Total rental related revenue followed utilisation rates down, falling from USD20.2m to USD9.7m. Rental EBITDA was USD3m, from USD11.6m. However, the company has also managed to cut its costs. Selling, general and administrative expenses were USD2.9m, down from USD3.1m; the company noted the decrease comes in spite of additional costs associated with its move to a public listing. Excluding the net book value of rental equipment sold and depreciation expenses, costs of rental revenue were USD3.8m this quarter, compared to USD5.5m last time.
President and CEO Ron Schad said, “Our performance in the third quarter reflects weakness in many of our end markets, which resulted in lower crane fleet utilisation and rental revenues. While we are disappointed that we experienced a decline in profitability in the third quarter, we are highly focused on maximising free cash flow through cost cutting initiatives, which thus far have included a lower headcount, reduction in salaries, decrease in overtime and labour hours, elimination of certain outsourced services, reduction of other operational expenditures and the sale of older, underutilised lighter lifting equipment. As a result of these actions, during the third quarter 2009, we were able to continue to reduce our debt outstanding and as of September 30 we have excess liquidity of USD48.5m available.
“In addition, during the quarter we remained focused on our growth strategy of repositioning the fleet to heavier lifting capacity cranes that generate higher rental and utilisation rates. This strategy has been validated by higher utilisation rates over the last nine months for most of our cranes with lifting capacities in excess of 200 tons as compared to cranes with lifting capacities of 200 tons or less. Consistent with our business strategy, during this calendar year we have sold 12 used cranes with an average lifting capacity of 163 tons, at an average price in excess of 115% of orderly liquidation value. We have used these sale proceeds, in conjunction with our free cash flow, to fund the purchase of ten new larger lifting capacity cranes and attachments with an average lifting capacity of 330 tons. This in turn has improved our fleet’s mix, average age and market position, further enhancing Essex’s future earnings power. As a result of our direct purchase relationships with key equipment suppliers, we have secured this new equipment on terms that we believe will generate an attractive return on capital.”
Schard predicted an eventual upturn for the US market: “The latest six months showed improving booking trends. Based on our monitoring of anticipated construction projects, it appears that stimulus funded projects have been slow to develop but we are confident that infrastructure construction should occur and will help our business recover lost utilisation over the next 12 to 24 months. However, the shape and speed of the recovery remains uncertain and we expect our operating environment to remain challenging through the end of the fiscal year.”
Schad concluded, “We will continue to focus on free cash flow generation and debt reduction and believe that we have an appropriate cost structure and business strategy in place to generate significantly greater profitability as our utilisation increases. Our capital structure is stable and we have more than adequate liquidity; I am confident that we will emerge from this downturn well-positioned to participate in the recovery.”