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McGrath RentCorp. We re Talking Rents NASDAQ - MGRC. Deutsche Bank Securities Small Cap Growth Conference Naples, Florida February 15-17, PDF

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McGrath RentCorp NASDAQ - MGRC We re Talking Rents Deutsche Bank Securities Small Cap Growth Conference Naples, Florida February 15-17, McGrath RentCorp McGrath RentCorp Safe Harbor This presentation
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McGrath RentCorp NASDAQ - MGRC We re Talking Rents Deutsche Bank Securities Small Cap Growth Conference Naples, Florida February 15-17, McGrath RentCorp McGrath RentCorp Safe Harbor This presentation contains statements which constitute forwardlooking 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 such as guidance on earnings per share, potential growth opportunities for Mobile Modular, and the operational and market opportunities for TRS-RenTelco. All forwardlooking statements are based on 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. 2 McGrath RentCorp Stock Performance ( YTD) (a) (a) Close price December 19, 2001 of $ Proposed merger agreement announced December 20, 2001 and terminated July 1, Product Segments McGrath RentCorp NASDAQ- MGRC Relocatable Modular Classrooms & Offices Electronic Test Equipment Mobile Modular Rents & Sells Northern California (Livermore) Southern California (Mira Loma) Texas (Pasadena) Florida (Orlando) TRS-RenTelco Rents & Sells U.S. (Dallas) Canada (Montreal) Enviroplex Manufactures & Sells Stockton, CA * Livermore, CA facility serves Modulars & Corporate 4 History 1979 Company founded by Bob McGrath. Began operations in Northern CA under Mobile Modular Opened branch operation in Southern CA Two modular fleet acquisitions; expands to TX market (PBS in CA & TX; Mobile Facilities in CA) Company changes name to McGrath RentCorp and goes public to raise capital for electronics rental business Secondary offering. Two modular fleet acquisitions (Space-Co in CA; International Trailer Services in TX) Secondary offering. Company adopts strategy to build regional modular inventory centers for its three facilities. Acquisition of communications test equipment operating under RenTelco in TX from GE Capital Company converts $300,000 note to 73.1% ownership interest in Enviroplex Acquisition of modular fleet (The Space Place in CA) Company increased its ownership interest to 80.7% in Enviroplex. Proposed acquisition by Tyco in December 2001, terminated July Modular division expands operations for classroom rentals to Florida. Acquisition of Technology Rentals & Services (TRS) in TX for $120.6 million. The electronics division operates as TRS-RenTelco and consolidates U.S. operations in TX. 5 McGrath RentCorp Similarities of Two Rental Products High equipment cost (Modular Buildings & Electronic Test Equipment) Short-term usage intended Long rental life Rents recover investment quickly High resale value 6 McGrath RentCorp Payback on Rental Asset Investment Modulars Original cost is recovered every 5 years on an asset with an 18 year life with a substantial residual value When sold, most of the original cost is recovered again; that s original cost not net book value Last few years of used sale equipment sold was on average 10 years old with proceeds on sales exceeding 95% of its ORIGINAL COST Over a 10-year period, net cash flows (including all operating expenses) produce a 12% Return on Capital 7 McGrath RentCorp Payback on Rental Asset Investment Electronics Original cost is recovered every 2 1/2 years on assets with an average useful life of 6 years. When sold, a significant part of the original cost is recovered again Prior to 2002, electronics equipment sold was on average 4 years old with proceeds on sales exceeding 70% of its ORIGINAL COST Over a 4-year period, net cash flows (including all operating expenses) produce a 17% Return on Capital 2002 impairment