McGrath RentCorp (NASDAQ:MGRC)
2013 Annual Shareholders’ Meeting Conference Call
June 12, 2013 5:00 pm ET
Dennis C. Kakures – President and Chief Executive Officer
Thomas J. Sauer – Vice President and Chief Financial Officer
Unidentified Company Representative
Ladies and gentlemen welcome to McGrath RentCorp 2013 Annual Meeting Conference. [Music] who will act as Secretary of the meeting and he’ll also be handling the formal side of things this afternoon. The official purpose of today’s meeting is one, to elect seven nominees to the Board of Directors of the Company; two, to ratify the appointment of Grant Thornton LLP as the independent auditors for the Company for the fiscal year ending December 31, 2013; three, to hold a non-binding advisory votes on the compensation of the Company’s named Executive Officers; four, to transact such other business as may come properly for the meeting. After the formal part of the meeting, I will make some general comments regarding the business and that will be followed by a Q&A session.
So let me first make a couple of introduction this afternoon. Let’s start with our distinguish Board of Directors. First of all Ron Zech, our Chairman of the Board and Chair of the Governance Committee; Bob McGrath, our Founder and Chairman; Bill Dawson, Director, Chairman of our Comp Committee; Bob Hood, Director, Chairman of our Audit Committee; Rick Smith, Director; and Dennis Stradford; and we also have a former Director, Mr. Joan McGrath, former Director actually he is an officer of the Company for many years. I’ve got some stuff. So we got with us our guests are very special today. We have historically built the Company 35 years older approximately they are about and we have all of the CFOs that have ever sat in the seat in the same room together.
So and I’ll do this going back and just read Delight Saxton please stand up. So I want just a comment about Delight. From Cucumber, West Virginia, High School education becomes CFO of a public company, that’s pretty rare company, very special sharp as of that. Depreciation with cash Delight that what you always tell me and Tom Sauer, please stand Tom, Tom and I actually went to High School together, Bishop O Dowd High School in Oakland and Tom was a much better student than I was, he actually went to Cal Berkeley and I barely got in a Cal State Hayward. So Tom and I live in the same town and Tom your daughter Katie is getting married later this summer.
Unidentified Company Representative
Well, all right. Let me now introduce our other officers in the company Keith Pratt, our current Chief Financial Officer, Senior Vice President; Joe Hanna, what we do about Joe. Joe is our Chief Operating Officer, and Senior Vice President; Dave Whitney, our Corporate Controller and Principal Accounting Officer; Kay Dashner, our Strategic Partner and Human Resources; Phil Hawkins, who as of our Modular Division; John Skenesky, as of our Electronics Division; Kristi Van Trease, who as of our Portable Storage Business.
And then we have a very distinguish company with us today Steve Adler, is a Founder of Adler Tank Rentals. Is he is in the room? He is not, okay. Mike Buckland, Mike? Mike is our Co-Leader of the business and recently moved to the Woodlands in Texas to be closer to a heartbeat of the business. All right, some other folks that we’d like to introduce today on the management Garni, Garni Thomas, she is not. Thank you. Chris Snyder, Director of our Northern California Market Group; Kelly Edwards is she in the room? No alone, okay. Bob Wagner, Bob is Head of our Environmental Health and Safety; Mark Rowell, Head of our IT Group.
Here I apologize; I’ll take it up later there. Some other representatives here today from our Professional Services Groups from Grant Thornton, we have Angela Garcia-Lopez who is our Senior Manager of the Account. Is this Mike come? Mike is going to late, okay.
Unidentified Company Representative
Unidentified Company Representative
Not a good trade for an account but okay, Mike Revolta would be here. Jessica Knotts, Jessica, okay. Jessica is also a Senior Manager on the accounts; Jenny Vanta who is also a Manager; and Mike Angela, Jessica and Jenny will all be available to respond your appropriate questions of our accounts during the Q&A session.
Also today from Bank of America, our lead bank Michael Lesson and I do not see Ronald Drobny so okay, very good, thank you. From Union Bank, Union Bank has been a lender of company since its inception Buddy Montgomery and also Blair Fox that sounds like a Hollywood name. Okay, all right, Prudential Capital one of our very good lending relationships okay now at this point we’re going to turn the meeting over to Randy for the form of and then I will come back. Thank you.
Okay. I will add to Secretary of the meeting and also the Inspector of Elections. At this time, I will review a few of the voting procedures. First in voting on the matters presented at this meeting, only shareholders of the company have record as of April 26, 2013 or person holding that duly executed proxy of such a whole shareholder may vote. For shareholders who have already sent in their proxies your votes have been counted and you do not need to vote at this time.
If you have a proxy card, you can complete it now and turn that in, if you have not send in your proxy card and you do not have it with you and you wish to vote today or wish to change your previous vote please raise your hand. Are there any questions related to the voting procedure? Okay, this meeting is then called pursuant to due notice, after examining the proxy submitted, we have present in this meeting in personal by proxy. Shareholders holding a majority of the Company’s common stock entitled to vote at this meeting.
We have a form and the meeting is ready for business. The first proposal of the meeting is the election of seven directors to the Company’s Board of Directors. The Board of Director nominees are William Dawson; Robert C. Hood; Dennis C. Kakures; Robert P. McGrath; M. Richard Smith; Dennis P. Stradford; and Ronald H. Zech.
The second proposal to be voted on today is the ratification of the appointment of Grant Thornton as our Independent Auditors for the fiscal year ending December 31, 2013. The third proposal to be voted on today is a non-binding to advisory vote on the compensation of the Company’s named executive officers. If you have not submitted your proxy card and have it with you, you may complete it now. Are there any proxies that or any ballots that you would like return?
