McGrath RentCorp's CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: McGrath RentCorp (MGRC)

McGrath RentCorp (NASDAQ:MGRC)

Q1 2013 Earnings Conference Call

May 01, 2013 5:00 p.m. ET


Geoffrey Buscher – IR, SBG Investor Relations

Keith Pratt – SVP & CFO

Dennis Kakures – President & CEO


Joe Box – KeyBanc Capital Markets

Scott Schneeberger – Oppenheimer & Company

Luis Filipe - EDS Finacial Services


Welcome to the McGrath RentCorp first quarter 2013 conference call. At this time, all conference participants are in a listen-only mode. Later we will conduct a question and answer session. (Operator Instructions) This conference is being recorded today Wednesday, May 1, 2013.

Now I would like to turn the conference over to Geoffrey Buscher with SBG Investor Relations. Please go ahead.

Geoffrey Buscher

Thank you, Operator. Good afternoon. I am the Investor Relations Advisor for McGrath RentCorp and will be acting as moderator of the conference call today.

Representatives on the call today from McGrath RentCorp are Dennis Kakures, President and CEO, and Keith Pratt, Senior Vice President and CFO. Please note that this call is being recorded and will be available for telephone replay for up to seven days following the call by dialing 1-800-406-7325 for domestic callers and 1-303-590-3030 for international callers. The pass-code for the call replay is 4611866.

This call is also being broadcast live via the internet and will be available for replay. We encourage you to visit the Investor Relations section of the company’s website at A press release was sent out at approximately 4:05 PM Eastern Time or 1:05 PM Pacific Time today. If you did not receive a copy, but would like one, it is available online in the Investor Relations section of our website, or you may call 1-206-652-9704 and one will be sent to you.

Before getting started, let me remind everyone that the matters we will be discussing today that are not truly historical are forward-looking statements within the meaning of Section 21-E of the Securities and Exchange Act of 1934, including statements regarding McGrath RentCorp’s expectations, beliefs, intentions or strategies regarding the future.

All forward-looking statements are based upon information currently available to McGrath RentCorp, and McGrath RentCorp assumes no obligation to update any such forward-looking statements.

Forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those projected. These and other risks relating to McGrath RentCorp’s business are set forth in the documents filed by McGrath RentCorp with the Securities and Exchange Commission, including the Company’s most recent Form 10-K and Form 10-Q.

I would now like to turn the call over to Keith Pratt.

Keith Pratt

Thank you, Geoffrey. In addition to the press release issued today, the Company also filed with the SEC the earnings release on Form 8-K.

For the first quarter of 2013 total revenues increased 12% to $88.7 million from $78.9 million for the same period in 2012. Net income decreased 7% to $9.2 million from $9.9 million and earnings per diluted share decreased 8% to $0.36 from $0.39.

Reviewing the first quarter results for the Company’s Mobile Modular division compared to the first quarter of 2012, total revenues increased $0.2 million or 2% to $29 million primarily due to higher sales revenues partly offset by lower rental and rental related services revenues.

Gross profit on rents decreased $1 million or 10% to $9.4 million primarily due to a decrease in rental margins to 49% from 53%. And lower rental revenues. Lower rental margins were a $0.4 million higher on the direct costs for labor and materials.

Selling and administrative expenses increased $0.3 million or 4% to $8.8 million primarily as a result of increased personnel and benefit costs. The lower gross profit on rents and higher selling and administrative expenses partly offset by higher gross profit on sales resulted in a decrease in operating income of $1.1 million or 28% to $2.9 million.

Finally, average modular rental equipment for the quarter was $535 million, an increase of $18 million. Equipment additions were primarily to support growth in the Mid-Atlantic region and for our Portable Storage Business. Average utilization for the first quarter decreased slightly from 66.5% to 66.4%.

Turning next to first quarter results for the Company’s TRS-RenTelco division compared to the first quarter of 2012, total revenues increased $2.2 million or 7% to $32.7 million, due to higher rental and sales revenues.

Gross profit on rents increased $0.9 million or 8% to $11.8 million. Rental revenues increased $1.4 million or 6% and rental margins increased to 48% from 47% as other direct costs to the percentage of rents decreased to 13and depreciation as a percentage of rents was flat at 40%.

