Neff Corporation (the “Company”) (NYSE: NEFF) today reported its
financial results for the first quarter ended March 31,
2017.
Graham Hood, Chief Executive Officer of Neff Corporation,
commented, “The first quarter of 2017 was another very good quarter
for Neff’s rental business as we generated record first quarter
results for rental revenues and EBITDA, each of which increased by
5.3% year-over-year. This performance reflects our ability to
execute our strategy and take advantage of the ongoing strength in
the construction markets we serve. This also provides confirmation
to our belief that the cycle remains strong and intact. We expect
this strength to continue for the remainder of 2017.”
First Quarter 2017 Highlights
- Total revenues increased 7.0%
year-over-year to $95.9 million in the first quarter of 2017.
- Rental revenues increased 5.3%
year-over-year to $85.5 million in the first quarter of 2017 from
$81.2 million.
- Rental rates increased 1%
year-over-year in the first quarter of 2017.
- Time utilization decreased to 62.9%
from 65.1% in the prior year period.
- The average original equipment cost
("OEC") of our rental fleet increased by 7.0% to $832.5 million
year over year.
- Net income attributable to Neff
Corporation increased to $1.7 million or $0.18 per diluted share in
the first quarter of 2017, from a net loss attributable to Neff
Corporation of $0.2 million or $0.01 per diluted share in the prior
year period.
- Adjusted EPS for the quarter was $0.18
per diluted share versus $0.14 per diluted share in the prior year
period.
- Adjusted EBITDA increased 5.3% to $43.6
million in the first quarter of 2017 from $41.4 million in the
prior year period.
- Adjusted EBITDA margin was 45.5%
compared with 46.2% in the prior year period.
First Quarter 2017 Financial Results
Revenue
Total revenues increased 7.0% to $95.9 million, up from $89.6
million in the first quarter of 2016. Rental revenues increased
5.3% to $85.5 million, up from $81.2 million in the first quarter
of 2016. Equipment sales increased to $7.2 million from $5.1
million in the first quarter of 2016. Parts and service revenues
decreased 3.7% to $3.2 million in the first quarter of 2017 from
$3.3 million in the first quarter of 2016.
Net income Attributable to Neff Corporation
Net income attributable to Neff Corporation for the quarter was
$1.7 million compared to net loss attributable to Neff Corporation
of $0.2 million for the first quarter of 2016.
Adjusted EBITDA
Adjusted EBITDA, a non-US GAAP financial measure that includes
the adjustments noted in the reconciliation below, in the first
quarter of 2017 was $43.6 million compared to $41.4 million in the
first quarter of 2016. Adjusted EBITDA, as a percentage of
revenues, was 45.5% compared to 46.2% in the first quarter of
2016.
Return on Invested Capital ("ROIC")
ROIC was 11.1% for the twelve months ended March 31, 2017,
an increase of 40 basis points from the twelve months ended
March 31, 2016. The Company’s ROIC metric uses after-tax
operating income for the trailing 12 months divided by average
stockholders’ equity (deficit) and debt and deferred taxes, net of
average cash and debt issue costs. To mitigate the volatility
related to fluctuations in the Company’s tax rate from period to
period, a federal statutory tax rate of 35% is used to calculate
after-tax operating income.
Fleet Size
The size of the rental fleet was $841.9 million of OEC as of
March 31, 2017, compared to $796.3 million at March 31,
2016.
Share Repurchase Program
During the first quarter of 2017, the Company did not repurchase
any shares of Class A common stock under the two year share
repurchase program authorized in November 2015. Since the
authorization of the share repurchase program, the Company has
purchased 1.7 million shares of Class A common stock for a total
cost of $11.8 million, including commissions.
2017 Financial Outlook
The Company has reaffirmed its 2017 full year outlook as
follows:
- Total revenue is forecast to be in the
range of $400 million to $420 million.
- Adjusted EBITDA is forecast to be in a
range of $195 million to $205 million.
- Year-over-year rental rate change is
expected to be approximately 0.0% to 1.0%.
- Time utilization is forecast to be
approximately 67.0%.
- Net capital expenditures are expected
to be in the range of $85 million to $90 million.
- Target leverage ratio by end of 2017 is
expected to be approximately 3.0x to 3.25x.
Conference Call
The Company’s management will hold a conference call to discuss
the first quarter 2017 results tomorrow, April 26, 2017, at
10:00 a.m. (Eastern Daylight Time). To participate in the
conference call, participants should dial +1 877-201-0168
(domestic) or +1 647-788-4901 (international) and enter access code
2519043, a few minutes prior to the start of the call. Those who
wish to listen to the live conference call and view the
accompanying presentation slides should visit the "Investor
Relations" portion of the Neff Corporation website at:
http://investor.neffrental.com.
