McGrath RentCorp
NASDAQ:MGRC
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
97.97
130.11
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
McGrath RentCorp
You don't have any saved screeners yet
Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp Fourth Quarter 2019 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, Tuesday, February 25, 2020.
Before we begin, note that the matters company management will be discussing today that are not statements of historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our 2020 total company financial outlook as well as statements relating to the company's expectations, strategies, prospects or targets.
These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected. Important factors that could cause actual results to differ materially from the company's expectations are disclosed under Risk Factors in the company's Form 10-K and other SEC filings. Forward-looking statements are made only as of the date hereof. Expect as otherwise required by law, we assume no obligation to update any forward-looking statements.
In addition to the press release issued today, the company also filed with the SEC the earnings release on Form 8-K and Form 10-Q for the quarter.
Speaking today will be Joe Hanna, Chief Executive Officer; and Keith Pratt, Chief Financial Officer.
I will now turn the call over to Mr. Hanna. Go ahead, sir.
Thank you, Skyler. Good afternoon and thank you for joining us on today's call. I will start the call with some overall comments on our fourth quarter and full year 2019 performance and then Keith will provide additional detail in his financial review and outlook comments.
Before launching into my comments on our performance, I should also highlight that we are very happy to announce today a 12% increase in the annual dividend, marking our 29th year of consecutive increases. We are especially pleased that the performance of the business has allowed us to return value to shareholders in this manner.
The McGrath RentCorp has the rare distinction of being one of 134 publicly listed companies currently known as dividend champions. All of whom have increased dividends more than 25 consecutive years, which we look forward to continuing.
So now let's turn to our 2019 performance. We were pleased to deliver another year of profitable growth for our shareholders. Throughout the year we remain steadfast on our performance improvement focus and our teams executed very well. Company-wide full year revenues increased 11% and operating income 20% driven by strong performance from Mobile Modular, TRS-RenTelco and Enviroplex offsetting challenges at Adler Tank Rentals.
Specifically addressing fourth quarter performance, we increased company-wide rental revenues by 8% and operating income by 9% compared to a strong 2018 fourth quarter. Mobile Modular and TRS-RenTelco were the primary drivers of the increases offset by declines at Adler.
Our performance improvement efforts materialized in the numbers. We realized a company-wide full year return on invested capital of 9.3%, a 13% increase from the prior year. Primary drivers of the increase were a focus on more profitable transactions with better pricing, term and a more favorable product mix and we sold fleet that was generating lower returns.
We saw strong activity across most of the vertical markets we serve. A classroom modernization backlog and student population growth coupled with a healthy funding environment supported classroom rentals, infrastructure projects generating swing space needs fueled commercial modular building rentals. In our electronics business, general purpose equipment rentals to test satellites, new 5G devices and semiconductor chips were a significant rental revenue driver.
As we have shared during prior earnings calls the number of devices that will be connecting wirelessly to the Internet continues to increase requiring more sophisticated testing. We are well-positioned to support these requirements.
Our soft spot during the quarter and year was at Adler. With the landscape for oil and gas exploration becoming significantly more challenged as the year progressed. This affected Adler rental revenues, which decreased 13% for the quarter and 3% for the year. We maintained our capital spending discipline and made minimal fleet investments, but generated significant EBITDA at Adler and they were a valuable generator of cash throughout the year for the enterprise.
Other than Adler 2019 was a strong year of investment in the fleet for our other rental businesses, where we purchased to grow strategically and meet demand. At year-end, our gross rental fleet purchases totaled $168 million, a 36% increase over 2018, with growth at TRS-RenTelco and Mobile Modular, allocating capital to the right markets is paramount. We were pleased to see the demand environment provide numerous opportunities to say yes to new investments.
Looking ahead to 2020, our expectations are for positive economic growth at a reduced pace. We are anticipating healthy CapEx investments in Mobile Modular and TRS-RenTelco, although likely not at the same level as 2019 and we will remain conservative at Adler. Importantly, we have season teams that are prepared and engaged and customers that enjoy doing business with us. We will be working hard to realize further success in 2020.
Now, let me turn the call over to Keith, who will take you through our financial review.