charges due to over supply of equipment in the marketplace versus demand 8 McGrath RentCorp Summary Balance Sheet Information (dollars in thousands) December 31, September 30, Rental Equipment, at cost Modulars $ 339,537 $ 388,814 Electronics 149, ,474 $ 488,974 $ 541,288 Rental Equipment, net book value Modulars $ 245,924 $ 290,308 Electronics 111, ,862 $ 357,788 $ 391,170 Total Assets $ 474,280 $ 529,407 Notes Payable $ 151,888 $ 154,623 Shareholders Equity $ 166,888 $ 188,933 Shares Issued and Outstanding 24,543 24,775 Debt (Total Liabilities) to Equity Debt (Notes Payable) to Equity Funded Debt to LTM EBITDA 1.71 (1) 1.35 Return on Average Equity for LTM 19.5% 21.4% Capacity Under Existing Lines of Credit $ 43,112 $ 100,377 (1) LTM EBITDA includes the contribution of TRS operations since June. 9 McGrath RentCorp Dividend Payout Per Share ( (a) ) CAGR 15% (a) In December, dividends declared for Q4 were.14 per share, a 27% increase over Q4, equating to an annualized dividend rate of.56 per share. 10 Operating Results (a)(b) $140 Rental Revenues $ % 63% $ % $80 59% % 83 58% % of total revenues $250 Total Revenues $ (dollars in millions) 195 $60 Electronics Modulars $100 $40 $50 $100 $90 $80 $70 $ Gross Profit 78 48% 77 48% % 48% 88 43% 62 44% 82 42% of total revenues $60 $50 $ Pre-Tax 50 30% 47 29% 40 28% 38 29% 49 24% 35 25% 47 24% of total revenues $50 $30 $40 $30 $10 $ $10 (a) Operating results exclude- (1) Impairment charges, net of reduced depreciation on impaired equipment; $1.9 million primarily for Modulars in 2000 and.6 million for electronics in 2002, (2) Nonrecurring merger related items; $1.9 million of expenses in 2001 and.7 million of income (other revenues of $1.25 million less.6 million in expenses) in 2002, and (3) Gain on land sale of.9 million included in other revenues in (b) Operating results include- (1) Impact of modular residual value change from 18% to 50% effective January 1, 2002; depreciation expense reduced $1.8 million per quarter or $7.3 million in Operating Results (a)(b) $35 $30 $25 $15 Net Income % 17% 24 17% 23 17% 30 15% 21 15% 29 15% of total revenues $140 $120 $100 $80 $60 EBITDA (c) % 53% 66 46% 56 42% 89 44% (dollars in millions) 87 45% of total revenues 61 43% $10 $40 $5 $1.80 $1.60 $1.40 $1.20 $ Earnings Per Share (d) $3.00 $2.50 $2.00 $ Operating Cash Flow Per Share $ E (a) Operating results exclude impairment charges, nonrecurring merger related items and gain on land sale. (b) Operating results include the impact of the modular residual value change from 18% to 50% effective January 1, (c) EBITDA equals income from operations plus depreciation and amortization plus noncash compensation and impairment charges. (d) E is the full year earnings guidance range as of November 3,. MGRC will have a conference call to discuss actual results on February 23, at 2:00 PM (PST). 12 Product Segments Relocatable Modular Classrooms & Offices Mobile Modular Rents & Sells Enviroplex Manufactures & Sells Northern California (Livermore) Southern California (Mira Loma) Texas (Pasadena) Florida (Orlando) Stockton, CA MGRC Mobile Modular Enviroplex TRS-RenTelco 13 Rental & sale of modular buildings serving a broad range of facility needs and industry groups 14 Rental Business Mix Breakdown By Industry Group 2% 2% 2% 4% 18% 12% 60% Education Construction / Dev. Petro-Chemical Government Retail Health Care Other 15 Modular Building Rental Applications Classrooms Construction Site Offices Credit Unions City Services Facilities Medical Clinics Child Care Facilities Church Assembly / Administration Facilities Airport Rental Car Outlets Golf Pro Shops Sales Offices Plant Operations Facilities Auto Dealerships State Services Facilities Military Base Facilities Amusement Park Operations Facilities Nursery Retail / Wholesale Facilities 16 Modular Operating Results (a)(b) $100 $80 $60 Rental Revenues % 57% 57% 58% 71 55% 52 53% 59 49% of total revenues $140 Total Revenues $ $100 $ (dollars in millions) 120 $40 Rents RRS Sales & Others $60 $40 $60 $50 $40 $ Rental Gross Profit 30 53% 35 55% % 40 63% 63% 32 62% 38 64% of rental revenues $80 $70 $60 $50 $40 $ Total Gross Profit 49 43% 52 46% 61 52% 55 50% 62 47% 46 47% 56 46% of total revenues $10 $ (a) Excludes impact of $1.7 million impairment charge in 2000 and merger related items. (b) Includes impact of $7.3 million from modular residual value change from 18% to 50% in Modular Operating Results cont. $350 $300 $250 0 $150 Average Rental Equipment, at cost, Utilization, Rental Rate, and Yield 85.4% 85.9% 82.3% 84.2% 85.6% 85.4% 90% 85.3% % % % 50% 40% (dollars in millions) Equipment $ (a) Average Utilization (b) Annual Rental Rate (c) Annual Yield (d) $ % 28.5% 28.0% 26.8% 27.5% 27.3% 27.9% 30% $ % 24.4% 24.1% 22.6% 23.6% 23.4% 23.8% 20% % (a) Average modular rental equipment, at cost, excludes new equipment inventory and accessory equipment. (b) Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment. Average utilization is calculated using the average costs for the year; for partial years presented the amounts are annualized. (c) Annual rental rate on average rental equipment is calculated by dividing rents for the year by the total average cost of rental equipment on rent for the same period; for partial years presented, the amounts are annualized. (d) Annual yield on average rental equipment is calculated by dividing rents for the year by the total average cost of rental equipment for the same period; for partial years presented, the amounts are annualized. (e) Modular equipment excluding new and accessory equipment, at cost, at September 30, was $360.2 million with utilization of 84.1% and an annualized yield of 23.4%. 18 Modular Operating Results cont. (a)(b) 100% Rental Gross Profit and Costs as a Percentage of Rental Revenue 80% 65% 63% 63% 62% 63% 63% 68% 60% 53% 55% Gross Profit (e) Direct Costs - Other (d) 40% Depreciation (c) 25% 25% 25% 26% 24% 24% 25% 25% 20% 22% 21% 21% 11% 12% 12% 12% 12% 12% 11% 0% Low-End Target High-End Target (a) Excludes impact of $1.7 million impairment charge in 2000 and merger related items. (b) Includes impact of $7.3 million from modular residual value change from 18% to 50% in (c) Modular buildings are depreciated over 18 years to 50% residual value. (d) Direct Costs of Rental Operations Other - Primarily relate to material and labor costs associated with maintenance of the modular buildings. (e) Rental Gross Profit is calculated as Rental Revenues less Depreciation less Direct Costs of Rental Operations - Other. 19 Modular Operating Results (a)(b) $25 $15 Selling & Administrative % % 15% 15 25% 26% 24% 17% 28% 12% 14% 13% 15% 17 28% of rental revenues 14% of total revenues $50 $40 $30 EBIT (dollars in millions) 45 39% % 32% of total revenues 31% 32% 34% 31 32% $10 $5 $10 $50 $45 $40 $35 $30 $ Pre-Tax % 35 29% % 29 29% of total revenues 25% 28% 29% $70 $60 $50 $40 $ EBITDA 49 43% 49 43% 53 45% 46 42% 52 40% 39 39% 47 39% of total revenues $15 $10 $5 $ (a) Excludes impact of $1.7 million impairment charge in 2000 and merger related items. (b) Includes impact of $7.3 million from modular residual value change from 18% to 50% in Educational buildings of every type to serve public and private K-12, community college and university facility needs 21 Education Rentals - Why this is such a profitable industry sector Long-term, recurring rental revenue streams due to insufficient state funding for permanent schools Lower customer turnover rate - reduced expenses Minimal modifications or customization requiredreduced expenses Virtually no bad debt Purchase off rent Relationship business / piggyback bids Insulated from economic downturns 22 Sample Transaction - Educational Rental Gross Margin Analysis Customer: California public school district Need: Additional classroom space for increased student population Product: 24'x40' (960 sq.ft.) DSA Classroom Initial