McGrath RentCorp Announces Results for Fourth Quarter 2012
Rental revenues increase 4%
EPS decreases 11% to $0.47 for the Quarter
Company announces 2% dividend increase
LIVERMORE, Calif.--(BUSINESS WIRE)-- McGrath RentCorp (NAS: MGRC) (the "Company"), a diversified business to business rental company, today announced revenues for the quarter ended December 31, 2012 of $102.0 million, an increase of 20%, compared to $85.2 million in the fourth quarter of 2011. The Company reported net income of $11.9 million, or $0.47 per diluted share for the fourth quarter of 2012, compared to net income of $13.2 million, or $0.53 per diluted share, in the fourth quarter of 2011.
Total revenues for the year ended December 31, 2012 were $364.1 million, compared to $342.7 million in 2011. Rental revenues increased 6% to $248.4 million in 2012 compared to $234.9 million in 2011. Net income for the year ended December 31, 2012 decreased 10% to $44.8 million, compared to net income of $49.6 million in the prior year. Diluted earnings per share decreased 11% to $1.78 in 2012 from $2.00 in 2011.
The Company also announced that the board of directors declared a quarterly cash dividend of $0.24 per share for the quarter ending March 31, 2013, an increase of 2% over the prior year period. On an annualized basis, the 2013 dividend represents a 3.3% yield, based on the February 20, 2013 closing stock price. The cash dividend will be payable on April 30, 2013 to all shareholders of record on April 16, 2013.
Dennis Kakures, President and CEO of McGrath RentCorp, made the following comments regarding these results and future expectations:
"Although Company-wide rental revenues increased by 4% from a year ago, we had an 11% decrease in EPS for the quarter. This is primarily the result of lower rental revenues for Adler relative to its current cost structure. While Adler rental revenues grew over last year's fourth quarter by approximately 6%, its income from operations declined by approximately 39%. Over the past year we have executed on ramping our tank rental business's national footprint to support higher rental revenue and earnings levels in the years ahead. These costs are primarily related to filling management, sales, office and inventory center positions, facilities and winch / roll-off tractor infrastructure. This is all by design. Adler's profitability was also impacted negatively during the quarter by $1.3 million higher bad debt write-offs from a year ago. Finally, we also experienced $0.7 million higher expenses during the quarter from a year ago in moving underutilized equipment from the dry gas Marcellus region to other Adler geographies in need of equipment. We have now completed the great majority of these interregional asset movements and we anticipate this expense category will be materially lower in 2013. Adler's average rental equipment utilization for the fourth quarter 2012 stood at 69.9% compared to 86.8% a year ago, and 68.9% in the third quarter 2012. Our percentage of overall rental revenue derived from E&P gas and oil fracking declined from a high of approximately 35% in 2011, to 15% in the fourth quarter of 2012, and at the same time rental revenues grew by 6%. We have a great tank rental business, but not without some growing pains. What's most important is that Adler is making very good headway in establishing its brand name, high quality products and exceptional customer experiences over an increasingly larger geography and customer base, quarter after quarter.
TRS-RenTelco, our electronic test equipment division, rental revenues for the quarter increased by $1.5 million, or 6% to $26.8 million from a year ago. Divisional income from operations increased by 18% from the fourth quarter of 2011. The significantly higher percentage increase in profitability as compared to rental revenues was chiefly related to lower SG&A, laboratory and equipment depreciation expenses all as a percentage of rental revenues from a year ago. Our results for TRS-RenTelco continue to reflect its discipline in strategic focus, strong brand following, operational efficiencies and an exceptionally talented and tenured work force.
