Neff Corporation (the “Company”) (NYSE: NEFF) today reported its
financial results for the second quarter ended June 30,
2015.
Graham Hood, Chief Executive Officer of Neff Corporation,
commented, “Despite challenging weather conditions and the
headwinds from Oil and Gas activities we achieved record rental
revenues in the second quarter of 2015. Adjusted EBITDA was down by
2.9% year over year, due largely to public company related
expenditures. We remain highly focused on managing our fleet and
executing our strategy as we continue into the seasonally strong
summer months of rental demand in a positive construction
environment.”
Second Quarter 2015 Highlights
- Revenues increased 2.0% to $94.2
million in the quarter from $92.4 million in the second quarter of
2014.
- Rental revenues increased 1.6%, or $1.3
million, to $84.8 million in the second quarter of 2015.
- The average original equipment cost
("OEC") of our rental fleet increased by 10.9% to $762.5 million
for the second quarter of 2015.
- Rental rate growth was 1.7% in the
quarter compared to 7.4% in the second quarter of 2014.
- Time utilization was 67.1% in the
second quarter of 2015 compared to 72.2% in the prior-year
period.
- Adjusted EBITDA decreased 2.9% to $47.0
million in the second quarter of 2015 from $48.4 million in the
prior-year quarter. Adjusted EBITDA as a percentage of revenues was
49.9% compared to 52.4% in the second quarter of 2014.
Second Quarter 2015 Financial Results
Revenue
Total revenues increased 2.0% to $94.2 million from $92.4
million in the second quarter of 2014. Rental revenues increased
1.6% to $84.8 million compared to $83.5 million in the second
quarter of 2014. Equipment sales increased to $6.2 million from
$5.5 million in the second quarter of 2014. Parts and service
revenues decreased to $3.2 million in the second quarter of 2015
from $3.4 million in the prior-year period.
Adjusted EBITDA
Adjusted EBITDA, a non-US GAAP ("US GAAP" means accounting
principles generally accepted in the United States) financial
measure that includes the adjustments noted in the reconciliation
below, in the second quarter of 2015 was $47.0 million compared to
$48.4 million in the second quarter of 2014. Adjusted EBITDA, as a
percentage of revenues, was 49.9% compared to 52.4% in the second
quarter of 2014.
Net Income
Net income for the quarter increased to $14.7 million for the
second quarter of 2015 from a loss of $22.9 million in the second
quarter of 2014. Net income increased primarily because the
transaction bonus and extinguishment of debt which occurred in the
second quarter of 2014 did not occur in 2015.
Return on Invested Capital ("ROIC")
ROIC was 11.5% for the twelve months ended June 30, 2015,
an increase of 100 basis points from the twelve months ended
June 30, 2014. The Company’s ROIC metric uses after-tax
operating income for the trailing 12 months divided by average
stockholders’ equity (deficit) and debt, net of average cash. 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 $775.4 million of OEC as of
June 30, 2015, compared to $708.3 million at June 30,
2014.
Six Months 2015 Financial Results
- Revenues increased 4.8% to $178.3
million from $170.1 million for the same period last year.
- Adjusted EBITDA increased 3.4% to $86.0
million from $83.2 million in the prior year period. Adjusted
EBITDA as a percentage of revenues was 48.2% compared to 48.9% in
the prior year period.
- Rental revenues increased 4.2%, or $6.3
million, to $159.0 million for the current year period from $152.6
million in the same period last year.
- The average original equipment cost
("OEC") of our rental fleet increased by 12.7% to $742.3 million in
the current year period.
- Rental rate growth was 2.7% in the
current year compared to 7.2% in the same period last year.
- Time utilization was 65.4% compared to
70.3% in the prior-year period.
2015 Financial Outlook
The Company has updated its 2015 full year outlook as
follows:
- Total revenue is forecast to be in the
range of $385 million to $395 million, compared to the prior
guidance of $390 million to $400 million.
- Adjusted EBITDA is forecast to be in a
range of $190 million to $195 million, compared to the prior
guidance range of $200 million to $205 million.
- Year-over-year rental rate increase is
expected to be approximately 3.0%, compared to prior guidance of
4.5%.
- Time utilization is unchanged from
prior guidance of 66%.
- Net capital expenditures are expected
to be in the range of $130 million to $135 million, compared to the
prior guidance range of $125 million to $135 million.
