Stephenson's Rental Services Income Fund
TSX : RNT.UN

Stephenson's Rental Services Income Fund

August 14, 2006 10:47 ET

Stephenson's Rental Services Income Fund Announces Second Quarter 2006 Results and Completion of A1 Equipment Rental Integration

MISSISSAUGA, ONTARIO--(CCNMatthews - Aug. 14, 2006) - Stephenson's Rental Services Income Fund (TSX:RNT.UN) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES



- Acquisition of A1 Equipment Rental Ltd. ("A1") successfully completed
and operations integrated
- Second quarter revenue up 23% compared to 2005
- Second quarter EBITDA up 14% compared to 2005


Stephenson's Rental Services Income Fund (TSX:RNT.UN) announced today results for the three months ended June 30, 2006. As the Fund commenced operations with the completion of its initial public offering ("IPO") on July 28, 2005, there are no comparative figures representing the operations of the Fund in prior periods. In order to provide comparative information, selected unaudited comparative figures for the period ended June 30, 2005 have been presented for the Fund's predecessor companies.

"We are pleased with the revenue growth during what is historically our two weakest quarters of the year," commented William D. Swisher, President and CEO. "With the highly accretive A1 acquisition now completed and its operations successfully integrated, we anticipate we will generate increased distributable cash for the balance of the year, and that our financial performance will continue to improve over the long term."

Second Quarter Operating Results

Total revenue for the three months ended June 30, 2006 increased 23.0% to $12.5 million from the second quarter of 2005, primarily due to the acquisition of A1 and higher rental revenue generated by a larger rental fleet and price increases implemented in 2005 and 2006. Revenue from equipment rental represented approximately 79% of total revenue for the quarter ended June 30, 2006 as compared to 81% of total revenue for the same quarter in 2005. Revenue from consumables and new equipment was $1.9 million, an increase of 14.5% compared to the same period in 2005. Revenue from the sale of used equipment, typically a more discretionary revenue stream, increased in the second quarter of 2006 compared to 2005 due to the timing of industry equipment auctions attended during the quarter.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") for three months ended June 30, 2006 increased by 14.2% to $2.6 million from $2.3 million during the same quarter in 2005. The primary reason for this improvement relates to the 23.0% increase in total revenue noted above relating to A1 and other factors. Selling, general and administrative expenses were also higher in the second quarter of 2006 as compared to the same period in 2005 primarily due to the costs related to becoming a publicly traded entity.

Because the results for the quarter include $2.0 million of interest/distributions on the Class A units, which under Canadian generally accepted accounting principles ("GAAP") is recorded as an expense, the Fund under GAAP incurred a net loss after income taxes and non-controlling interest of $1.2 million for the quarter ended June 30, 2006. There is no comparable result for the same period in 2005. Included in the net loss for the quarter is $2.0 million of interest/distributions on the Class A units, which under GAAP is recorded as an expense.

Period Ending June 30, 2006

Total revenue for the six months ended June 30, 2006 increased 16.5% to $22.5 million from the same period in 2005. The increase was primarily due to a $2.4 million increase in rental revenue during the period generated by the A1 acquisition, additional rental fleet and price increases.

EBITDA for the six months ended June 30, 2006 increased by $0.2 million to $3.9 million, representing an increase of 4.6% compared to the same period in 2005, as the additional revenue noted above was absorbed by incremental operating expenses, due to the A1 operations and an increase in selling, general and administrative expenses primarily due to public company related expenses incurred in 2006 compared to 2005.

Distributable Cash

As Stephenson's customers are primarily construction companies and contractors operating in Toronto and surrounding areas, operating and financial results are significantly impacted by the seasonal affects of weather in the first quarter and to a lesser extent, the beginning of the second quarter.

Accordingly, results for the first two quarters of the year, ended June 30, are traditionally weaker than the third and fourth quarter's results due to weather-related reductions in construction activity. To eliminate this seasonal impact the Fund has equalized monthly cash distributions through the year and anticipates its annualized distributions will be sustainable at the present level of $1.10 per unit, consistent with the distributions outlined at the time of the IPO.

Distributable cash for the three months ended June 30, 2006 was $2.1 million. The Fund declared distributions on its Class A and Class B units totalling $2.1 million and retained $0.5 million in respect of the Series 1 and Series 2 Exchangeable Shares.

Distributable cash for the six month period ended June 30, 2006 was $3.0 million. The Fund declared distributions on its Class A and Class B units totalling $3.9 million and retained $0.9 million in respect to the Series 1 and Series 2 Exchangeable Shares.

Stephenson's has a $10.0 million revolving credit facility which was undrawn and fully available as at June 30, 2006.

Acquisition of A1 Equipment Rental Ltd.

As a significant step in Stephenson's growth strategy, on May 24, 2006, the Fund, through its operating subsidiary, completed the acquisition of 100% of the capital stock of A1 Equipment Rental Ltd. ("A1"), the second largest independent equipment rental company in the Greater Toronto Area. A1's revenue for the year ended December 31, 2005 was approximately $17.0 million generating adjusted EBITDA of approximately $7.5 million.

The acquisition brings a number of benefits to Stephenson's unitholders:

- A1's rental fleet original cost of $26 million has historically generated annual dollar utilization (ROI) of approximately 50%, as compared to Stephenson's 61% on similar rental fleet product categories. Stephenson's "hub and spoke" branch operating model will provide the opportunity to improve A1's dollar utilization.

- Stephenson's consolidation of its largest independent competitor will result in a market share increase approaching 30% of markets served.