Selling and administrative expenses decreased $0.6 million or 9% to $6.1 million primarily due to decreased salary and benefits costs related to the exit of environmental test equipment business in November 2012.

As a result, operating income increased $2.1 million or 29% to $9.5 million.

Finally, average electronics rental equipment at original cost for the quarter was $266 million, an increase of $5 million. Average utilization for the first quarter decreased from 65.5% to 63.8%.

Turning next to first quarter results for the Company’s Adler Tanks division, compared to the first quarter of 2012, total revenues increased $0.2 million or 4% to $28.8 million primarily due to higher rental and rental related services revenues.

Gross profit on rents decreased $1.9 million or 16% to $10.4 million. Rental revenues increased $0.2 million or 1% and rental margins decreased to 63% as depreciation is a percentage of rents increased to 20%. From 16 % and other direct costs increased to 17 % from 8 %.

Selling and administrative expenses increased $0.9 million or 18% to $6 million primarily due to increased personnel and benefit costs and bear expense. As a result, operating income decreased $3.1 million or 37% to $5.2.

Finally average rental equipment for the quarter was $252 million, an increase of $51 million. Average utilization for the first quarter decreased from 76.5% to 64.7%. On a consolidated basis, interest expense for the first quarter 2013 was flat at $2.2 million. The first quarter provision for income taxes was based on an effective tax rate of 39.2% unchanged from the first quarter of 2012.

Next, I would like to review our 2013 cash flows. For the quarter ended March 31, 2013, highlights in our cash flows included. Net cash provided by operating activities was $41.6 million, an increase of $6.1 million compared 2012. The decrease was primarily attributable to a decrease in prepaid expenses and other assets and other balance sheet changes partly offset by lower income from operations.

We invested $25.2 million for rental equipment purchases compared to $35 million for the same period in 2012, partly offset by $6.8 million proceeds from sales of used rental equipment. Property, plant and equipment purchases decreased $0.2 million to $1.6 million in 2013. Net borrowings decreased $20.7 million from $302 million at the end of 2012 to $281.3 million at the end of our first quarter 2013.

Dividend payment to shareholders were $6.1 million With total debt at quarter end of $281.3 million, the company has capacity to borrow an additional $248.7 million under its lines of credit and the ratio of funded debt to the last 12 months actual adjusted EBITDA was 1.77 to 1. For 2013 first quarter adjusted EBITDA increased $0.3 million or 1% to $37 million compared to the same period in 2012, with consolidated adjusted EBITDA margin at 42% compared to 47% in 2012. Our definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income are included in our press release for the quarter.

Turning next to 2013 earnings our 2013 full year earnings guidance range remains unchanged at a $1.85 to $ 1.95 per diluted share. Now, I would like to turn the call over to Dennis.

Dennis Kakures

Thank you, Keith. Although company Although Company-wide rental revenues increased by only 2%, and EPS declined by 8% for the quarter from a year ago, our overall results mask the underlying favorable business activity levels and momentum we are experiencing in each of our rental businesses.

Rental revenues at Adler Tank Rentals, our tank and box division grew by 1%, or $0.2 million, to $16.4 million compared to a year ago. There is typically some seasonality in the tank and box rental business during the first quarter in the colder weather geographies. However, first month's rental revenues and units book for the quarter were up 28% and %41 respectively over the same period in 2012.

We saw increased bookings year-over-year in each of the Adler Tank Rentals regional markets. We would expect these higher booking levels to be reflected in our 2013 financial results in the quarters ahead. Adler serving wide variety of market segment including industrial plant, petrochemical, pipeline, oil and gas, waste management, environmental field service and heavy construction.

By design we have perceived in successful in generating higher business activity levels across the broader mix of non-franking and historically less volatile vertical markets.

Although, Adler Tank Rentals average utilization decreased to 65% for the quarter from 77% a year ago. This is primarily result of the continued redeployment over the past 12 months of underutilized North Eastern US gas field rental assets to other Adler geographies in need of equipment and sees now the factors during the first quarter of 2013 as mentioned earlier. Over the past 15 months Adler Tank Rentals is in 7 new US markets in addition to have been relocated 21K tank inventories to serve these new markets as well as established markets we are continue to purchase new rental equipment to support the mix of tanks and boxes needed in each region. This is supported by the fact that although average equipment utilization for the quarter is down 12 percentage points from a year ago at an average of 163 million of equipment rent during the first quarter of 2013 compared to 154 million a year ago.