A telephonic replay will be available from 1:00 p.m. ET on the
day of the conference call through Wednesday, May 3, 2017. To
listen to the archived call, dial +1 800-585-8367 or +1
416-621-4642 and enter conference ID number 2519043. The replay of
the conference call will also be available via webcast on the
Company's website at: http://investor.neffrental.com, where it will be
archived for 12 months after the conference call.
Non-US GAAP Measures and Key Performance Measures
Earnings before interest, taxes, depreciation and amortization
("EBITDA"), Adjusted EBITDA and adjusted earnings per share are
non-US GAAP financial measures as defined under the rules of the
Securities and Exchange Commission ("SEC"). EBITDA represents the
sum of net income (loss), interest expense, provision for (benefit
from) income taxes, depreciation of rental equipment and other
depreciation and amortization. Adjusted EBITDA represents EBITDA
further adjusted to give effect to other items that we do not
consider to be indicative of our ongoing operations, including for
the periods presented rental split expense, equity-based
compensation, adjustment to tax receivable agreement and (gain)
loss on interest rate swap. Adjusted earnings per share ("EPS")
represents the sum of diluted earnings per share of Class A common
stock, as reported, adjusted for the impact of items that we
believe are not indicative of our ongoing operations, including for
the periods presented (gain) loss on interest rate swap and
non-cash adjustment to tax receivable agreement. The Company
believes that EBITDA, Adjusted EBITDA and adjusted EPS provide
useful information about operating performance and
period-over-period growth and is useful to securities analysts,
investors and other interested parties in evaluating our operating
performance compared to that of other companies in the industry.
However, none of these measures should be considered as
alternatives to net income, cash flows from operating activities or
diluted EPS under US GAAP as indicators of operating performance or
liquidity. Because EBITDA, Adjusted EBITDA and adjusted EPS are not
calculated in the same manner by all companies, they may not be
comparable to other similarly titled measures used by other
companies.
OEC and rental rate are two of the key performance measures we
use in evaluating our business and results of operations.
We present OEC, defined as the first cost of acquiring the
equipment, or in the case of used equipment purchases and rental
splits, an estimate of the first cost that would have been paid to
acquire the equipment if it had been purchased new in its year of
manufacture, as the daily average OEC of equipment on rent, divided
by the OEC of all equipment in the rental fleet during the relevant
period.
We define rental rates as the rates charged to our customers on
rental contracts that typically are for daily, weekly or monthly
terms. Rental rates change over time based on a combination of
pricing, the mix of equipment on rent and the mix of rental terms
with customers. Period over period changes in rental rates are
calculated on a weighted average with the weighting based on prior
period revenue mix.
About Neff Corporation
Neff Corporation is a leading regional equipment rental company
in the United States, focused on the fast growing Sunbelt states.
The Company offers a broad array of equipment rental solutions for
its diverse customer base. Neff Corporation’s broad fleet of
equipment includes earthmoving, material handling, aerial and other
rental equipment to meet specific customer needs.
Forward-Looking Statements
This press release contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements contained in this press release that do not
relate to matters of historical facts should be considered
forward-looking statements, including statements regarding our 2017
outlook, including without limitation, statements regarding our
forecasted revenue and Adjusted EBITDA and our expected rental
rates, time utilization, net capital expenditures and guidance
regarding our 2017 target leverage ratio; expectations regarding
execution of our strategy; expectations regarding seasonality and
expectations regarding the slowdown in oil and gas exploration and
the Company’s ability to offset such slowdown. We use words such as
"could," "may," "should," "will," "expect," "believe," "continue,"
"anticipate," "estimate," "intend," "project," "plan," "forecast"
and other similar expressions to identify some but not all
forward-looking statements. Forward-looking statements involve
estimates and uncertainties that could cause actual results to
differ materially from those expressed in the forward-looking
statements.