Basis of Presentation
Subsequent to the Initial Public Offering in 2014 ("IPO"), Neff
Corporation began to operate and control all of the business
affairs of Neff Holdings LLC and began to consolidate Neff Holdings
LLC, and such consolidation has been reflected for all periods
presented in the following tables. Unless otherwise noted, the
results prior to the IPO presented in this press release are
consolidated and exclude adjustments attributable to the
non-controlling interest.
These historical results prior to the IPO do not purport to
reflect what the results of operations of Neff Corporation would
have been had the IPO and related reorganization and other
transactions occurred prior to such periods. For example, these
historical results do not reflect the portion of Neff Corporation's
income attributable to the non-controlling interest or the
provision for corporate income taxes on the income attributable to
Neff Corporation that we expect to record with respect to future
periods.
Conference Call
The Company’s management will hold a conference call to discuss
the second quarter 2015 results tomorrow, August 4, 2015, 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 89072227, 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 Tuesday, August 18, 2015. To
listen to the archived call, dial +1 855-859-2056 or
+1-404-537-3406 and enter conference ID number 89072227. 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, interest expense, provision for income taxes,
depreciation of rental equipment, other depreciation and
amortization and amortization of debt issue costs. Adjusted EBITDA
represents EBITDA further adjusted to give effect to non-cash and
other items that we do not consider to be indicative of our ongoing
operations. Adjusted earnings per share represents the sum of
diluted earnings per share of Class A common stock, as reported
plus the impact of the following special items: (gain) loss on
interest rate swap and non-cash adjustment to tax receivable
agreement. The company believes that: (i) EBITDA and Adjusted
EBITDA and (ii) adjusted earnings per share 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 earnings per share under US GAAP
as indicators of operating performance or liquidity.
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 a daily, weekly or monthly
term. 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, including non-residential construction,
oil and gas and residential construction customers. 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 2015
outlook, including without limitation, statements regarding our
forecasted revenue and Adjusted EBITDA and our expected rental
rates, time utilization and net capital expenditures; expectations
regarding execution of our strategy; expectations regarding
seasonality and expectations regarding slowdown in oil and gas
exploration and the Company’s ability to offset such slowdown. We
use words such as "could," "may," "will," "expect," "believe,"
"continue," "anticipate," "estimate," "intend," "project" 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, 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 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;
the Company’s substantial indebtedness and ability to generate cash
to meet its debt service obligations; 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;
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; 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; 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; 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, 2014 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 ThreeMonths
EndedJune 30, 2015
For the ThreeMonths
EndedJune 30, 2014
For the SixMonths
EndedJune 30, 2015
For the SixMonths
EndedJune 30, 2014
Revenues Rental revenues $ 84.8 $ 83.5 $ 159.0 $ 152.6 Equipment
sales 6.2 5.5 13.0 10.8 Parts and service 3.2 3.4 6.4
6.7 Total revenues 94.2 92.4 178.3
170.1 Cost of revenues Cost of equipment sold 4.1 3.0
8.4 6.1 Depreciation of rental equipment 21.2 18.3 40.7 36.5 Cost
of rental revenues 19.5 19.3 37.4 37.6 Cost of parts and service
1.8 2.1 3.6 4.1 Total cost of revenues
46.6 42.6 90.1 84.3 Gross profit 47.6
49.7 88.3 85.8 Other operating expenses
Selling, general and administrative expenses 22.5 20.3 44.8 40.4
Other depreciation and amortization 2.7 2.5 5.1 4.7 Transaction
bonus — 24.5 — 24.5 Total other
operating expenses 25.1 47.2 49.9 69.6
Income from operations 22.5 2.5 38.4 16.2
Other (income) expenses Interest expense 10.8 8.3 21.3 15.1
Adjustment to tax receivable agreement (3.4 ) — (2.9 ) — Loss on
extinguishment of debt — 15.9 — 15.9 Gain on interest rate swap
(1.0 ) — (0.1 ) — Amortization of debt issue costs 0.4 1.0
0.8 2.3 Total other (income) expenses 6.7