Thank you, Joe. Picking up on what Joe just said, we were very pleased with the fourth quarter and full year results. For the fourth quarter of 2019, total revenues increased 11% to $147.2 million from $133.1 million a year ago. The company's 9% operating profit increase for the quarter was driven by a $2.6 million increase in gross profit from rental revenues, a $2.1 million increase in gross profit on sales and a $0.4 million increase in gross profit on rental-related services revenues. Net income increased 9% to $26.4 million from $24.2 million and earnings per diluted share increased 8% to $1.07 from $0.99.
Now, I'll break the results down by reviewing revision performance compared to the fourth quarter of 2018. Mobile Modular total revenues increased $15.9 million, or 24% to $81.9 million on higher rental, rental-related services and sales revenues. Rental revenues for the quarter increased 14% from a year ago, which was driven by an 8% improvement in average rental rates and 6% higher average equipment on rent.
Sales revenues increased $6.9 million, or 78% on higher new and used equipment sales. Rental revenue growth continued to be healthy across our commercial and education markets as well as in our portable storage business.
Equipment preparation costs included in other direct costs of rental operations increased $2.1 million, or 22% to $11.4 million. The increased costs resulted from higher workload volumes to support increased rental demand in our education and commercial markets, higher labor and material costs, and higher cost of re-rent equipment. As a result, rental margins decreased slightly to 65% from 66%.
Gross profit on rents increased 13% as a result of the higher rental revenue, partly offset by the lower rental margin. Average modular rental equipment for the quarter was $814 million, which was an increase of $43 million. Average fleet utilization for the fourth quarter increased slightly to 79.3% from 79.2%.
At TRS-RenTelco, total revenues increased $2.3 million, or 7% to $34.4 million on higher rental revenues, partly offset by lower sales revenues. Rental revenues for the quarter increased 15%, primarily driven by 22% higher average equipment on rent, partly offset by 6% lower average rental rates. The lower average rental rates reflect a mix shift towards more general purpose equipment rentals and some longer-term transactions.
Rental margins decreased to 44% from 45%, and the combined result was a 14% increase in gross profit on rents. We saw growth in rental revenues from both general purpose and communications test equipment, and we continue to invest in new rental equipment for growth opportunities.
Average electronics rental equipment for the quarter was $328 million, which was an increase of $43 million. Average utilization for the fourth quarter increased to 66.8% from 63.1%. At Adler Tank Rentals, total revenues decreased $2.5 million or 10% to $23.3 million on lower rental and sales revenues, which was partly offset by higher rental-related services.
Rental revenues for the quarter decreased 13%, primarily from 17% lower average equipment on rent, which was partly offset by 5% higher average monthly rental rates. The rental revenue decrease reflected weaker demand in upstream oil and gas which we believe also negatively impacted other market segments.
All six of our end markets had lower rental revenues, compared to last year's strong fourth quarter. Rental margins decreased to 57% from 63%. The combined result was a 21% decrease in gross profit on rents.
Adler's average rental equipment for the quarter was $350 million, which was an increase of just $3 million. Average utilization for the fourth quarter decreased to 50% from 61%.
Now with this division review complete, the remainder of my comments will be on a total company basis. Selling and administrative expenses increased $2.8 million or 9% and to $32.7 million, primarily due to increased salaries and employee benefit costs.
Interest expense for the fourth quarter 2019 was $2.9 million, a decrease of 8% as a result of 5% lower net average interest rates and 3% lower average debt levels. The fourth quarter 2019 provision for income taxes was based on an effective tax rate of 25.5%, compared to 24.3% a year earlier.
Next, I will review our 2019 year-to-date cash flow highlights. Net cash provided by operating activities was $188 million, an increase of $45.3 million, compared to 2018. The increase was primarily attributable to improved income from operations increased accounts payable and accrued liabilities and other balance sheet changes.
We invested $167.7 million for rental equipment purchases, compared to $123.1 million for the same period in 2018, mostly on higher purchases at Mobile Modular and TRS-RenTelco.
Property, plant and equipment purchases were $12.1 million, compared to $15.7 million for the same period a year ago. Dividend payments to shareholders were $35.5 million. Net borrowings decreased $5.1 million to $293.4 million at the end of 2019.
At quarter end, the company had capacity to borrow an additional $238.5 million under its lines of credit. And the ratio of funded debt to the last 12 months actual adjusted EBITDA was 1.24 to 1.