Modular division rental revenues for the quarter were relatively flat at $20.1 million compared to $20.3 million a year ago, and $20.0 million from the third quarter 2012. Rental revenues grew by 9% quarter over quarter in our markets outside of California and declined by 9% within the state. Modular rental revenues outside of California now represent approximately 47% of total modular rental revenues. First month's rental bookings for the modular division increased 26% from a year ago with bookings outside of California increasing 89% and declining by 15% within the state. Although our California modular results continue to be depressed due to macroeconomic headwinds, there are a number of positive indicators going forward. These bright spots include the successful November 2012 personal income and sales taxes ballot initiative and its anticipated impact on reversing public education austerity; a December 2012 statewide unemployment rate of 9.8% down from a Great Recession high of 12.6%; scarce inventory of existing homes for sale in some regions as market prices begin to increase; and a marked pick-up in both non-residential and residential construction.
Modular division quarter over quarter income from operations decreased by approximately 8% to $5.6 million from $6.1 million in 2011; however, modular division gross profit was up slightly to $14.4 million compared to $14.2 million a year ago, and from $13.2 million in the third quarter of 2012. First, the higher percentage reduction in income from operations relative to flat rental revenues for the quarter is primarily due to an increase in bad debt expense, and secondarily to increased SG&A costs in our portable storage business. The increase in gross profit for the fourth quarter over the third quarter 2012 relates chiefly to lower inventory center costs incurred. Finally, average utilization for the fourth quarter 2012 was 66.8%, down slightly from 67.1% a year ago, however, up from 66.2% in the third quarter 2012.
Our portable storage business continued to make good progress during the quarter in building its customer following, increasing booking levels and growing rental revenues. The business achieved both its full year rental revenue and profitability goals for 2012. Turning the corner into 2013, our portable storage business has strong momentum and we are excited about its long-term prospects in becoming a meaningfully sized business and a material contributor to McGrath RentCorp's earnings.
In 2012, we added a net $74 million in original cost of rental assets. These rental products were primarily for the growth of Adler Tank Rentals, and for our test equipment and portable storage businesses. During the year we also paid out $23 million in shareholder dividends. Finally, we invested $14 million in property, plant and equipment expenditures, primarily for the growth of Adler Tank Rentals; yet, our year ending notes payable only rose by approximately $5 million, and we carried a 1.91 to 1 ratio of funded debt (notes payable) to last twelve months actual adjusted EBITDA . Strong cash flows and a low-leveraged balance sheet matter greatly towards the financial strength, opportunity nimbleness, and overall shareholder returns of McGrath RentCorp."
All comparisons presented below are for the quarter ended December 31, 2012 to the quarter ended December 31, 2011 unless otherwise indicated.
For the fourth quarter of 2012, the Company's Mobile Modular division reported an 8% decrease in income from operations to $5.6 million. Rental revenues decreased 1% to $20.1 million and other direct costs increased 16% to $5.4 million, which resulted in a decrease in gross profit on rental revenues of 8% to $11.2 million. Sales revenues increased 12% to $4.1 million, with gross profit on sales revenues increasing 13% to $1.0 million, primarily due to higher new and used equipment sales revenues in the fourth quarter of 2012. Selling and administrative expenses increased 8% to $8.7 million primarily as a result of higher bad debt expense and higher salary and benefit costs, primarily related to the expansion of our Portable Storage growth initiative.
For the fourth quarter of 2012, the Company's TRS-RenTelco division reported an 18% increase in income from operations to $10.1 million. Rental revenues increased 6% to $26.8 million. The increase in rental revenues together with a 3% decrease in other direct costs to $3.3 million, partly offset by a 4% increase in depreciation expense to $9.9 million, resulted in an increase in gross profit on rental revenues of 10% to $13.7 million. Sales revenues increased 42% to $10.1 million with gross profit on sales flat at $2.8 million, due to lower margins on used equipment sales revenues in the fourth quarter of 2012, which included $3.7 million in proceeds from the sale of the TRS-Environmental product line at a loss of $0.4 million. Selling and administrative expenses decreased 3% to $6.8 million, primarily due to decreased salary and benefit costs.