We are continue to execute in building our national footprint to support higher rental revenue in earnings levels in the years ahead. Ideally, we’d like to see narrow or more consistent utilization ranges however, we are at a critical juncture in our growth and it’s essential that we have the right mix and depth of inventory on the ground in all the markets in which we operate in order to respond to a variety of in-market needs.

As Adler Tank Rentals continues to mature as a national company we will gain greater knowledge on the drivers of demand for various tank and box rental projects in all of our regional markets and in turn we would anticipate a narrowing of utilization swings period-over-period.

Our tank and box rental business is in without its firm issues related to rapid growth as reflected in our decline in income from operations of 37% for 3.1 million to 5.2 million for the first quarter of 2013 compared to a year ago.

The quarterly decline in profitability from a year ago is primarily related to higher equipment depreciation expense as a percentage rents, and increased costs for interregional equipment transportation, salaries for new hires, bad debt, and fleet maintenance and supplies. Although we again had significant expense during the quarter related to underutilized rental equipment moving from the dry natural gas Marcellus region to other Adler geographies in need of equipment, we anticipate 2013 expenses for interregional equipment transportation expenses to be markedly lower than in 2012. During the quarter, we continued our close monitoring, escalation and clean-up of delinquent customer account receivables, as well as our credit and collection process improvements.

We have put more organizational resources to bear to improve upon both DSLs and bad debt levels. We have plenty of work to do, however we are hopeful that all of these efforts will reflect favorably upon these matrix in future quarters.

Now let me turn our attention to TRS-RenTelco and their results. TRS-RenTelco’s rental revenues for the first quarter increased by $1.4 million, or 6%, to $24.8 million from a year ago. We have seen stable demand in some selective electronics, aerospace and defense sectors as well as in communications products and networking markets.

We saw our yield on equipment on rent increased to 4.88% during the quarter from 4.57% a year ago. This is primarily due to a greater mix of communications equipment and to a lesser extent market pricing. Communications test equipment assets have shorter depreciable life but higher rental rates than general purpose test equipment.

Divisional income from operations increased by 29%, or $2.1 million, to $9.5 million from a year ago. The significantly higher percentage increase in profitability as compared to rental revenues was primarily related to lower SG&A, equipment depreciation and laboratory expenses all as a percentage of rental revenues from a year ago. These expenses as a percentage of rental revenues declined to 18.6%, 39.5% and 13% respectively. In addition, the division benefited from an increase in gross profit on equipment sales of $0.7 million, or 26%, to $3.4 million from a year ago.

The combination of increased operating leverage and higher equipment sales produced an EBITDA margin of 29% for the first quarter of 2013 compared to 24.1% a year ago. In the first quarter TRS-RenTelco’s utilization was 63.3% down from 65.1% a year ago and continues to be at an expectable range. Although, average utilization was lower and averaged total equipment was relatively flat from last year’s quarter.

The higher average rental rate to the period produced an overall average yield on total equipment of 3.11% in 2013 compared to 3% in 2012. In producing these strong operating metrics we continued to benefit from our disciplined approach to equipment purchases and inventory management appropriate depreciable equipment lives and our highly skilled efficiency driven and experienced workforce.

Now let’s go over our results for a modular rental business. Modular division rental revenues for the quarter decreased by 3% or 0.6 million from a year ago to 19.3 million. Rental revenues grew by 6% quarter-over-quarter in a market outside of California and declined by 10% within the State. Modular rental revenues outside of California now represent approximately 47% a division wide modular rental.

First month modular building and rental bookings for the division increased 37% from a year ago with bookings outside of California increasing 68% and staying fairly flat within the State. Our Texas and Florida modular building business activity has been very favorable over the first four months of the New year. Many of these modular building rental bookings are for classrooms and larger custom commercial complexes that tend to have longer rental terms, and will not begin billing until the second and third quarters of 2013. Although we have not seen the healthier California economy over the past few quarters reflected in our modular results to date, we are hopeful that we are nearing an inflection point in our financial performance in the golden State.

Modular division income from operations for the quarter decreased by 28% a 1.1 million from year ago to 2.99. In addition to lower rental revenues for the quarter, inventory center labor and material expenses were higher from a year ago due to processing a larger number of custom projects, classrooms for late spring and summer shipments and overall higher commercial business activity levels.