The forward-looking statements contained in this press release
are based on assumptions that we have made in light of our industry
experience and our perceptions of historical trends, current
conditions, current plans, expected future developments and other
important factors we believe are appropriate under the
circumstances. As you read and consider this press release, you
should understand that these statements are not guarantees of
performance or results. They involve risks, uncertainties (many of
which are beyond our control) and assumptions. Although we believe
that these forward-looking statements are based on reasonable
assumptions, you should be aware that many important factors could
affect our actual operating and financial performance and cause our
performance to differ materially from the performance anticipated
in the forward-looking statements. We believe these important
factors include, but are not limited to, the following: the fact
that future economic downturns could have a material adverse impact
on our business; trends in oil and gas prices and the impact on the
level of exploration, development and production activity of
certain of the Company’s customers and the demand for the Company’s
services and products; the fact that the Company’s revenues and
operating results will fluctuate, which could affect the volatility
of the trading of its Class A common stock; the highly
cyclical nature of the equipment rental industry; decreases in
construction or industrial activities and resulting decreases in
the demand for the Company’s equipment or the rental rates or
prices it can charge; competition in the equipment rental industry
which could lead to a decrease in the Company’s market share or in
rental rates and its ability to sell equipment at favorable prices;
Wayzata, the Company's largest shareholder, as a result of its
ownership stake in the Company, may have the ability to exert
substantial influence over actions to be taken or approved by the
Company's Board of Directors or shareholders; the Company’s
substantial indebtedness, its ability to generate cash to meet its
debt service obligations and the restrictions the Company's
indebtedness imposes on the Company's current and future
operations; the Company’s need to obtain additional capital, which
may not be available, to fund the capital outlays required for the
success of its business, including those relating to purchasing
equipment, opening new rental locations, making acquisitions and
refinancing existing indebtedness; significantly higher maintenance
costs in connection with increases in the weighted average age of
the Company’s rental fleet; fluctuations in the price of the
Company's Class A common stock, the Company's ability to complete
share repurchases under the Company's share repurchase program on
favorable terms or at all, dilution of existing shareholders by
future issuances of additional Class A common stock in connection
with any redemption of common units or new issuances of Class A
common stock and any decline in the stock price resulting from
these issuances or any future sale of shares of Class A common
stock by Wayzata pursuant to the effective Form S-3 or otherwise;
environmental and health and safety laws and regulations that may
result in liabilities for the Company; termination of one or more
of the Company’s relationships with any of its equipment
manufacturers; residual value risk of the Company’s rental fleet
upon disposition; the rising cost of new equipment and supplier
constraints; disruptions in the Company’s information technology
and customer relationship management systems; potential
acquisitions and expansions into new markets; payments under our
tax receivable agreement; the Company's dependence on key
personnel, any labor disputes, work stoppages and/or slowdowns; and
increased costs as a result of operating as a public company. These
and other important factors described under the captions "Risk
Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's annual report
on Form 10-K for the fiscal year ended December 31, 2016 and
similar disclosures in subsequent reports filed with the SEC could
cause actual results to differ materially from those indicated by
the forward-looking statements made in this press release. Should
one or more of these risks or uncertainties materialize, or should
any of these assumptions prove incorrect, our actual operating and
financial performance may vary in material respects from the
performance projected in these forward-looking statements.
Further, any forward-looking statement speaks only as of the
date on which it is made, and except as required by law, we
undertake no obligation to update any forward-looking statement
contained in this press release to reflect events or circumstances
after the date on which it is made or to reflect the occurrence of
anticipated or unanticipated events or circumstances. New important
factors that could cause our business not to develop as we expect
emerge from time to time, and it is not possible for us to predict
all of them.