Contract Term: 24 months Capitalized Building Cost: $25,000 Revenues Rental: (24 mths. x $450) $ 10,800 Rental Related Services $ 3,500 Total Revenues $ 14,300 Costs and Expenses Direct Costs of Rental Operations Depreciation: (24 mths. x $58) $ 1,392 Rental Related Services $ 3,150 Other $ 2,000 Total Costs and Expenses $ 6,542 Gross Margin On Total Revenues $ 7,758 Gross Margin On Total Revenues % 54% Gross Margin On Rental Revenues $ 7,408 Gross Margin On Rental Revenues % 69% 23 Educational Rental Market Organic Key Growth Opportunities Florida - Increasing student population - Class size reduction constitutional amendment - Modular classroom code upgrade - Increased focus on non-public school opportunities (i.e. private schools, colleges, childcare, etc.) - Regional Inventory Center concept opportunity assessment (Educational markets in adjoining states) California - Aging public school infrastructure / modernization projects Commercial Market - Organic Florida - Expansion into selective commercial market opportunities Business Expansion Organic / Acquisition Current / Other markets - Expansion of Regional Inventory Center concept (With educational market focus) - Potential acquisition opportunities 24 Product Segments Electronic Test Equipment TRS-RenTelco Rents & Sells U.S. (Dallas) Canada (Montreal) MGRC Mobile Modular Enviroplex TRS-RenTelco 25 Rental & sales of general purpose and communication test equipment 26 Rental Business Mix Breakdown By Product Group 34% General Purpose Communications 66% Typical Customers (By Rental Product Group) General Purpose Aerospace & Defense General Manufacturing Government Computer Manufacturing Services Industrial Communications Equipment Manufacturers Installation & Maintenance Service Providers Wireless Equipment Manufacturers 27 Test Equipment Rental Applications Product Utilized Wireless Communications Test Set User Group Mobile Phone Manufacturers, 3 rd Party Repair Facilities, Wireless Equipment Manufacturers Test Application Test Mobile Phone Handsets and other wireless communications equipment. Category 6 Cable Analyzers Power Demand & power Quality Analyzer Optical Time Domain Reflectometers Cable installation contractors, IT Departments Electrical Contractors, Electrical Service Providers Fiber optic cable installation and maintenance companies Installation and troubleshooting of Category 6 cable used primarily in Local Area Networks (LAN). Test electrical power quality and demand. Troubleshoot quality problems. Testing loss on a fiber link and locating precisely where break or loss is occurring. Spectrum Analyzer Aerospace and Defense contractors, Broad base of electronic equipment manufacturers; R&D Labs. Detect and measure the power and frequency of RF signals across a range of frequencies. Oscilloscopes Broad base of Equipment Manufacturers ranging from Consumer Products Manufacturers to High-end Aerospace & Defense, Computer/ Semiconductor Manufacturers Display the performance of an electrical signal. Troubleshoot signal and circuit performance. 28 Electronics Operating Results (a)(b) $80 $70 $60 $50 $40 $30 $10 $35 $30 $25 $15 $10 $5 Revenues 50 77% 29 58% 47 79% 25 53% 28 60% 5 20% 21 61% 8 39% 72 68% 26 36% 44 68% Gross Profit % 74 71% of total revenues 26 Rents RRS Sales & Others Avg Equipment $ Avg Utilization % 35% of total revenues $180 $160 $140 $120 $100 $80 $60 $40 $25 $15 $10 $5 Average Rental Assets 82 47% 97 38% 59 27% 37 35% 93 52% YTD Q % Pre-Tax 16 34% % 3 16% % 7 15% 77 53% 60.6 (dollars in millions) YTD Q % annualized yield 16% of total revenues $ (a) Excludes impact of impairment charge, net of reduced depreciation expense on impaired equipment of.6 million in 2002, and merger related items. (b) Electronics equipment, at cost, at September 30, was $152.5 million with utilization of 70.9% and annualized yield of 50.2%. 