We just state that our first quarter 2013 inventory center related costs has a percentage of rental revenues at 31.5% will decrease over the remainder of 2013 as we shift and begin to recognize rental revenues on the equipment associated with the entire inventory center cost.

Period end unitization for the first quarter 2013 was 66.1% compared to 65.7% for the same period in 2012 and 66.7% at the end of 2012. It is important to point out there are division like margin of the quarter, the average utilization over the past 10 quarters has stayed within the narrow range with %66 to 68%. Finally, modular equipment gross profit and sales goes up slightly to $ 0.9 million compared $ 0.7 million a year ago.

Please keep in mind that’s our modular rental business returns to grow. It will require limited new capital investment to increase rental revenues and we would expect to see a disproportionate share of this revenue convert to the pre-tax form.

Now let me take a moment and update everyone on the portable storage business. Mobile Modular Portable Storage continues to make good progress during the quarter and building its customer following increasing booking levels and growing rental revenues. Rental revenues grew by 20% from a year ago and the business was profitable for the quarter compared to a loss in the first quarter of 2012.

In April 2013, we entered the greater New Jersey, New York markets. We are leveraging the strong legacy name recognition and customer following of Adler Tank Rentals in entering this geography. We are striving to create higher business activity levels and greater critical mass in each of the markets in which we operate. We are striving to create higher business activity levels and greater critical mass in each of the markets in which we are offering.

We are working hard at expanding our portable storage business in the California, Texas, Florida, New Jersey and New York market. Relatively they need to force smaller fleet acquisition opportunities to accelerate our growth. It should also be noted that we are stable or room to grow rental revenues within the current cost structure. Finally, we are actively investigating and acting on additionally geographies for expansion.

As the economy continues to improve and with the infrastructure and quality team we are continuing the bill. Our portable storage business should benefit very favorably. Looking forward, we continue to believe that we have an excellent opportunity to become meaningful player in the portable storage rental industry.

Now for a few closing comments looking forward we are keenly focused on leveraging the significant opportunities that other that Adler Tank provides us in building the much larger and more profitable tank and box rental business. There are numerous in market in new geographies that Adler to develop in its future. Again I want to emphasize that we believe Adler has a long run way for domestic growth and that we are in the early innings of ramping the business.

Finally, it is important to keep in mind that Adler average annual utilization for the four year period from 2009 to 2012 was 66%, 76%, 86% and 72% respectively. We are still learning what normal utilization levels would like over time for our tank and box rental business. Utilization rates are likely not to be in its narrow range as other rental businesses until we reach much more meteor state.

Adler Tank rentals is a great business but not without some growing plans has reflected in our higher and regional transportation in bad debt cost. Continuing in the first quarter 2013 from the second half of 2012, we believe that we have now dealt with a great majority of the idle North Eastern 21K tank inventory and we are leaving no stone on turn in making top to bottom modifications to our credit in collections processes in our tank and box rental business.

We anticipate reduced cost for both of these expense categories to be reflected in our financials over the remainder of 2013. Most importantly, Adler Tank rentals 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. Finally, I would like to comment on McGrath RentCorp for strong cash flows.

In the first quarter of 2013, we added a net 15 million in original cost of rental assets. These rental products were primarily for the growth of Adler Tank rentals and for adjust such as portable storage businesses. We also paid out 6 million in shareholder dividend and invested 2 million in property plant and equipment expenditures. Yet due to the company’s strong cash flows and low leverage balance sheet our any notes payable for the quarter fell by approximately 21 million and the ratio of funded debt to the last twelve months actual adjusted EBITDA are reduced to 1.77 to 1. Strong cash flows and the low leverage balance sheet matter greatly towards the financial strength opportunity (inaudible) and overall shareholder returns at McGrath RentCorp.

And now Keith and I welcome your questions.



Thank you sir, we will now begin the question and answer session. (Operator Instruction) Our first question comes from the line of Joe Box with KeyBanc Capital Markets please go ahead.

Joe Box – KeyBanc Capital Markets

Hi Dennis and Keith.

Dennis Kakures

Hi Joe.

