Highlights from Neff Corp's IPO Filing (NEFF)

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 |  Includes: NEFF, URI
by: Evelyn Rubin

Neff Corp filed an S-1 with the SEC last week with the proposed ticker (NYSE:NEFF). Credit Suisse, UBS and CIBC are underwriting the deal. Highlights from the filing (all excerpts are from the full SEC filing):

Company Description

We are one of the largest equipment rental companies in the United States. Through our 63 branches, located primarily in the sunbelt states, we rent a broad variety of construction and industrial equipment, including earthmoving, material handling, aerial, compaction and related equipment. We believe what differentiates us from many of our competitors is that we have a particular focus on renting earthmoving equipment, which comprises approximately 50% of the total original equipment cost of our rental fleet.

Our target customer base consists of mid-sized, regional and local non-residential construction firms, which we believe value our high level of service and equipment reliability standards. During 2005, we served over 20,000 customers and generated 82.2% of our revenues from equipment rentals, 13.0% of our revenues from the sale of used and new equipment and 4.8% of our revenues from the sale of parts, supplies and related maintenance. As of March 31, 2006, our rental fleet consisted of 12,453 major pieces of equipment with a total original cost of approximately $498.5 million. From 2002 through 2005, we increased total revenues at a compounded annual growth rate of 13.4%.

Key Financial Data

  • 2005 Revenues: Broken down into Rental Revenues, Equipment Sales and Parts and Services. For 2005, the revenues were $229.8 million, $36.36 million, and $13.46 million, totaling $279.62 million (+12.9%YOY). Growth has come from Rental revenue (+19.1%YOY) and parts and services (+11.6%YOY), whereas equipment sales were down 14.9% for the period.
  • First Quarter Revenues: Q1 revenues were up in all three categories, to $61.88 million in rental revenues (+29.3% over Q1 05), $11.99 million in equipment sales (+9.8% over Q1 05) and $3.79 million (+26.6% over Q1 05). At $77.66 million, total Q1 revenues were 25.7% higher than the same period last year.
  • Margins: Cost of revenues were down 3.5% over 2004, resulting in a $126 million gross profit, a 42.3% improvement over 2004. First three months of 2006 saw cost of revenues up 9.6% over the same period last year; gross profit was up 52% to $35.4 million. Net income in the quarter was $4.01 million, a hefty 61% improvement over the same period last year. Interest expense was $11.5 million, up 181% over last year.
  • Balance Sheet: As of the end of March, the company had $33k (yes, thousand) in cash. There is some $460 million in debt. This is inclusive of an ABL credit facility which of $142.5 million with an additional $73.5 million available for additional borrowings.
  • Use of Proceeds:

    From the net proceeds to us from this offering, we intend to use:

  • approximately $80.0 million to redeem all of the outstanding principal amount of our 13% senior subordinated notes, which are scheduled to mature in June, 2013;
  • approximately $51.8 million to repay a portion of the amounts outstanding under our ABL credit facility, which is scheduled to mature in June 2010 and which had an interest rate of approximately 7.1% as of March 31, 2006;
  • approximately $10.9 million to pay the fees and expenses related to this offering; and
  • approximately $7.3 million for prepayment penalties related to the redemption of the 13% senior subordinated notes
  • CEO Background:

    J.C. Mas is our President and Chief Executive Officer and also serves as a member of our board of directors. Prior to joining us as President and CEO in 2002, Mr. Mas served in a variety of executive positions at MasTec Inc., including as President of MasTec International. Mr. Mas is also on the board of Miami Children's Hospital.

    Key Competitors

    We are one of the largest equipment rental companies in the United States. As a result of our regional focus, we believe that our position in many of the markets in which we compete is substantially stronger. The equipment industry is highly fragmented and competitive. While the competitive landscape also includes small, independent businesses with one or two rental locations, we believe that we mostly compete against regional competitors which operate in one or more states, public companies or divisions of public companies and equipment vendors and dealers who both sell and rent equipment directly to customers.

    Competitors listed include:

    1. United Rentals (NYSE:URI)
    2. Hertz
    3. NationsRent
    4. RSC Equipment Rental

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    Quick Comments on the Filing:

    Use of Proceeds The company plans to raise about $120 million to repay debt. The company is currently heavily leveraged, with virtually no cash in its coffers.

    Competition
    : The equipment rental market is highly competitive. While Neff is the largest player in the US, it faces competition regionally from a slew of players, a handful of which are listed above. I get nervous when implementing CRM is one of a company's key business differentiators (from the S1: "In order to better serve our customers, we developed a customer relationship management, or CRM, system, that enables us to manage our business more effectively and to be proactive when providing service to our existing customers and to potential new customers. We use our CRM system at all levels of our organization from our sales force to our senior management to identify and pursue sales leads and pricing opportunities").