Fourth quarter 2019 adjusted EBITDA increased 11% to $63.7 million compared to a year ago. And consolidated adjusted EBITDA margin was 43% same as a year ago. Our definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income are included in the quarter's press release.
Finally, turning to our 2020 financial outlook. For the full year 2020, we expect total revenue between $575 million and $595 million compared to $570 million in 2019. Adjusted EBITDA between $240 million and $248 million compared to $237 million in 2019. Net capital expenditures between $110 million and $120 million compared to $135 million in 2019.
Please keep in mind the following regarding our outlook for the year. Market demand for Mobile Modular and TRS-RenTelco appears healthy entering 2020 while there is softer market demand and greater uncertainty for Adler Tank Rentals. Visibility is limited at Adler Tank Rentals and TRS-RenTelco because of the short rental terms in both businesses.
At Enviroplex, our permanent modular classroom manufacturer, we achieved exceptional sales volume in 2019 and a project mix that drove unusually high gross margins. While we expect a good year in 2020, we do not currently anticipate that either the total sales volume or margin to be as strong as 2019. 2019 was an outstanding year for the company's financial performance and despite some headwinds we will be focused on building on that success during 2020.
That concludes the prepared remarks on our results. Skyler, you may now open the lines for questions.
[Operator Instructions] Our first question comes from Scott Schneeberger with Oppenheimer. Your line is now open.
Thanks very much. Good evening. Hi, Joe, hi, Keith.
Hi, Scott.
Hi, Scott
I'm going to go around the horns as I like to do and starting off with modular just here we are a couple of months into the New Year. Just curious your thoughts kind of Joe overview on the education market in modular what you're seeing? I think the funding backdrop is nice and strong but some background on that and how you feel? I know it's still early just at this point of the year but how you feel as you look out to 2020? Thanks.
Sure. Yes the funding backdrop as you said is good and that's in virtually all of the markets that we operate in. In particular, I'll highlight just California and the presence of Cross13 [ph] which is the $15 billion facilities bond which is on the March ballot, it's the only bond measure on the ballot and early indicators on voting are that it's favorable and that it better should pass. So that's going to be very good to keep the flow of funds going in California.
But I'll also mention that in addition to that and not only in California but we're seeing it in other markets too are the presence of local bonds that are passed to support facilities and we're just seeing that's in a good place in the markets that we operate in. And so that in turn is just funding good facilities opportunities for us for both growth and modernization. And so we're very pleased with how the year has started and we're anticipating favorable bookings as we really enter the season here.
Great, Thanks. Real quick on portable storage, how's that been developing, through the end of the year and into this year. Just curious, if you're going -- we're going to see the, same continued momentum?
Yeah. Very pleased about, how that business is growing. We announced last year that, we expanded geographically, into some new markets. We did a couple of tuck-ins. And for the quarter, rental revenues increased 14%.
So, we're very pleased with how the business is growing. And we anticipate, being able to keep a nice pace, into 2020.
Thanks. In TRS, 5G, about what percent would you say of the total segment revenue is tied somehow to 5G? And then, the follow-up question there is, what other end-market drivers are you seeing, outside of 5G that you could speak to? Thanks.
Sure. Yeah. That's a -- that's kind of a tough one to quantify, the 5G breakout. The difference that I can say between, what happened back in like, 2013 and 2014 is we saw a lot of work that was to take place out on the towers.
And so, that was within a couple of different product lines, in our wireless category. Now what we're seeing with 5G, at least right now, at the present time, is more things happening in the lab.
And that is more focused on, our general purpose, equipment line. And things like chip design, and communication standards, and things like that, that companies are designing products, to connect wirelessly to the network.
And so, it's kind of hard to know exactly, where that breakout is. We do anticipate that, there will be more tower work taking place, later in the year. The T-Mobile and Sprint merger has been approved. And we believe that will probably result in some things moving forward, out in the field. So we are anticipating that, which is -- which should be good.
In terms of the markets and some of the verticals that we're seeing strength in, I mean aerospace and defense has been good for us. Semiconductor has always been there for us too. And so those are -- those have been two good market segments that we're seeing growth in.
Thanks. I appreciate that. I've go to Adler now. The -- I obviously -- we understand the tough conditions that you're -- that Adler was facing. But monthly rental rates seem to have trended pretty well in the fourth quarter.
Could you, kind of speak to the pricing environment? And what you're seeing there? And then, I'll follow-up.
