Q1 2004 Williams Scotsman, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: At this time, I would like to welcome everyone to Williams Scotsman's quarterly conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) I would now like to turn the call over to Mr. John Cantlin, CFO. Sir, you may begin.

JOHN CANTLIN, SVP AND CFO, WILLIAMS SCOTSMAN INC.: Good afternoon. Welcome to the first-quarter 2004 Williams Scotsman conference call. This is John Cantlin, CFO. With me are Gerry Holthaus, our CEO; Pat Platter (ph), Corporate Controller; and Scott Becker (ph), our Vice President of Finance. I am going to lead off today with comments about our first-quarter financial results, and Gerry will follow me with additional comments about the current state of the business, and then we will open up the floor to questions.

As we conduct this call various comments that we make about future expectations, plans, and prospects constitute forward-looking statement as such terms are defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act of 1934 as amended. Because such statements are subject to risks and uncertainties the company's actual results may differ materially from those expressed or implied by such forward-looking statements. Investors are encouraged to read the risk factors section of the company's annual report on Form 10-K for the year ended December 31, 2003, and other risks disclosed from time to time in the company's Securities and Exchange Commission reports and filings.

Okay. Let me start with an overview of the quarter. In total, the first quarter came in about where we expected. Total revenue at $107 million exceeded last year's first quarter by almost 6.6 percent. But adjusted EBITDA at 35 million was down from last year by 1.7 million or 4.7 percent.

The revenue mix as expected was richer quarter-over-quarter in sales-related revenue than leasing-related revenue, which carries higher margins. Also, while first-quarter average rental rates were higher than fourth-quarter rental rates, they were still behind last year's first-quarter average, so leasing revenue was down versus first quarter of last year.

Total debt increased during the quarter by $32 million. This was due to a significant $43 million asset acquisition completed at the end of the quarter, without which debt would have decreased. Borrowing availability under our credit agreements improved between the beginning and the end of the quarter from $58 million to $63 million.

Before moving to quarterly comparisons I want to say a few words about our recent California classroom acquisition. On March 26, we acquired nearly 3,800 DSA classroom units in California from GE Modular Space for approximately $43 million as we reported in an earlier 8-K. These units were over 95 percent utilized at the time that they were acquired. No GE branches, employees, or other infrastructure were included in the deal. The assets have been merged into our existing infrastructure.

We think this acquisition will add about $10.2 million of annual revenue and slightly over $8 million to the company's annual EBITDA run rate. The deal actually slightly improved the company's liquidity position since related trailing EBITDA is included when calculating the company's leverage ratio under our credit agreement.

This was an attractive opportunity for us not only because the fleet was highly utilized, but also because DSA classrooms are the portable classroom product type of choice in the California school system. Our own fleet of DSA classrooms in California is over 90 percent utilized, so we are familiar with this market. This acquisition provided a means to expand in one of our strongest segments without diminishing liquidity.

California demographic projections indicate continuing strong demand for this type of classroom. And our research indicates no none legislation initiatives that would adversely affect the viability of this product going forward.

The average rental rate of these DSA units is $235 per month, compared to a $249 first-quarter average rate for all company products. Therefore, these classroom units will have a slightly negative impact on the company's average rental rate for all products as we move forward.

Let's move now to the company's first-quarter performance. You may find it helpful to refer to the table in the press release, which compares the first quarter of this year to the same period last year as we proceed. Total revenue for the quarter at 106.9 million was up 6.7 million or 6.6 percent from the first quarter of last year, primarily attributable to increased new sales and related delivery and installation activity.

New sales for the quarter were up 4.4 million or 30.3 percent compared to the first quarter of 2003; and delivery and installation was up 1.5 million or nearly 8 percent compared to the same period. These increases are largely due to strength in the education market particularly in the West and Southeast regions of the country.

Revenue from rental equipment sales and other increased 800,000 and 600,000 respectively in the first quarter of 2004 versus the comparable period in 2003.

Leasing revenue declined in the first quarter of 2004 versus the first quarter of 2003 by $600,000 or 1.2 percent. Though we had slightly more units on rent in the first quarter of 2004, the rental rate on these units averaged $249 or $6 below last year's rate. Again the $249 average rate in the first quarter was higher than the fourth quarter of 2003 by about $2 a month.

While this is good news, it is still too early to deduce from this that rental rates have turned the corner. We expect average rental rates to drop about $3 in the second quarter as Canadian winter camps come off rent and the full impact of the DSA classroom acquisition affects our rates. The reduced average rental rate is expected to be more than offset by increased units on rent.

The average size of our fleet decreased quarter-over-quarter by 3,100 units. Most of the decrease resulted from a December 2003 reclass of approximately 2,900 fleet units to held-for-sale status. The impact of this reclass on fleet utilization was a 2.5 percent improvement, which also explains most of the 2.9 percent increase in quarter-over-quarter utilization from 75.9 percent last year to 78.8 percent in the first quarter of 2004. I would note that the DSA classroom acquisition had no meaningful impact on these averages, as that transaction did not take place until the end of the quarter.

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