McGrath RentCorp (MGRC)

Q1 2010 Earnings Call

May 6, 2010 5:00 pm ET

Executives

Geoffrey Buscher - IR, SBG Investor Relations

Dennis Kakures - President & CEO

Keith Pratt - SVP & CFO

Analysts

David Gold - Sidoti

Scott Schneeberger - Oppenheimer

Jamie Sullivan - RBC Capital Markets

Presentation

Operator

Welcome to the McGrath RentCorp first quarter 2010 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 Thursday, May 6, 2010.

I would now like to turn the conference over to Geoffrey Buscher of 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. I’d like to start by offering our apologies to anyone who had trouble getting on to the call and we are using a new conference call vendor and understand there were some glitches and again we offer our apologies and will do our best to sure it doesn’t happening again.

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 48 hours following the call by dialing 1-888-286-8010 for domestic callers and 1-617-801-6888 for international callers. The pass-code for the call replay is 84608475.

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 mgrc.com. A press release was sent out at approximately 4:05 PM Eastern Time or 1:05 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 and its first quarter 2010 Form 10-Q.

For the first quarter of 2010 total revenues decreased 8% to $61.7 million from $67.2 million for the same period in 2009. Net income decreased 16% to $6.6 million or $0.28 per diluted share from $7.9 million or $0.33 per diluted share for the same period in 2009.

Reviewing the first quarter results for the Company’s Mobile Modular division compared to the first quarter of 2009, total revenues decreased $8.2 million or 23% to $27.5 million due to lower rental and rental related services revenues and sales revenues during the quarter.

Gross profit on rents decreased $4.3 million or 26% to $12.1 million primarily due to 17% lower rental revenues with rental margins, decreasing to 59% from 66%. Lower rental margins were a result of lower rental revenues combined with flat depreciation and flat other direct costs.

Selling and administrative expenses decreased 8% to $6.6 million. Lower gross profit on rental revenues, rental related services and sales partially offset by lower selling and administrative expenses resulted in a decrease in operating income of $4.6 million or 38% to $7.5 million.

Finally, average modular rental equipment for the quarter was $487 million, an increase of $9 million. Average utilization for the first quarter decreased from 78.3% in 2009 to 68% in 2010.

Turning to first quarter results for the Company’s TRS-RenTelco division compared to the first quarter of 2009, first quarter total revenues decreased $1.1 million or 4% to $24.3 million, due to lower rental revenues.

Gross profit on rents increased $0.5 million or 9% to $6.4 million. Rental revenues decreased $1 million or 5% and rental margins increased from 30% to 34% as depreciation as a percentage of rents decreased to 50% from 55%.

Selling and administrative expenses decreased $0.4 million or 7% to $5.4 million. As a result, operating income increased $1.3 million or 62% to $3.3 million.

Finally, average electronics rental equipment at original cost for the quarter was $239 million, a decrease of $14 million. Average utilization for the first quarter increased from 61.4% in 2009 to 64.6% in 2010.

Turning next to first quarter results for the Company’s Adler Tanks division, compared to the first quarter of 2009, firs quarter total revenues increased $2.2 million or 41% to $7.7 million primarily due to higher rental revenues.

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