Joe Box – KeyBanc Capital Markets

Question for you on the sales in the quarter. If you exclude in Enviroplex it looks like your revenues were up about 30% year over year, can – first can you begin with me little bit of color on what’s driving the increase that Mobile Modular and then may be little more specific on TRS. It looks like you slowed your fleet growth over the last couple of quarters but yet your sales figure actually stepped up, is that just the function of kind of stepping away from the environmental products, business or do anything else that we should need to add there?

Dennis Kakures

Hi Joe, sales, first comment on sales is they can be lumpy quarter-to-quarter. If you stand back and look at the business, generally around the third quarter it’s a heavier period for sales, both in our modular business where we get some sales of both new and used equipment, and also on our Enviroplex business.

I think in the first quarter of this year we had a little bit of sales activity in the modular business, some new product -- it’s just the timing of the sale. It was the project started late last year and there was a possibility we would have seen it show up in Q4 but it rolled into the early part of this year, and that gave a little bit of a higher level of sales in the modular business.

I would say in TRS, that business is running very well for us. Sales are an inherent part of the business and they had a slightly stronger than typical quarter, both in terms of the level of sales and the margin, and just reflects that they were executing very well and they were turning over equipment as they routinely do.

Joe Box – KeyBanc Capital Markets

And which part of that, the environmental testing equipment that got…

Keith Pratt

No, no. All the environmental products were sold in the fourth quarter of last year. So we’re completely out of that business and have no inventory or sales for that business.

Joe Box – KeyBanc Capital Markets

Got it. OK, maybe switching gears to the modular business, we’ve been watching pretty closely the inside versus outside of California revenue trends and this quarter actually look like revenue growth outside the state moderated somewhat, and then inside the state it deteriorated a little bit. We’ve also kind of paid attention to your commentary on first month booking, which seems to have been broadly positive for the last couple of quarters. So, I guess with that contact, is the revenue degradation that we are seeing in the mobile modular business, solely a function of pricing now? And is there anything else that you can give us to maybe frame up some of the market strength that you’re actually seeing?

Dennis Kakures

Joe, I think the first place to start, when you look at rental revenue decline, in particular in California, one thing we don’t control is what equipment comes back. So we can have a strong booking quarter and we may get in the same period that more equipment than we anticipated.

So that’s the one thing you don’t control, even if you are getting good, favorable numbers on the booking side. And then as well, in California in particular, and not really elsewhere, you have equipment that’s returning offering at a higher price than what is going out at, although that has narrowed greatly over time.

So you have those dynamics in place. The momentum in the bookings that we are seeing, are very positive of last two quarters and actually March and April were probably, and I am going between quarters here, but probably are two highest months that we’ve had in many, many years. They are both very strong on the booking side and hopefully, we are going to see that trend continue.

The key right now is that we are seeing, I’ll give you an example, the Texas market is very healthy, driven by the oil and gas industry, as well as the general economy. We are seeing an uptick in school business there and we are doing a lot of complexes there for the refineries, turnaround work, just go down the list of opportunities.

So we would expect to see lift in Texas rental revenues, without question this year. I don’t think there’s any question with us at that market

Joe Box – KeyBanc Capital Markets


Dennis Kakures

We’ve had a very good booking season that’s primarily classroom related, and also the commercial business has picked up some, which is very good to see. And so in the Florida market, I would also expect rental revenues to be increasing throughout this year.

When you go to the mid-Atlantic, they have been able to grow their business, although it’s a much smaller base, favorably over the last few years. I don’t think this year will be any exception on rental revenues, and they have had some healthy bookings in the first part of the year.

California – let’s come back to that. There’s no question in California that the general economic environment is considerably healthier than it was a year ago. Now, we’ve also been saying and I think in a very candid manner, we need to see it in the numbers.

So booking activity levels in California, we’re actually in the first quarter, and this relates to some of the expense side of things, we actually did a lot of very custom work on a lot of complexes, restaurant building and other projects that we really haven’t seen over the last couple of years, and this would include failed lawsuits.

So we are seeing good business activity in the California market, the question would be is the school piece, and the school piece, we may not see any material recovery till next year because there is supposed to be facility bonds in the first half of 2014 and that would be a key catalyst to really boosting the number of market opportunities for classroom rental.