29 Electronics Operating Results cont. $25 $15 (dollars in millions) Year 1 of combined TRS and RenTelco operating results by quarter Rental Revenues % 68% % 68% 18 74% of total revenues $30 $25 Total Revenues $15 $10 $5 Rents RRS Sales & Others $10 $5 $9 $6 Q3 Q4 Q1 Q2 Q3 Rental Gross Profit % of rental revenues 39% 6 36% 5 37% 28% 8 $12 $10 $8 Q3 Q4 Q1 Q2 Q3 Total Gross Profit % 9 40% of total revenues 35% 37% 7 29% $6 $3 $4 $2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 30 Electronics Operating Results cont. (dollars in millions) Year 1 of combined TRS and RenTelco operating results by quarter Average Rental Equipment, at cost, Utilization, Rental Rate, and Yield $175 $ % % % % 71.0% 80% $125 $ % 63.9% 61.6% 64.3% 68.3% 70% 60% Equipment $ (a) Average Utilization (b) $75 $50 $ % 50.3% 45.4% 46.0% 48.5% 50% 40% Annual Rental Rate (c) Annual Yield (d) Q3 Q4 Q1 Q2 Q3 30% (a) Average electronics rental equipment, at cost, excludes accessory equipment. (b) Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding accessory equipment. Average utilization is calculated using the average costs for the quarter. (c) Annual rental rate on average rental equipment is calculated by annualizing the result of dividing rents for the quarter by the total average cost of rental equipment on rent for the same period. (d) Annual yield on average rental equipment is calculated by annualizing the result of dividing rents for the quarter by the total average cost of rental equipment for the same period. (e) Electronics equipment excluding new accessory equipment, at cost, at September 30, was $151.2 million with utilization of 70.9% and an annualized yield of 50.2%. 31 Electronics Operating Results cont. Combined TRS and RenTelco operating results by quarter 80% Rental Gross Profit and Costs as a Percentage of Rental Revenue 60% 40% 50% 39% 51% 36% 56% 50% 37% 45% 45% 43% 42% 46% 42% Gross Profit (c) Direct Costs - Other (b) Depreciation (a) 20% 28% 11% 13% 16% 13% 12% 13% 12% 0% Q3 Q4 Q1 Q2 Q3 Low-End Target High-End Target (a) Electronics equipment is depreciated over 2-7 years, depending on the type of equipment to 0% residual value. (b) Direct Costs of Rental Operations Other - Primarily relate to direct labor, repair, and calibration costs associated with maintenance of the electronics inventory. (c) Rental Gross Profit is calculated as Rental Revenues less Depreciation less Direct Costs of Rental Operations - Other. 32 Electronics Operating Results cont. $8 $6 $4 Selling & Administrative $8 EBIT (dollars in millions) Year 1 of combined TRS and RenTelco operating results by quarter % % of total revenues $ % 19% 26% 23% 23% of rental revenues 19% 4 21% 16% 18% 16% 17% of total revenues $4 16% 3 10% $2 $2 $8 Q3 Q4 Q1 Q2 Q3 Pre-Tax Q3 Q4 Q1 Q2 Q3 EBITDA $6 5 17% % 20% of total revenues $ % 14 51% 12 50% 14 55% 14 57% of total revenues $4 14% $10 2 $2 8% $5 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 33 Sample Transaction - Wireless Base Station Maintenance Gross Margin Analysis Customer: Base Station Installation and Maintenance Company Need: Sweeping cable lines checking for loss over the frequency range from antenna on top of tower to transceiver at base of tower Product: Anritsu S331C Cable and Antenna Analyzer Average Rental Term: 3 months Capitalized Equipment Cost: $6,500 Revenues Rental: (3 mths. x $538) $ 1,614 Rental Related Services $ 65 Total Revenues $ 1,679 Costs and Expenses Direct Costs of Rental Operations Depreciation: (3 mths. x $109) $ 327 Rental Related Services $ 35 Other $ 210 Total Costs and Expenses $ 572 Gross Margin On Total Revenues $ 1,107 Gross Margin On Total Revenues % 66% Gross Margin On Rental Revenues $ 1,077 Gross Margin On Rental Revenues % 67% 34 TRS-RenTelco Platform of Opportunity Size / Customer Reach / Economies of Scale - Largest electronic test equipment rental company in North America as measured by rental revenues - Broadest industry inventory offerings and applications expertise -
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