RSC investing in business; liquidity adequate for continued growth, CFO says

By Jennifer Lanning Drey

Savannah, Ga., April 21 - RSC Holdings Inc. is investing in its growth and has adequate liquidity to continue to grow the business as demand increases, Patricia Chiobo, RSC's chief financial officer, said Thursday during the company's first-quarter earnings conference call.

RSC had available borrowings of $641 million at March 31, the end of the first quarter.

In addition, the company is pleased with its capital structure after carrying out refinancing activities in January and February, Chiobo said.

"Our capital structure is quite attractive. We have considerable flexibility and available liquidity under our borrowing agreement," she said.

RSC issued $650 million of 8¼% 10-year unsecured notes in January and used the proceeds to repay $479 million of second-lien notes due 2013. The company also called $117 million of its 9½% notes due 2014.

"With this issuance, we lowered our cash interest rate and extended maturities to 2021," Chiobo said.

RSC also completed the refinancing of its ABL facility in February. The new facility matures in 2016, providing liquidity and flexibility to capture the growth in the cycle, she said.

Revenues, adjusted EBITDA improve

For the first quarter, RSC reported total revenue of $327 million and rental revenue of $272 million. The figures compared with $261 million in total revenue and $222 million in rental revenue for the same period in 2010.

Rental volumes increased more than 20% year-over-year, driven largely by investment in the company's sales and marketing, footprint and fleet, Chiobo said.

"Our financial performance continues to improve significantly and rapidly," she said.

First-quarter adjusted EBITDA was $99 million, compared with adjusted EBITDA of $66 million in the first quarter of 2010.

"Consider that we grew total revenues by 25%, and we grew adjusted EBITDA by 50%. There is tremendous leverage in the RSC business model," the CFO said.

Chiobo also noted that like other companies in the industry, RSC looked to reduce costs and become more efficient during the downturn. However, the company avoided deferring equipment maintenance, abandoning its safety program and halting employee benefits, she said.

"The difference is that we pursed lasting changes," Chiobo said.

RSC reported a first-quarter net loss of $50 million, compared with a net loss of $38 million for the first quarter of 2010. The net loss in the current quarter includes $49 million of pre-tax charges associated with the refinancing activities in the quarter.

Negative free cash flow

RSC also reported Thursday that its first-quarter free cash flow was negative $57 million, which included a $34 million one-time cash charge associated with the debt refinancing.

RSC invested $158 million in gross rental capital expenditures during the first quarter in response to rising demand.

With the company in an expansion phase of the rental cycle, RSC expects increased free flow from operations resulting from higher profitability to be offset by decreases in cash flow due to rising capital expenditure investments, Chiobo said.

However, the company believes modestly negative free cash flow is acceptable at the current phase of the growth cycle due to the significant opportunities available, the company's chief executive officer Erik Olsson later added.

"We believe the expected growth in revenue and EBITDA warrants this investment, especially at this early stage of the cycle," he said.

RSC is a Scottsdale, Ariz.-based equipment rental company.

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