Okay. Sure. Yeah. That's a good question. And I would say that, despite our pricing gains that we've had -- that is not influencing utilization. Really the impact of the business that we've seen is, significantly more on the demand side, than anything that we're doing with pricing.
Having said that, we're very happy with the teams and the progress that they made in terms of being able to raise price, at the right kinds of accounts, the right types of transactions and for the right customers, and the comp program that we rolled out last year, and the focus on ROIC that we've had in the business, has resulted in us making some strides there.
We'll see, in a softer environment, perhaps in 2020. We may not be able to really maintain that pace. But we'll be -- it is a focus area for us. But it is a fine line between, driving the right utilization, at the right price.
And we're not going to walk away from business in a big way, because of pricing. So, we're very much watching that, and keeping a very close eye on it.
Thanks. And just one more on Adler, upstream oil and gas what is the mix now? And are you -- how are you handling, obviously, probably, very soft utilization in the upstream oilfields. How are you handling, the asset allocation there? Thanks.
Well, I think, oil and gas is 10% of our rental revenues. So I don't think that's changed.
8% in, Q4.
8% in Q4, yeah, so that's a little bit less than, it's been historically. And in terms of asset allocation, we'll move assets as we need to. But I don't see any significant movements on the horizon here to reposition the fleet at this point. We'll keep a close eye on that and we'll do that as needed and for the right transactions and opportunities.
And then last for me, I'll turn it over. How are you thinking about CapEx for next year? What type of number relative to this year? Which segments then why?
Yes. This is Keith. Scott just to give you some color on that, if you look over the last few years, 2019 was a big year for gross CapEx additions. We mentioned earlier $168 million of ads very heavy investment at TRS-RenTelco close to $90 million a little less than that at Mobile Modular.
So as we look at 2020, I really go back to Joe's comments in the prepared remarks, we think it's a positive economy. Just not as robust of a growth environment as we saw last year. So at this point we think the CapEx spend will be lower, I would point you to 2018 and look at the CapEx spend we had then is probably a better guidepost than what we did last year.
And 2018 was about 20% lower than last year. And so that's sort of the way we're thinking as we enter the year. Clearly as the year plays out, we react we either can add to or subtract from that sort of outline planning number, but gross CapEx about 20% lower a number similar to 2018 is how we're thinking about it.
Yes I'll just add to that too that even though it's 20% lower it's still a very strong number for us. If you look historically to what we've done in prior years, I mean it's a big spend for us.
Great. And Keith Congrats to both of you and the whole organization really nice 2019 and best wishes for 2020.
Thank you Scott.
Thank you.
Our next question comes from Sam England with Berenberg. Your line is now open. Thanks.
Just a couple from me. The first one can you give us an idea about how you're thinking around capital allocation heading into 2020 given what we've just said around CapEx and a slightly reduced CapEx guidance for this year? Should we expect further increases in the dividend more on the tuck-in side or just deleveraging?
Yes it's a great question Sam and it's a topic we frequently return to and try to get the balance right. As you've already heard us speak to the new capital equipment adds for the year.
And as Joe said, we still got a healthy spend planned for the year ahead. We try to be disciplined in the opportunities that we go after in the market. We're looking for a good return over the life of the asset. So we're taking the long view when we make those investment decisions, but it will still be a big year for organic growth in the business.
We do some tuck-in M&A. We're sort of a value-conscious buyer there, but we continue to engage with opportunities in the market we've done that for the last couple of years. I think we'll continue to do that in 2020 and beyond. You heard us mention today the dividend increase that we announced that will be active in April and that's a 12% increase.
Buybacks we tend to be more opportunistic and we'll be patient and wait for times where we think there's a good value for buying back our own stock but that's another tool in our toolkit. And if all those items don't absorb all of the available cash flow from the business we'll pay down some debt and I view that as really a more interim measure to if you will bank capital for future needs.
Okay, great. The next one was just around margins. It looks from the guidance like you're guiding to flattish EBITDA margins in 2020. Is that you're expecting progress in TRS on the modular side and then of set from Adler? Was there anything else going into that guidance?
Yes I think it's very well observed. And I would agree with those comments. The only additional item I would say that we face every year in the business is what level of equipment sales that occur generally speaking we get very nice margins when we're selling used equipment from our rental fleet.