25.2 19.0 33.4 Income (loss) before
income taxes 15.8 (22.7 ) 19.4 (17.2 ) Provision for income taxes
(1.1 ) (0.1 ) (1.3 ) (0.2 ) Net income (loss) 14.7 (22.9 ) 18.0
(17.4 )
Less: net income (loss) attributable to
non-controlling interest
7.3 (22.9 ) 9.7 (17.4 ) Net income attributable to
Neff Corporation $ 7.4 $ — $ 8.3 $ —
Net income attributable to Neff
Corporation per share of Class A common stock outstanding:
Basic $ 0.71 $ 0.80 Diluted $ 0.62 $ 0.69
Weighted average shares of Class A common
stock outstanding:
Basic 10.5 10.5 Diluted 12.0 12.0
TABLE 2
NEFF CORPORATION AND
SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
(in millions)
June 30, 2015 December 31, 2014
ASSETS Cash and cash equivalents $ 0.2 $ 0.2 Accounts
receivable, net 59.5 66.4 Inventories 2.1 2.0 Rental equipment, net
479.5 420.2 Property and equipment, net 35.6 30.2 Prepaid expenses
and other assets 17.3 17.0 Goodwill 58.8 58.8 Intangible assets,
net 16.0 16.6 Total assets $ 668.9 $ 611.4
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities Accounts payable $ 21.4 $ 27.4 Accrued expenses and
other liabilities 30.1 31.2 Revolving credit facility 293.0 245.2
Second lien loan, net
476.8 476.7 Payable pursuant to tax receivable agreement 28.7 31.6
Deferred tax liability, net 6.6 5.4 Total liabilities
856.6 817.5 Stockholders' deficit Class A
Common Stock 0.1 0.1 Class B Common Stock 0.2 0.2 Additional
paid-in capital (111.8 ) (112.2 ) Retained earnings 9.9 1.6
Total stockholders' deficit (101.6 ) (110.3 )
Non-controlling interest (86.1 ) (95.8 ) Total stockholders'
deficit and non-controlling interest (187.7 ) (206.1 ) Total
liabilities and stockholders' deficit and non-controlling interest
$ 668.9 $ 611.4
TABLE 3
NEFF CORPORATION AND
SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
For the Six MonthsEnded June 30,
2015
For the Six MonthsEnded June 30,
2014
Cash Flows from Operating Activities Net income (loss) $
18.0 $ (17.4 ) Adjustments to reconcile net income (loss) to net
cash provided by operating activities: Depreciation 45.2 40.4
Amortization of debt issue costs 0.8 2.3 Amortization of intangible
assets 0.6 0.8 Amortization of original issue discount on second
lien loan 0.1 — Gain on sale of equipment (4.6 ) (4.7 ) Provision
for bad debt 0.8 1.4 Equity-based compensation 0.7 0.5 Deferred
income taxes 1.2 — Adjustment to tax receivable agreement (2.9 ) —
Unrealized gain on interest rate swap (0.2 ) — Loss on
extinguishment of debt — 15.9 Changes in operating assets and
liabilities: Accounts receivable 6.1 (1.1 ) Inventories, prepaid
expenses and other assets (1.0 ) (2.1 ) Accounts payable (2.3 )
(1.7 ) Accrued expenses and other liabilities (1.9 ) 1.2 Net
cash provided by operating activities 60.7 35.6
Cash Flows from Investing Activities Purchases of rental
equipment (111.1 ) (105.9 ) Proceeds from sale of equipment 13.0
10.8 Purchases of property and equipment (10.1 ) (11.0 ) Net cash
used in investing activities (108.2 ) (106.2 )
Cash Flows from
Financing Activities Repayments under revolving credit facility
(53.1 ) (436.9 ) Borrowings under revolving credit facility 100.9
481.9 Proceeds from second lien loan, net — 572.1 Distribution to
members — (329.9 ) Repayments of senior secured notes — (200.0 )
Call premiums — (7.2 ) Debt issue costs — (9.0 ) Payment of costs
directly associated with the issuance of Class A common stock (0.3
) — Net cash provided by financing activities 47.5
71.0 Net increase in cash and cash equivalents — 0.4 Cash
and cash equivalents, beginning of period 0.2 0.2
Cash and cash equivalents, end of period $ 0.2 $ 0.6
TABLE 4
NEFF CORPORATION AND
SUBSIDIARIES
DILUTED EARNINGS PER SHARE
CALCULATION
(in millions, except per share
data)
For the ThreeMonths
EndedJune 30, 2015
For the SixMonths
EndedJune 30, 2015
Numerator: Net income attributable to Neff Corporation $ 7.4
$ 8.3
Denominator: Weighted average shares of Class A
common stock outstanding 10.5 10.5 Add dilutive effect of the
following: Neff Holdings options (redeemable for cash or Class A
common stock) 1.3 1.3 Neff Corporation stock options 0.3 0.3
Weighted average shares of Class A common stock outstanding,
diluted 12.0 12.0
Diluted earnings per share of
Class A common stock $ 0.62 $ 0.69
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. Management believes that including adjusted
earnings per share 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 earnings per share is
not a measure of financial performance under US GAAP. Accordingly,
adjusted earnings per share should not be considered an alternative
to diluted earnings per share of Class A common stock. The table
below provides a reconciliation between diluted earnings per share
of Class A common stock, as reported, and adjusted earnings per
share.
