Ahern sees revenue rise but loss widen in second quarter

Despite continuing losses and a heavy debt burden, top managers at Ahern Rentals expressed hope that they have seen the worst of the downturn.

During the second quarter, the construction equipment rental company reported a 1 percent gain in revenue from one year ago to $72.2 million as leasing income dropped but sales of used equipment spiked upward. Its net loss widened to $27.2 million from $18.1 million last year due not only to lower operating income but higher interest payments on loans that were restructured early this year.
Since January, however, the amount of time each piece of equipment spends in the field has lengthened and rental rates have improved, said President and CEO Don Ahern.

"As we sit here today, I am pleased to say that things feel very different than they did four or five months ago," Ahern told analysts on a conference call. "As a management team, I feel we have weathered the trough of this downturn and are beginning to see good momentum."

In particular, he said that projects funded by federal stimulus money had broken ground while privately financed work had picked up in many areas.

One tangible sign of improvement was the increased sale of used equipment. Although analysts had previously raised this as a way to pay down debt and increase liquidity, the company had resisted taking that route last year as prices slumped during the recession. In recent weeks, however, Ahern said the supply had tightened and auction prices have gone up.

Analysts also focused on another statistic -- how much the company could borrow against its revolving credit line -- as an indicator of how much financial flexibility it had. The amount had sunk from $31.2 million at the end of the first quarter to $23 million in the second, but Chief Financial Officer Howard Brown said it has since rebounded to $34 million.

Still, the company last month retained the brokerage firm Oppenheimer & Co. to study various alternatives for the company, including how to handle the revolver when it comes due in one year. The company has borrowed $278.2 million against it.

Brown declined to detail the range of options Oppenheimer would pore over.

Although Ahern owns 97 percent of the company, some of the company's debt is publicly traded so it must follow Securities and Exchange Commission reporting rules.

As the construction industry tipped into a severe recession, Ahern has tried to remake itself by quickly broadening its geographic scope. The company has boosted its number of branches by two-thirds to 71 since 2008, entering states such as Pennsylvania, North Carolina and Maryland for the first time.

The share of revenues the company draws from its historic base in Las Vegas has dropped from 35 percent in 2006, its peak financial year, to 21 percent now. In addition, Ahern has found places to redeploy all the equipment that was sitting in storage yards once the CityCenter project finished.

Trent Porter, an analyst with Guggenheim Securities in New York, said analysts had been "skeptical" that plunging into numerous new markets could reverse the company's fortunes.

Ahern said the company had done it without engaging in heavy discounting to gain market share.

Executive Vice President Evan Ahern, the architect of the diversification strategy, said that the average new location had cost $600,000. From all the new locations, rental income was running close to $6 million a month from equipment "that otherwise would have sat idle or been sold into a depressed market."

Still, he said the new locations were handling less than half of their potential business.

At another point, analysts questioned Don Ahern about whether he would put his own money into the company if necessary. He contended that he would do "whatever I have available and I can do" to keep the company going, but declined to state specifics.

"I would cough up a kidney and put it in if I had to," he said.

Contact reporter Tim O'Reiley at toreiley
@lvbusinesspress.com or 702-387-5290.