Essex Rental Corp.has announced its consolidated results for the fourth quarter and year ended Dec. 31, 2012.
Fourth Quarter and Year-End 2012 Highlights
Ron Schad, president and CEO of Essex stated, "In the fourth quarter of 2012, we continued to experience a gradual improvement in our business. We have seen increases in activity in most of our end markets on a year over year basis, with the largest increases in the power and petrochemical sectors. The expected duration of new crawler crane orders year to date through December has increased by 9.6% compared to the prior year's orders. The increased duration is providing greater revenue visibility and if this trend continues, is likely to have a positive impact on utilization. Utilization on our hydraulic heavy lift crawler cranes, which represent approximately 70% of the value of our crawler crane fleet and 50% of our entire fleet, equaled 63.8% for the three months ended Dec. 31, 2012. These cranes have a higher lifting capacity and typically command a rental rate nearly twice that of traditional crawler cranes. We are selectively increasing rental rates for certain categories of our heavy lift crawler fleet.
Utilization across many of our remaining asset categories increased on both a quarter over quarter basis and on a sequential quarter basis. The improvement on a sequential quarter basis is particularly encouraging as our fourth quarter has historically been a soft seasonal period. While our results are encouraging, I believe that we are still in the very early stages of what will be a gradual recovery for crawler crane utilization and rental rates. Besides an improving environment for our rental equipment, we are pleased with the results from many of the operating initiatives that we announced in the first half of 2012.
In January 2013, we sold the remaining aerial work platforms and forklifts from our rental fleet. We have now exited from this market, where we lacked a competitive advantage and were not able to leverage our crane expertise. We will continue to identify opportunities to sell rental fleet assets that were underutilized during historic peak demand periods and use the proceeds to reduce outstanding debt. During 2012, we sold $17.3 million of non-core and excess rental fleet assets at approximately 109.3% of appraised orderly liquidation value."
Fourth Quarter 2012 Overview
Equipment rentals segment revenues were $18.0 million for the three months ended Dec.31, 2012 versus $16.6 million for the three months ended Dec. 31, 2011. Equipment rentals segment revenues include rental, transportation, used rental equipment sales, and repairs and maintenance of rental equipment. The 8.2% year-over-year improvement in equipment rentals segment revenues is due to an increase in utilization for all of our core rental equipment groups and an increase in the associated transportation revenues. These increases were partially offset by a decrease in used rental equipment sales of $1.8 million. Gross profit for this segment increased by 74.3% to $4.7 million for the three months ended Dec. 31, 2012 from $2.7 million in the comparable period in 2011.
Equipment distribution segment revenue, which includes the retail distribution of new and used equipment, but excludes the proceeds received from the sale of used rental equipment, was $0.7 million for the three months ended Dec. 31, 2012 compared to $2.1 million for the three months ended Dec. 31, 2011. Several sale transactions that we had anticipated would close in the fourth quarter of 2012 were deferred until early 2013 due to delays in delivery from the manufacturer.
Our parts and service segment continues to display increased revenue and improved profitability when compared on a year-over-year basis. Revenues in this non-capital intensive business line increased 22.4% to $4.6 million for the three months ended Dec. 31, 2012 as compared to $3.7 million for the three months ended Dec. 31, 2011. Gross profit margin increased to 34.1% for the three months ended Dec. 31, 2012 compared to 10.6% in the comparable period in 2011. The continued improvement in profitability compared to historical performance has resulted in a 293.8% increase in gross profit for this segment to $1.6 million for the three months ended Dec. 31, 2012 compared to $0.4 million in the comparable period in 2011. The improvement in profitability in this segment of our business is being driven by a number of the operating initiatives that we introduced throughout 2012.
Total gross profit increased 89.6% to $6.2 million for the three months ended Dec. 31, 2012 from $3.3 million for the three months ended Dec. 31, 2011. Gross profit margin increased by approximately 12.3 percentage points to 26.9% for the three months ended Dec. 31, 2012 from 14.6% for the three months ended Dec. 31, 2011 due to higher margins in the equipment rentals and parts and service segments. We believe that the gross profit margin percentage achieved during the quarter ended Dec. 31, 2012 is consistent with our expectations for future periods.
Adjusted EBITDA before non-cash compensation and non-recurring expenses increased by 136.5% to $5.0 million for the three months ended Dec. 31, 2012 compared to $2.1 million for the three months ended Dec. 31, 2011. Adjusted EBITDA before non-cash compensation and non-recurring expenses increased by 90.1% to $17.2 million for the year ended Dec. 31, 2012 compared to $9.0 million for the year ended Dec. 31, 2011.
Outlook for 2013
Mr. Schad continued, "Thus far in 2013, we are continuing to experience a gradual recovery across all of our business lines as compared to the same period in 2012. For example, since the beginning of the year we have increased the number of crawler cranes on rent by approximately 10% as measured against units on rent at Dec. 31, 2012. Rental rates continue to be firmer across all of our asset classes and where utilization warrants it, we are raising rates. We expect that our parts and service business will continue to provide a highly predictable earnings stream and believe that based on signed orders in hand, new equipment sales are likely to be meaningfully higher in the first half of 2013 compared to the same time period in 2012.
Assuming a continued gradual improvement in crawler crane utilization and no material improvement in rental rates, we are expecting EBITDA before non-cash compensation expenses for the year ended Dec. 31, 2013 to be in the range of $21 million to $26 million.
We have recently completed the refinancing of all of our operating company debt and extended maturities to 2016 and beyond. We are extremely pleased by the long-term financial stability that the refinancing provides. Consistent with 2012, when we reduced our total indebtedness by $10.9 million, we intend to continue to focus on disposing of excess assets and using excess free cash flow to reduce debt. Our blended cost of debt based on current Libor is approximately 4.51% and we expect consolidated interest expense in 2013 to be approximately $10 million. Finally, we are projecting net capital expenditures of approximately $2 million in 2013, excluding proceeds from the sale of lattice boom crawler cranes."
Essex's management team will conduct a conference call to discuss the operating results at 9:00 a.m. ET on Mon., March 18, 2013. Interested parties may participate in the call by dialing (877) 407-8291 (Domestic) and (201) 689-8345 (International). Call in 10 minutes before the call is scheduled to begin, and ask for the Essex Rental Corp. call. The conference call will be webcast live via the Investor Relations section ("Events and Presentations") of the Essex Rental Corp. website at www.essexrentalcorp.com. To listen to the live call, go to the website at least 15 minutes early to register, download and install any necessary audio software. If you are unable to listen live, the conference call will be archived on the website.