TABLE 5
For the ThreeMonths
EndedJune 30, 2015
For the SixMonths
EndedJune 30, 2015
Diluted earnings per share of Class A common stock, as reported $
0.62 $ 0.69 Adjusted for: Gain on interest rate swap(a) (0.05 )
(0.01 ) Adjustment to tax receivable agreement(b) (0.28 ) (0.24 )
Adjusted earnings per share $ 0.29
$ 0.44
______________________
(a) Represents after tax impact of gain 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.
NEFF CORPORATION AND
SUBSIDIARIESEBITDA AND ADJUSTED EBITDA - US GAAP
RECONCILIATION(in millions)
EBITDA is defined as net income plus interest expense, provision
for income taxes, depreciation of rental equipment, other
depreciation and amortization and amortization of debt issue costs.
Adjusted EBITDA is defined as EBITDA further adjusted to give
effect to non-cash and other items that Management does not
consider to be indicative of our ongoing operations. Adjusted
EBITDA is not a measure of performance in accordance US GAAP and
should not be considered as an alternative to net income or
operating cash flows determined in accordance with US GAAP.
Additionally, Adjusted EBITDA is not intended to be a measure of
cash flow for management's discretionary use, as it excludes
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. Adjusted EBITDA has limitations as an analytical tool 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 and EBITDA and
Adjusted EBITDA.
TABLE 6
For the ThreeMonths
EndedJune 30, 2015
For the ThreeMonths
EndedJune 30, 2014
For the SixMonths
EndedJune 30, 2015
For the SixMonths
EndedJune 30, 2014
(in millions of dollars) Net income (loss) $ 14.7 $ (22.9 )
$ 18.0 $ (17.4 ) Interest expense 10.8 8.3 21.3 15.1 Provision for
income taxes 1.1 0.1 1.3 0.2 Depreciation of rental equipment 21.2
18.3 40.7 36.5 Other depreciation and amortization 2.7 2.5 5.1 4.7
Amortization of debt issue costs 0.4 1.0 0.8
2.3
EBITDA 50.8 7.3 87.2
41.5 Loss on extinguishment of debt(a) — 15.9 — 15.9
Transaction bonus(b) — 24.5 — 24.5 Rental split expense(c) 0.3 0.4
1.1 0.7 Equity-based compensation(d) 0.3 0.3 0.7 0.5 Adjustment to
tax receivable agreement(e) (3.4 ) — (2.9 ) — Gain on interest rate
swap(f) (1.0 ) — (0.1 ) —
Adjusted EBITDA
$ 47.0 $ 48.4 $
86.0 $ 83.2
______________________
(a) Represents expenses and realized losses that were
incurred in connection with the redemption of our Senior Secured
Notes. (b) Represents the payment of incentive bonuses earned in
connection with consummation of a refinancing to management and
certain members of the Company’s board of managers. (c) Represents
cash payments made to suppliers of equipment in connection with
rental splits, which payments are credited against the purchase
price of the applicable equipment if Neff Holdings elects to
purchase that equipment. (d) Represents non-cash equity-based
compensation expense recorded in the periods presented in
accordance with US GAAP. (e) Represents adjustment to tax
receivable agreement related to changes in estimates used in the
calculation of the tax receivable agreement. (f) Represents gain on
interest rate swap related to adjustments to fair value.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150803006302/en/
For Neff CorporationInvestor Relations Contact:Shawn Severson,
415-489-2198Fax: 415-217-7721shawn@blueshirtgroup.com
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