For the fourth quarter of 2012, the Company's Adler Tanks division reported a 39% decrease in income from operations to $5.9 million. Rental revenues increased 6% to $18.2 million and other direct costs more than doubled to $3.0 million, which resulted in a decrease in gross profit on rental revenues of 11% to $11.9 million. Rental related services revenues increased $1.2 million to $5.0 million, with gross profit on rental related services revenues decreasing $0.6 million to $0.6 million. Selling and administrative expenses increased 35% to $6.8 million, primarily due to higher bad debt expenses and higher personnel and benefit costs.
Debt decreased $12.2 million during the quarter to $302.0 million, with the Company's funded debt (notes payable) to equity ratio decreasing from 0.88 to 1 at September 30, 2012 to 0.83 to 1 at December 31, 2012. As of December 31, 2012, the Company had capacity to borrow an additional $228.0 million under its lines of credit.
Dividend rate increased 2% to $0.235 per share for the fourth quarter 2012 compared to the fourth quarter 2011. On an annualized basis, this dividend represents a 3.2% yield on the February 20, 2013 close price of $29.23.
Adjusted EBITDA decreased 4% to $40.6 million for the fourth quarter of 2012. At December 31, 2012, the Company's ratio of funded debt to the last twelve months actual Adjusted EBITDA was 1.91 to 1 compared to 1.96 to 1 at September 30, 2012. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization and non-cash stock-based compensation. A reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this release.
You should read this press release in conjunction with the financial statements and notes thereto included in the Company's latest Forms 10-K and 10-Q and other SEC filings. You can visit the Company's web site at www.mgrc.com to access information on McGrath RentCorp, including the latest Forms 10-K and 10-Q and other SEC filings.
The Company expects 2013 full-year earnings per share to be in a range of $1.85 to $1.95 per diluted share.
For the full-year 2013, the Company expects 4% to 7% growth in rental operations revenues over 2012. Sales revenue is expected to be approximately 10% lower than 2012, but gross profit from sales is expected to be comparable to 2012. Rental equipment depreciation expense is expected to increase to between $67 and $69 million, driven by rental fleet growth. Selling and administrative costs are expected to increase to between $89 and $91 million to support business growth, and continued investment in Adler Tanks and our portable storage initiative. Full year interest expense is expected to be approximately $9 million. The Company expects the 2013 effective tax rate to be 39.2% and the diluted share count to increase to between 25.3 and 25.7 million shares. These forward-looking statements reflect McGrath RentCorp's expectations as of February 21, 2013. Actual 2013 full-year earnings per share results may be materially different and affected by many factors, including those factors outlined in the "forward-looking statements" paragraph at the end of this press release.
ABOUT MCGRATH RENTCORP
Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company. The Company's Mobile Modular division rents and sells modular buildings to fulfill customers' temporary and permanent classroom and office space needs in California, Texas, Florida, and the Mid-Atlantic from Washington D.C. to Georgia. The Company's TRS-RenTelco division rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. The Company's New Jersey based Adler Tank Rentals subsidiary rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations today serving key markets throughout the United States. In 2008, the Company entered the portable storage container rental business in California under the trade name Mobile Modular Portable Storage, and in 2009 expanded this business into Texas and Florida. For more information on McGrath RentCorp and its operating units, please visit our websites:
Corporate - www.mgrc.com
Tanks and Boxes - www.AdlerTankRentals.com
Modular Buildings - www.MobileModularRents.com
Portable Storage - www.MobileModularRents-PortableStorage.com
Electronic Test Equipment - www.TRS-RenTelco.com
School Facilities Manufacturing - www.Enviroplex.com
CONFERENCE CALL NOTE
As previously announced in its press release of January 24, 2013, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on February 21, 2013 to discuss the fourth quarter 2012 results. To participate in the teleconference, dial 1-877-941-1427 (in the U.S.), or 1-480-629-9664 (outside the US), or visit the investor relations section of the Company's website at www.mgrc.com. Telephone replay of the call will be available for 7 days following the call by dialing 1-800-406-7325 (in the U.S.), or 1-303-590-3030 (outside the U.S.). The pass code for the call replay is 4584516.