TABLE 1
NEFF CORPORATION AND
SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in millions, except per share
amounts)
For the Three Months Ended March 31, 2017
2016 Revenues Rental revenues $ 85.5 $ 81.2 Equipment
sales 7.2 5.1 Parts and service 3.2 3.3 Total
revenues 95.9 89.6 Cost of revenues Cost of equipment
sold 5.0 3.1 Depreciation of rental equipment 22.2 22.2 Cost of
rental revenues 22.3 19.9 Cost of parts and service 1.8 1.8
Total cost of revenues 51.2 47.0 Gross profit
44.7 42.6 Other operating expenses Selling, general
and administrative expenses 24.5 24.5 Other depreciation and
amortization 2.2 2.7 Total other operating expenses
26.7 27.3 Income from operations 18.0 15.3
Other expenses (income) Interest expense 11.2 11.0
Adjustment to tax receivable agreement 0.1 0.4 (Gain) loss on
interest rate swap (0.4 ) 4.7 Total other expenses (income)
10.9 16.1 Income (loss) before income taxes 7.1 (0.8
) (Provision for) benefit from income taxes (0.9 ) 0.4 Net
income (loss) 6.2 (0.4 ) Less: net income (loss) attributable to
non-controlling interest 4.5 (0.3 ) Net income (loss)
attributable to Neff Corporation $ 1.7 $ (0.2 ) Net
income (loss) attributable to Neff Corporation per share of Class A
common stock outstanding: Basic $ 0.19 $ (0.01 ) Diluted $
0.18 $ (0.01 ) Weighted average shares of Class A common
stock outstanding: Basic 8.9 10.3 Diluted 9.5
10.3
TABLE 2
NEFF CORPORATION AND
SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
(in millions)
March 31, 2017 December 31, 2016 ASSETS
Cash and cash equivalents $ 0.8 $ 0.9 Accounts receivable,
net 59.5 64.9 Inventories 1.9 1.9 Rental equipment, net 471.2 462.1
Property and equipment, net 34.7 35.5 Prepaid expenses and other
assets 9.9 8.2 Goodwill 60.6 60.6 Intangible assets, net 14.0
14.2 Total assets $ 652.7 $ 648.4
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities Accounts payable $ 25.0 $ 15.9 Accrued expenses and
other liabilities 35.8 35.1 Revolving credit facility, net 220.3
222.5 Second lien loan, net 457.4 468.9 Payable pursuant to tax
receivable agreement 29.6 29.5 Deferred tax liability, net 9.2
8.3
Total liabilities
777.4 780.1 Total stockholders' deficit
and non-controlling interest (124.7 ) (131.7 ) Total liabilities
and stockholders' deficit and non-controlling interest $ 652.7
$ 648.4
TABLE 3
NEFF CORPORATION AND
SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
For the Three MonthsEnded March
31, 2017
For the Three MonthsEnded March
31, 2016
Cash Flows from Operating Activities Net income (loss) $ 6.2
$ (0.4 ) Adjustments to reconcile net income (loss) to net cash
provided by operating activities: Depreciation 24.1 24.6
Amortization of debt issue costs 0.5 0.4 Amortization of intangible
assets 0.2 0.3 Amortization of original issue discount 0.1 0.1 Gain
on sale of equipment (2.2 ) (2.0 ) Provision for bad debt 0.3 0.6
Equity-based compensation 0.8 0.8 Deferred income taxes 0.9 (0.4 )
Adjustment to tax receivable agreement 0.1 0.4 Unrealized (gain)
loss on interest rate swap (0.6 ) 4.6 Changes in operating assets
and liabilities: Accounts receivable 5.1 11.1 Inventories, prepaid
expenses and other assets (1.7 ) (1.9 ) Accounts payable (0.1 )
(1.5 ) Accrued expenses and other liabilities (4.6 ) (3.2 ) Net
cash provided by operating activities 29.2 33.4
Cash Flows from Investing Activities Purchases of rental
equipment (21.1 ) (36.1 ) Proceeds from sale of equipment 7.2 5.1
Purchases of property and equipment (1.1 ) (5.0 ) Net cash used in
investing activities (15.0 ) (36.0 )
Cash Flows from Financing
Activities Repayments under revolving credit facility (37.4 )
(29.4 ) Borrowings under revolving credit facility 35.0 43.9 Debt
issue costs — (1.4 ) Common stock repurchases — (5.3 ) Second Lien
Loan prepayment (11.8 ) (3.3 ) Net cash (used in) provided by
financing activities (14.2 ) 4.5 Net (decrease) increase in
cash and cash equivalents (0.1 ) 1.9 Cash and cash equivalents,
beginning of period 0.9 0.3 Cash and cash
equivalents, end of period $ 0.8 $ 2.2
TABLE 4
NEFF CORPORATION AND
SUBSIDIARIES
DILUTED EARNINGS PER SHARE
CALCULATION
(in millions, except per share
data)
For the Three Months Ended March 31, 2017
2016 Numerator: Net income (loss) attributable
to Neff Corporation $ 1.7 $ (0.2 )
Denominator:
Weighted average shares of Class A common stock outstanding,
diluted 9.5 10.3
Diluted earnings per share
of Class A common stock $ 0.18 $
(0.01 )
NEFF CORPORATION AND
SUBSIDIARIESADJUSTED EARNINGS PER SHARE - US GAAP
RECONCILIATION
We define “adjusted earnings per share” as the sum of diluted
earnings per share of Class A common stock, as reported, adjusted
for the impact of the items that we believe are not indicative of
our ongoing operations, including for the periods presented (gain)
loss on interest rate swap and non-cash adjustment to the tax
receivable agreement. Management believes that including adjusted
EPS in this press release is appropriate because securities
analysts, investors and other interested parties use this non-US
GAAP financial measure as an important measure to assess our
operating performance compared to that of other companies in the
industry. However, adjusted EPS is not a measure of financial
performance under US GAAP. Accordingly, adjusted earnings per share
should not be considered an alternative to diluted EPS of Class A
common stock. The table below provides a reconciliation between
diluted EPS of Class A common stock, as reported, and adjusted EPS.
