Peer Performance – Q2 – 2020
Originally posted on: 8/27/2020
RENTAL COMPANIES PEER PERFORMANCE – Q2 – 2020
Welcome to the first Quarterly Newsletter about PEER PERFORMANCE! We are proud of the work that was done with Baromitr.com to get you the most robust scorecard with the least amount of effort from you. Remember, your scorecard quarter to quarter can be filtered almost anyway you desire. By Peer Group, By ARA Region, By Business Size, and of course, By Type of business, whether its Tool & Equipment, Party & Event or Dealer.
MAKE SURE YOU CONTINUE TO INPUT YOUR DATA AS REQUESTED EACH QUARTER – our goal is to get 200 rental companies reporting!
It seems all the PPP and EIDL money, as well as, a reduction of overtime in the second quarter have left rental companies with a very strong QUICK RATIO (Cash + Receivables)/ Accounts Payables. We have spoken about how we like to see a 3 or 4 for rental companies and how, in general, larger companies try to maintain a 2 or higher. Our rental companies had a whopping 16 with the Median (middle operator) coming in at 8.5. It is important to look at that number in the context of past and future months. We recommend you start focusing when your number drops down to 3 or 4. Let’s hope that’s not for a few more quarters.
Regionally, we are most concerned with Region 7 (AZ, CO, NM, UT, WY) and Region 3 (AL, FL, GA, MS, NC, SC, TN) (Median 2 and 3.4, respectively), while it seems Region 4 (AK, LA, OK, TX) and Region 6 (IA, KS, MN, MO, NE, ND, SD) are in good shape with Medians of 29 and 24.
When we look at Debt to Revenue we know that our TOP GUN rental operators were able to achieve 25% in 2019. Unfortunately, those days are behind us, for now. Rental operators averaged 66% in 2nd Qtr, while the median (middle) was at 52%. Considering the two variables (Adding PPP and EIDL to Debt and Reduction in Revenue) – this is not horrible. Our guess is that not everyone had booked those two windfalls as debt as of June 30. We shall see in 3rd Qtr. So with 52% being the new norm let’s see how our regions did.
Regionally, Region 9 (CA, HI, NV) seems to be unfazed by the Pandemic with a ratio of 28%. This is corroborated in our Zoom Happy Hours where we hear about growth in Tool and Equipment rental continuing out west. Region 6 (IA, KS, MN, MO, NE, ND, SD) is next with 40%. On a negative note, we see the operators in Region 4 (AK, LA, OK, TX) tend to be more leveraged with a debt to revenue ratio closer to 70%.
Productivity is another area where that has been affected by the PPP loans. In many cases, it has caused many operators with declining business to keep team members on staff. For those companies, it has had a significant negative impact on debt to revenue and revenue per employee. This in particular has affected event rental companies and equipment rental areas that had more stringent lockdown protocols like Region 1 (CT, ME, MA, NH, NY, RI, VT). On the other hand, many equipment rental companies outperformed even the best expectations and had the lowest labor cost percentages we have seen dropping to 17% of revenues. Normally we would target around 30%. Those companies tightened their labor costs in reaction to the uncertainty around COVID, but then experienced an increase in revenue which in some cases was significant.
Growth percentages have been most affected by COVID with the largest divergence being between event and tool. Tool averaged up 12% while event averaged down -46%. While unfortunate, this is the expected impact of COVID. What we did not expect is a huge outperformance by smaller operations. While the average tool rental company was up 12% single branch companies with less than 3m in annual revenues averaged a 42% increase! This is usually a factor of the increase in DIY having a significant positive impact in Q2 with everyone at home any many working on DIY projects. We do expect the DIY surge to slow back down as DIY projects wind down. Regionally growth was impacted based on the level of lockdown, but in most areas tool rental was spared and considered essential. Hyper locally, rural areas tended to outperform peers in large cities. The combination of higher than expected growth and higher productivity in tool rental companies along with the influx of cash from PPP loans have had significantly positive impacts on the balance sheets of those operators, while giving some life line to event rental companies.
Remember, to use your filters on your scorecard to separate out Party & Event from General Tool & Equipment, look at your data versus your Region, or compare to your Peer Group. Jot down your target goals for future periods and continue to use your group to help you achieve your success!