Statements in this press release which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, regarding McGrath RentCorp's business strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives are forward looking statements. These forward-looking statements appear in a number of places and can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "future," "intend," "hopes," "goals" or "certain" or the negative of these terms or other variations or comparable terminology. In particular, the statements made in this press release about the following topics are forward looking statements: higher rental revenues and earnings levels from Adler in the years ahead; lower expenses in 2013 attributable to moving underutilized equipment at Adler; positive indicators in the modular division, such as the successful California personal income and sales tax ballot initiatives, lower unemployment in California, scarce inventory of existing homes, and increases in construction; strong momentum and future growth in our portable storage business, and the statements under the heading "Financial Guidance."
Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements including, without limitation, the following: the continuation of the current recession and financial, budget and credit crises, particularly in California, including the impact on funding for school facility projects and residential and commercial construction sectors, our customers' need and ability to rent our products, and the Company's ability to access additional capital in the current uncertain capital and credit market; changes in state funding for education and the timing and impact of federal stimulus monies; the effectiveness of management's strategies and decisions, general economic, stock market and business conditions, including in the states and countries where we sell or rent our products; continuing demand for our products; hiring, retention and motivation of key personnel; failure by third parties to manufacture and deliver our products in a timely manner and to our specifications; the cost of and our ability to successfully implement information system upgrades; our ability to finance expansion and to locate and consummate acquisitions and to successfully integrate and operate Adler Tanks and other acquisitions; fluctuations in interest rates and the Company's ability to manage credit risk; our ability to effectively manage our rental assets; the risk that we may be subject to litigation under environmental, health and safety and product liability laws and claims from employees, vendors and other third parties; fluctuations in the Company's effective tax rate; changes in financial accounting standards; our failure to comply with internal control requirements; catastrophic loss to our facilities; effect on the Company's Adler Tanks business from reductions to the price of oil or gas; new or modified statutory or regulatory requirements; success of the Company's strategic growth initiatives; risks associated with doing business with government entities; seasonality of our businesses; intense industry competition including increasing price pressure; our ability to timely deliver, install and redeploy our rental products; significant increases in raw materials, labor, and other costs; and risks associated with operating internationally, including unfavorable exchange rates for the U.S. dollar against our Canadian dollar denominated revenues.
Our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth above, those discussed in Part II—Item 1A "Risk Factors" and elsewhere in our Form 10-K for the year ended December 31, 2012, which is expected to be filed with the SEC on February 22, 2013, and those that may be identified from time to time in our reports and registration statements filed with the SEC. Forward-looking statements are made only as of the date of this press release and are based on management's reasonable assumptions; however, these assumptions can be wrong or affected by known or unknown risks and uncertainties. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. Except as otherwise required by law, we do not undertake any duty to update any of the forward-looking statements after the date of this press release to conform such statements to actual results or to changes in our expectations.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
Twelve Months Ended
(in thousands, except per share amounts)
Rental Related Services
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation of Rental Equipment
Rental Related Services
Total Direct Costs of Rental Operations
Costs of Sales
Total Costs of Revenues
Selling and Administrative Expenses
Income from Operations
Income Before Provision for Income Taxes
Provision for Income Taxes
Earnings Per Share:
Shares Used in Per Share Calculation:
Cash Dividends Declared Per Share
CONDENSED CONSOLIDATED BALANCE SHEETS
Accounts Receivable, net of allowance for doubtful accounts of $3,000 in 2012 and $1,500 in 2011
Rental Equipment, at cost:
Relocatable Modular Buildings
Electronic Test Equipment
Liquid and Solid Containment Tanks and Boxes
Less Accumulated Depreciation
Rental Equipment, net
Property, Plant and Equipment, net
Prepaid Expenses and Other Assets
Intangible Assets, net
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable and Accrued Liabilities
Deferred Income Taxes, net
Common Stock, no par value -
Authorized - 40,000 shares
Issued and Outstanding - 24,931 shares as of December 31, 2012 and 24,576 shares as of December 31, 2011
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: