an increase in used rental equipment sales of $5.6 million.
Equipment distribution revenue, which includes retail distribution of new and used equipment, but excludes proceeds received from the sale of used rental equipment, was $1.3 million for Q2 2012 compared to $3.6 million for Q2 2011. The decline in equipment distribution revenue is due to lower sales volume and smaller size of transactions.
Parts and service revenue increased 3.7% to $4.3 million compared to $4.1 million for Q2 2011.
Gross profit increased 86.2% to $5.3 million compared to $2.9 million for Q2 2011. Gross profit margin increased by approximately 6.8% to 19.6% compared to 12.8% for Q2 2011, fueled by higher margin percentages in the rental and parts and service segments.
EBITDA before non-cash compensation and non-recurring expenses increased by 138.9% to $4.3 million compared to $1.8 million for Q2 2011. EBITDA before non-cash compensation and non-recurring expenses increased by 65.3% compared to $2.6 million for Q1 2012.
"Demand for our equipment continues to improve, particularly for infrastructure and maintenance related energy projects," said Schad. "The expected duration of new crawler crane orders year to date through July has increased 15.5% compared to the prior year's orders. The increased average crawler crane lease duration is providing greater visibility, and if this trend continues, is likely to have a positive impact on utilization for the remainder of 2012 and 2013.
"Utilization trends have remained strong thus far in the third quarter and as a result, we believe an opportunity exists over the next six months to continue to increase rental rates on a selective basis on certain asset classes where utilization exceeds 60%.
"We continue to identify opportunities to sell rental fleet assets and use the proceeds to reduce outstanding debt," said Schad. "The rental assets being actively marketed for sale are non-core assets such as aerial work platforms and forklifts, where we lack a competitive advantage and do not leverage our crane expertise, and crawler cranes that were underutilized during historic peak demand periods. During the first six months of 2012, we have sold $12.7 million of non-core and excess rental fleet assets."
"Liquidity has increased by $5.1 million to $49.2 million on a sequential quarterly basis, which includes $8.9 million in cash," said Schad. "We intend to continue to focus on debt reduction for the remainder of the year."