- The branch overlap between Stephenson's and A1 has provided the opportunity for the rationalization of the combined network and a resulting reduction in operating expenses.



Financial Highlights
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(in $,000 except per Unit Three months ended Six months ended
amounts) June 30, June 30,
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2006 2005 2006 2005

Revenue:
Equipment Rental $ 9,850 $ 8,223 $ 17,460 $ 15,032
Sales of Consumables & New
Equipment 1,938 1,692 3,806 3,798
Sales of Used Equipment 717 255 1,273 523
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12,505 10,170 22,539 19,353
Gross profit $ 3,033 $ 2,579 $ 4,766 $ 4,323
Gross profit % 24.3% 25.4% 21.1% 22.3%
Selling, general &
administrative expenses 1,841 1,586 3,574 3,135

EBITDA $ 2,641 $ 2,313 $ 3,852 $ 3,684
EBITDA margin 21.1% 22.7% 17.1% 19.0%
Interest on Long-Term Debt(net) 842 1,069
Distributions/Interest on
Class A Units 1,962 3,916
Amortization 1,840 3,210
Income Tax Expense (Recovery) (1,960) (3,135)
Non-Controlling Interest (287) (710)
Income (Loss) (1,227) (3,158)
Income (Loss) per
Class B Unit(1) $ (2.39) $ (6.14)

Distributable Cash $ 2,062 $ 3,022
Distributions/Amount
Retained $ 2,574 $ 5,142
Distributable Cash per Unit $ 0.2204 $ 0.3234
Distributions/Amount
Retained per Unit $ 0.2751 $ 0.5502
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(1) As the Fund's Class A units are recorded as a liability under GAAP, the related distributions are reported as interest expense and the Class B Units are considered equity and are used in calculating the income (loss) per unit.

The Fund's financial statements for the period ended June 30, 2006, including its Management's Discussion and Analysis, are available in the investor relations section of the Fund's web site at www.stephensons.ca and at www.sedar.com.

Investor Conference Call:

Stephenson's Rental Services Income Fund will hold a conference call at 11:00 a.m. ET today, Tuesday, August 15, 2006 to discuss these financial results, the recently announced acquisition, and current industry conditions. Please dial 1-877-407-0778 to access the call. A recording of this call will be available for the following week. To access the recording, please call 1-877-660-6853, Account Number 286, Conference I.D. Number 201989. The recording will also be available at www.stephensons.ca.

About Stephenson's:

Stephenson's is the leading general tool and equipment rental company in Toronto and the surrounding areas. Over the last 50 years, the Company has grown from a single location into one of the top ten equipment rental businesses in Canada.

Through its 19 branches, Stephenson's provides rental equipment and sells consumables to a diverse base of over 30,000 customers, divided into three primary categories: (i) residential new construction; (ii) non-residential new construction; and (iii) renovations.

Further information can be found on the Fund's web site at www.stephensons.ca and in the disclosure documents filed with securities regulatory authorities available at www.sedar.com.

Non-GAAP Measures

References to "EBITDA" are to earnings before interest, taxes, depreciation and amortization distributions/interest on Class A units, write-off public offering expenses and non-controlling interest. Management believes that in addition to net income or loss, EBITDA is a useful supplemental measure of cash available for distribution prior to debt service, changes in working capital, capital expenditures and taxes. However, EBITDA is not a recognized measure under Canadian GAAP. Investors are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of the Fund's performance or as an alternative to cash flows from operating, investing and financing activities as a measure of the Fund's liquidity and cash flows. The Fund's method of calculating EBITDA may differ from the methods used by other issuers and, accordingly, the Fund's EBITDA may not be comparable to similarly titled measures used by other issuers.

The Fund believes that presentation of EBITDA enhances an understanding of financial condition, results of operations and cash flows because EBITDA is used by the Fund to satisfy its debt service obligations, its capital expenditures and other operational needs, as well as to provide funds for customer account growth. In addition, EBITDA is used by lenders and the investment community to determine the current borrowing capacity and to estimate the long-term value of companies with recurring cash flows from operations.

Distributable cash is not a defined term under Canadian GAAP but is determined by the Fund as EBITDA reduced by interest expense, net maintenance capital expenditures funded from operating cash flow and gain on sale of equipment. Management believes that distributable cash is a useful measure of performance as it provides investors with an indication of the cash available for distribution to Unitholders. Investors are cautioned, however, that distributable cash should not be construed as an alternate to using net earnings as a measure of profitability or the statement of cash flows. Furthermore, the Fund's method of calculating distributable cash may not be comparable to other similarly named calculations.

Forward-Looking Statements:

Certain statements in this press release may constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Fund and its subsidiary entities, or the industry, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements.

When used in this press release, such statements use words such as "may", "will", "expect", believe", "plan" and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of the press release. These forward-looking statements involve a number of risks and uncertainties, including those set out under the heading "Risk Factors" in the Fund's Annual Information Form dated March 30, 2006 and Management Discussion and Analysis dated August 14, 2006. New risk factors may arise from time to time and is not possible for management of the Fund to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance or achievements of the Fund to be materially different from those contained in forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Although the forward-looking statements contained in this press release are based upon what management believes to be reasonable assumptions, the Fund cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of the press release, and the Fund assumes no obligations to update or revise them to reflect new events or circumstances.

Contact Information

  • Stephenson's Rental Services Income Fund
    William D. Swisher
    Chief Executive Officer
    (905) 507-3650