The results of today’s vote are that the majority of the shares have voted for the election of the Company’s seven Directors ratifies the appointment of Grant Thornton as the Company’s Independent Auditors for the fiscal year ending December 31, 2013 and four the compensation of the named executive officers.
This concludes the scheduled agenda for this annual meeting. Before I turn the meeting over to Dennis, is there any other business to come before the meeting? Hearing none. Before we move to Dennis’ comments on the Company’s business operations, please note that Dennis and other officers or employees of the Company may make statements today that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements can be identified by the use of forward-looking terminology such as believes, expects, may, estimates, will, should, plans, anticipates or other variations of comparable terminology, or by discussions of strategy. These statements are not historical facts or guarantees of future performance and are subject to a number of risks and uncertainties. Actual results may differ materially from any of these statements.
For a description of those risk factors that could cause actual results to differ materially from the Company’s expectations, please refer to our Annual Report on Form 10-K filed February 22, 2013 and our Quarterly Report on Form 10-Q filed May 1, 2013, and our other reports filed with the Securities and Exchange Commission. All forward-looking statements are made as of the date hereof, and we assume no obligation to update any such statements, so Dennis?
Dennis C. Kakures
Thanks, [Rick]. He was interested in listing to the disclaimer there, it almost sounds like something that could preclude your [wedding bells] either you kind of just sharing it, it may not be as advertiser, okay. Anyway, let me begin by just sharing a few metrics with everyone. To start the first quarter of 2013 marked the 12th consecutive quarter in which we had a year-over-year increase in quarterly rental revenue. This is based after the second quarter of 2010 when the unemployment rate in the country was at 9.5% and in California was at 12.3%.
For 2012 compared to 2011, rental revenues increased 6% to $248 million, rental operations revenues increased 8% to $285 million, total revenues increased 6% to $364 million, rental gross profit increased 3% to $139 million and net income decreased 10% to $45 million, nice welcome.
So what do these numbers tell us, the primary takeaway from these metrics is that we’re continuing to grow overall rental revenues and rental operations profits and this speaks of the fact that we’ve got four great rental businesses. We’re very good rental operators and in the improving macro economy, our rental revenue and earnings growth should improve remarkably.
Although net income is down year-over-year that’s cheaply related to two items, growing hands within our tank and box rental business as related to bad debt, DSOs and to a lesser degree into regional transportation of equipment, and then also due to increase in our Modular Inventory Center expenses, but associated with business levels that have picked up materially since the first of the year.
Early we picked up four great rental businesses, not surprising each of these rental businesses that at different stage in the maturation as well as in the earnings contribution levels today. However, each of these businesses had the opportunity to continue return to or become a significant contributor to overall company earnings going forward.
Here is why. TRS-RenTelco, our electronic test equipment rental business is one of the two largest in the America. We believe the evolution of electronics and communications technologies are highly attractive and enduring industry. We expect to build upon our leadership position in the America and to further our growth in Malaysia, India and other international markets.
Mobile Modular is by far the most successful modular building rental business in California, the largest rental market in the U.S. California rental market has began to show significantly higher business activity levels over the past few quarters and our modular building rental market in Texas, Florida and the Mid-Atlantic are all seeing strong opportunity levels. Our large fleet of modular class rooms and commercial buildings are well maintained and has a low cost space as relative to new equipment prices today.
There was a significant amount of earnings horsepower to be realized from these assets as they are utilized going forward. The liquid and solid contain of rental industries serve the energy environmental construction and industrial waste market. Adler Tank Rentals is a small, but rapidly growing fish in a large sea of both domestic and international growth opportunity.
We have the youngest status and most innovative rental fleet in the industry. We’ve grown this pool of rental assets from approximately 45 million in late 2008 to over quarter billion in rental assets through the end of the first quarter of 2013. Somewhere in between there, there was a serious recession, but it never seems to hit that business. Adler will eventually be our largest business, however, not based upon any lack of growth potential for other rental businesses.
Finally, fuel storage containers are of great rental assets and the runway for both new geographic and existing branch growth of Mobile Modular portable storage throughout the U.S. is very significant. We started that business organically just as the storm clouds of the Great Recession we’re approaching.
In fact from 2007 to 2011 annual real GDP growth averaged only $0.02 of 1% that’s over a four year period. In the phase of those severe headwinds, we grew rental revenues favorably each year in reaching profitability for all of 2012. Under more normal economic growth window, we would expect our portable storage business, rental revenue and profitability levels to grow much more quicker.
There is significant grounding for me as CEO in knowing and believing it what McGrath RentCorp have said at sites on in reaching (inaudible). The next few years are all about executing on these four great rental businesses to accelerate rental revenue and earnings growth.
It’s not complicated in terms of strategy and tactics. It’s primarily about Human Resources execution of best practices and being relentless in meeting operational objectives. None of this is to say that our corporate development resources won’t be fully engaged, looking for the next great rental business, products or acquisition candidates for today’s platform of rental business. Any of those would simply be icing on the cake.
Those are my prepared formal remarks. I would like to mention that the Board today declared the dividend for the second quarter of $0.24, which will be payable on July 31, and this is approximately a 2% increase. More importantly, this is the 22 consecutive year of the dividend increase by McGrath principal.
We are a pretty rare company when it comes to that type of a track record from returning net value to shareholders. So I’m going to leave my prepared remarks with that and now we will open up for Q&A. So I know I saw a lot of hands waiting to come up there. We got a – we will get started, okay.
Are there any questions from the audience, comments? I’ll answer this (inaudible) as we always get there are refreshments afterwards. Okay, now we don’t use that as an enticement, but any questions. Okay, Brandy all right, I leave that, we’ll disclose that down there with that.
And my last comment is that our next public event will be on our July 31 earnings call. And we look forward to having people join us then. Thanks so much.
[No Q&A session for this event]
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