Because adjusted EPS is not calculated in the same manner by all
companies, it may not be comparable to other similarly titled
measures used by other companies.
TABLE 5
For the Three Months Ended March 31, 2017
2016 Diluted earnings per share of Class A common
stock, as reported $ 0.18 $ (0.01
) Adjusted for: (Gain) loss on interest rate swap(a)(c)
(0.01 ) 0.11 Adjustment to tax receivable agreement(b) 0.01
0.04
Adjusted earnings per share(c) $
0.18 $ 0.14
(a) Represents
after tax impact of (gain) loss on interest rate swap related to
adjustments to fair value. (b) Represents non-cash adjustment to
tax receivable agreement related to changes in estimates used in
the calculation of the tax receivable agreement. (c) For the three
months ended March 31, 2016, the Company made a correction to the
adjustment for (gain) loss on interest rate swap, a non-US GAAP
adjustment. As a result for the three months ended March 31, 2016,
the Company now reports an adjustment for (gain) loss on interest
rate swap of $0.11 per share and non-US GAAP adjusted earnings per
share of $0.14.
NEFF CORPORATION AND
SUBSIDIARIESEBITDA AND ADJUSTED EBITDA - US GAAP
RECONCILIATION(in millions)
EBITDA is defined as net income (loss) plus interest expense,
provision for (benefit from) income taxes, depreciation of rental
equipment and other depreciation and amortization. Adjusted EBITDA
is defined as EBITDA further adjusted to give effect to other items
that management does not consider to be indicative of our ongoing
operations, including for the periods presented rental split
expense, equity-based compensation, adjustment to tax receivable
agreement and (gain) loss on interest rate swap. EBITDA and
Adjusted EBITDA are not measures of performance in accordance with
US GAAP and should not be considered as alternatives to net income
(loss) or operating cash flows determined in accordance with US
GAAP. Additionally, EBITDA and Adjusted EBITDA are not intended to
be measures of cash flow for management's discretionary use, as
they exclude certain cash requirements such as interest payments,
tax payments and debt service requirements. Management believes
that including EBITDA and Adjusted EBITDA in this press release is
appropriate because securities analysts, investors and other
interested parties use these non-US GAAP financial measures as
important measures of assessing our operating performance across
periods on a consistent basis. EBITDA and Adjusted EBITDA have
limitations as analytical tools and should not be considered in
isolation or as a substitute for analysis of our results as
reported under US GAAP. The table below provides a reconciliation
between net income (loss) and EBITDA and Adjusted EBITDA. Because
EBITDA and Adjusted EBITDA are not calculated in the same manner by
all companies, they may not be comparable to other similarly titled
measures used by other companies.
TABLE 6
For the Three Months Ended March 31, 2017
2016 (in millions of dollars) Net income
(loss) $ 6.2 $ (0.4 )
Interest expense 11.2 11.0 Provision for (benefit from) income
taxes 0.9 (0.4 ) Depreciation of rental equipment 22.2 22.2 Other
depreciation and amortization 2.2 2.7
EBITDA(e) 42.6 35.1 Rental split expense(a)
0.6 0.4 Equity-based compensation(b) 0.8 0.8 Adjustment to tax
receivable agreement(c) 0.1 0.4 (Gain) loss on interest rate
swap(d) (0.4 ) 4.7
Adjusted EBITDA(f) $
43.6 $ 41.4
(a) Represents
cash payments made to suppliers of equipment in connection with
rental split expense, which payments are credited against the
purchase price of the applicable equipment if Neff Holdings elects
to purchase that equipment. (b) Represents non-cash equity-based
compensation expense recorded in the periods presented in
accordance with US GAAP. (c) Represents adjustment to tax
receivable agreement related to changes in estimates used in the
calculation of the tax receivable agreement. (d) Represents (gain)
loss on interest rate swap related to adjustments to fair value.
(e) Our EBITDA margin was 44.5% and 39.2% for the three months
ended March 31, 2017 and 2016, respectively. (f) Our Adjusted
EBITDA margin was 45.5% and 46.2% for the three months ended March
31, 2017 and 2016, respectively.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170425006420/en/
Neff CorporationInvestor Relations Contact:Brian Coolidge,
305-513-3350, Fax: 305-513-4156InvestorRelations@neffcorp.com
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