So we are close to 2014. We are not there yet but we have seen some pretty good activity this year, but not to where we would like to see it and hopefully, in the first part of next year, if that funding is in place then we are going to see a lift in the California business because it has been declining on rental revenues and ‘x’ amount of that is really related to rate and that we don’t really control what comes back.

But we’ve been in this now for over five years and there’s no question in my mind anecdotally and factually with the statistics in the market, that it’s a much healthier economy.

So at some point, especially with the school piece next year, if that comes to fruition, we are very hopeful that we’ll see lift.

Joe Box – KeyBanc Capital Markets

That’s, that’s really helpful. Thank you Dennis. One last question and then I’ll turn it over – can we dig in a little bit to the 7 new Adler locations? I know you guys typically start with asset-like model when you go in each market, can you maybe just give us a sense of how the revenues are trending in that market, relative to the added costs, and maybe just talk about the profitability as to in those new locations?

Dennis Kakures

Those new locations, I mean they vary between Texas, Utah, Maryland, so it’s in a very different geography, and as you mentioned appropriately, we have a very low-cost startup process. We hire either an industry veteran from the tank and box rental industry or an industrial type salesperson that of course has worked in the industrial sector, and typically they work out at their home or they work out of a truck with a cab in the back.

They have obviously a computer and list of customers etc. and opportunities and they really start selling quite immediately. And as they go on our business, we ship equipment into the market to support them. As we develop critical mass in the market, then we’ll rent inventory space, and then eventually as we develop through the critical mass, we are having more of a turn of asset. We typically will go out and buy a piece of property and get the operating expenses down and we know we’re there for the long haul.

So that’s very typical of how we have opened all of our new markets, other than, and again with our established locations for modulars, where we already had the infrastructure. But it’s really adding the people first, the equipment follows, and then additional infrastructure.

Joe Box – KeyBanc Capital Markets

Thanks guys.


Our next question comes on line of Scott Schneeberger with Oppenheimer. Please go ahead.

Scott Schneeberger – Oppenheimer & Company

Thanks. Good afternoon guys

Dennis Kakures

Thanks a lot.

Scott Schneeberger – Oppenheimer & Company

Hey, just throwing up on the Adler question, the new geography, to see CapEx in the quarter, total company $25 million, $35 million last year, how big a component was Adler and what’s the plan on spending this year, Adler and total company please?

Dennis Kakures

Just on the CapEx Scott, Adler was $7 million of equipment additions in the first quarter of this year that compares with $22 million in the first quarter of last year. So definitely, at last new capital going into the business really for specialized items that we needed to complement the existing fleet and we have a lot of equipment that is ready to be put to work there.

Scott Schneeberger – Oppenheimer & Company

Thanks and then it’s still on the topic of the 7 new markets, it’s how are you allocating the new fleet? Obviously you are still moving out of northeast, it sounds like that is getting near the final innings. And then the specialized fleet, how does that work? Is it broadly spread, or they’re going to one or two locations?

Dennis Kakures

The way it works is, and as you said, the 21k tank product, which is the primary product in the rental fleet, we’ve been able to fill all the need in most of the new markets again the seven new markets over the last 15 months. Some of that equipment came new but the more recent ones have all been filled through coming out of North East region or other regions that may have had an access for a period. Then the specialty equipment whether it’s Vacuum Boxes or Double Wall Tanks, weir tanks etc those have been added in as market as – we have examined the market and we look at the type of verticals that they have and we support that with new equipment coming around the factory or if we have an access in another region we will move that equipment there. But it’s done in a very thoughtful manner and we put in a certain mix and will deepen those supplies as it wants in terms of market activity.

Scott Schneeberger - Oppenheimer & Company

Thanks, and then you guys those bad debts in April, could you speak to the trend little bit what you have seen over each of the quarter in the last year and why you did that (inaudible) and just why you are highlighting it now?

Dennis Kakures

Hi Scott, the bad debt was 0.6 million in the most recent quarter Q1 and that was up 0.4 million from a year ago but done significantly from the fourth quarter where it was 1.6 million. And I think for us is the couple of things one is we haven’t executed well and we’ve made a number of personnel changes and working on tightening up our processes to do a better job on the collections and the credit side there is a portion of Adler customer base. It is tougher collect for us compared to the businesses that we have been historically and we are working hard to get things into a better place.