And then on top of that, we do have some new equipment sales during the year as well. And you heard some of the comments I made on Enviroplex it's an example where we typically don't get as high of a margin on new equipment sales as we do unused and we also get some new equipment sales through our modular division through that segment as well. So that's a harder part of the mix to forecast. But I think your original comments are a good guide post to how we're looking at it.
Okay. Great. And then the last one for me just on Adler and expectations for 2020. You obviously said visibility is relatively low in that business. I think many said for their Tank & Pump business are expecting a bit of a recovery in H2. I just wondered whether you're thinking along the same lines or whether it's really just too early to say to whether the demand will return in the second half?
Yeah. There's a lot going on in the economy right now and – oh, it's -- for us, it's just too early to say and we'll hope that things get better, but it's too early at this point. And it's very unpredictable at this point. So we're taking a cautious outlook.
Okay. Great. Thanks guys.
Thank you.
You’re welcome.
And our next question comes from Marc Riddick with Sidoti. Your line is now open.
Hi. Good evening gentlemen.
Marc.
Hi, Marc.
So I was wondering if you could go back a little bit to -- you mentioned some classroom backlog looking positive. I was wondering if you could spend a little bit more time on what that may look like as far as -- whether it's a similar mix to what you've seen historically be maybe over the last couple of years? Or if it's -- if that mix shift has changed much at all over what you're seeing?
Sure. I don't believe the mix is going to change much. And the backlog that I'm referring to essentially is the backlog of modernization needs in classrooms across the country. And school districts typically are chronically behind in modernizing. And with the funding environment the way it is now. Folks are -- teachers, student -- I'm sorry, teachers and parents and at school administrators are more willing to put money behind modernizing those classrooms. And so that backlog is good and it will remain good for a while. As long as the funding is there, there's always going to be work that needs to be done.
And do you -- refresh your memory. I think that there was a little bit of a timing -- I'm sorry, issue, but it's just 160 little bit of a off-season timing that took place as far as some of the orders I think earlier in the year in certain states. I was wondering if you could sort of remind us and clarify on whether or not you expect those situations to go back to sort of a normalization of the normal timing and ordering pattern?
Yeah. Yeah, I think you're recalling last year in Q1, we had some early bookings and each year is different. And it just depends on when some of these districts really get their plans ironed out and they get around to knowing how many classrooms they're going to need. And so each year is different. And we didn't -- necessarily in Q4 experienced any real robust orders at this point, but we're anticipating in 2020 that the overall demand will be healthy.
Okay. Great. And then last one for me. I was wondering if you could give a bit of an update around the acquisition landscape. You did touch on some of the market growth opportunities and reaching out with portable storage a bit. And I was just wondering if you could sort of give an update on sort of what you're seeing out there as far as availability multiples and the like?
Yeah. I think availability there continues to be a fairly routine stream of opportunities. Every quarter it seems like there are opportunities to take a look at I think we're selective. It's got to fit with the businesses that we already operate. Sometimes it's a way to further our presence or open up a new geography for us. And so we're open to that if it fits well with the core businesses that we operate today.
I do think valuations in some cases expectations from sellers can be a little high. We've seen that build over the last couple of years. So, we have to do what's right for us but we -- we're absolutely willing to engage in those opportunities. And clearly under the right circumstances, it's a way to make progress with growing the business. And again from a geography point of view either further -- create further density in markets that we're already in or give us a beachhead in some new markets.
Yes Marc I'll also add in there too. I mean we're very concerned about the quality of the assets that are for sale in these enterprises. And sometimes they're not all that great. And so not only do you have to look at the valuation, but we want to bring quality assets into the fleet and that's a bar for us that we've got a hurdle also.
Okay. And that seems to be a great way to segue as to my last question which is sort of how you're feeling about the most recent acquisition? And maybe some updated thoughts since that was completed finally? Thanks.
Sure. The -- I believe the one you're talking about was our -- the tuck-in that we did in Oklahoma. And that was a very nice business with young fleet and a good customer base. We integrated those assets right into the business and got off and running. So, we're very happy with how that started.
Great. Thank you very much.
You're welcome.
That appears to be the last question. I'd like to turn the call back over to Mr. Hanna for closing remarks.
All right. Thank you very much. I'd like to thank everyone for joining us on the call today and for your continuing interest in our company. We look forward to speaking with you again in late April to review our first quarter results.
Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.