Scott Schneeberger - Oppenheimer & Company

Lastly, I noticed with portable storage container business moving up into the North East you are using Adler brand which seems logical. Is that something that’s done nationally, could you just I guess speak to the brand strategy there and there you are also speaking how that can be meaningful to earnings, might we get clarification on a quarterly calls doing on, how many to go about this?

Dennis Kakures

Well let me answer – address those questions. With your success with Adler names obviously we are testing that in the greater New York and New Jersey markets and that’s successful then we certainly have to consider that strategy in other new markets that we enter. So we are hopeful that will be successful. With respect to growing the portable storage business and trying to really quantify either current size potential size etc we will be very guarded with that until almost forced to report separately based upon whatever rules or regulations that extends strictly because we don’t’ want to tip off our competitors as if what we are doing, where we are doing it, how much we are doing etc. So yet our goal is to really try to ramp that business as quickly and as responsible as we can and its in the best interest of our shareholders that we don’t’ share any more than we absolutely need to with respect to that. The business is now profitable and you should say we understand the business well and we believe we can be a very successful on it.

Scott Schneeberger - Oppenheimer & Company

Thanks and then final question. Congratulations on your profitability in that business segments. How are you seeing yield in that phase is that a large contributor is it are you using price in entering new markets or is something that you find you don’t have to use them.

Dennis Kakures

That business is not really about price degradation. I mean debt pricing in that industry has been very stable for an extended period of time and its really done based upon how efficient you can create your operation as well as providing great customer experience. I know that sounds over simplified but those are really the nuts and bolts of it.

Scott Schneeberger - Oppenheimer & Company

Great, thanks.


Ladies and gentlemen if there are any additional question (Operator Instructions) our next question come from line of Luis Filipe with EDS Financial Services please go ahead.

Luis Filipe - EDS Finacial Services

Hi, I had one question, something was troubling me in the report. There was no indication of Enviroplex is that or any backlog or any business, could you give us the little update of what Enviroplex is doing now?

Dennis Kakures

Well Enviroplex, as you know that business has been impacted negatively by the lack of public school funding for new construction. However, Enviroplex has actually done an I think an exceptional job of really finding work with charter schools and private schools and been to fill its backlog with that. So that’s no difference this year. I think business ideally if there is facility born next year it’s going to potentially greatly improve the revenue levels but more importantly yielded in the business as we obviously took some negative impact from the project or two this past year that didn’t go we would like to see it. But they have a great product, they have a great brand names, they have a very significant customer following, what we really need for that business is State funding for 50% of the cost of projects that we put in place and hopefully that will occur next year.

Luis Filipe - EDS Finacial Services

Well, are you accounting for that in the modular division now?

Dennis Kakures

Now really Enviroplex now that’s not when we project our numbers in Enviroplex it is going to take us one way or the other. So it’s the pretty neutral event. If you like to see more detail on Enviroplex in our segment summary at the back of press release you will actually see that Enviroplex is listed out as one of the operating segments within the data.

Luis Filipe - EDS Finacial Services

Well, I am aware of that, but in the past you have given some indication of what they are doing and I didn’t know if after the problems we had last year you had seized the be in the business or if you I just want the little color on it.

Dennis Kakures

Thank you, this is a good question and as you know we are business to business rental company and that gets all of our time and attention and that’s where the greatest dollars are in terms of profitability and shareholder growth and value and so that’s what we are focused but same time Enviroplex will push along here.

Luis Filipe - EDS Finacial Services

Well I just missed it in the report and I know in the past you have commented on the activity and I just was thought on might have missed the fact but you would no longer go into be in that business?

Dennis Kakures

Well, thank you for your good question.

Luis Filipe - EDS Finacial Services

Okay bye.


And I’m showing there are no further questions and thank you. Please continue with any closing remarks you may have.

Geoffrey Buscher

We would like to thank everybody for joining us this afternoon for Q1 call. Our Annual Shareholders’ Meeting this coming June 12 and we love to see as many of you be able to attend that as you can, if not please make certain that you return your parking card and otherwise we look forward to share with everybody in early August on our Q2 call. Thanks so much.


This does conclude our conference for today. Thank you for your participation. You many now disconnect. This conference will be available for replay at Thursday to May 8, 2013 at the night. You may the access the replay system anytime by dialing 303-590-3030 1-800-406-7325 and entering access code 4611866. Thank you. You may now disconnect.

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