McGrath RentCorp (MGRC) 2009 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by, and welcome to the McGrath RentCorp second quarter 2009 conference call. (Operator instructions). As a reminder, the conference is being recorded today, on Thursday, August 6, 2009. I'll now turn the conference over to Mr. Geoffrey Buscher of SBG Investor Relations. Please go ahead, Sir.

Thank you, operator. Good afternoon. I'm the investor relations advisor to McGrath RentCorp and will be acting as moderator of the conference call today. 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 1-800-406-7325 for domestic callers and 1-303-590-3030 for international callers. The pass code for the call replay is 4117242. 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 today at approximately 4:05 Eastern time, which is 1:05 Pacific. 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 21E 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 related 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.

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 second quarter 2009 Form 10-Q. For the second quarter 2009, total revenues decreased 10% to $66.5 million from $74 million for the same period in 2008. Net income decreased 30% to $7 million, or $0.30 per diluted share, from $10.1 million, or $0.42 per diluted share, for the same period in 2008.

Reviewing the second quarter results for the company's Mobile Modular division compared to the second quarter of 2008, Mobile Modular total revenues decreased $0.3 million or 1% to $37.1 million due to lower rental and rental related services revenues partly offset by higher sales revenues during the quarter.

Gross profit on rental revenues decreased $0.1 million, or 1%, to $15.4 million primarily due to 7% lower rental revenues with rental margins increasing to 65% from 61% in 2008. Rental margins increased as a result of reduced material and labor costs in our inventory centers, from lower business activity levels, and extensive cost reduction efforts. Selling and administrative expenses decreased 1% to $7.1 million. Higher gross profit on sales, partially offset by lower gross profit on rents and rental related services resulted in an increase in operating income of $0.3 million or 3% to $12.2 million.

Finally, average modular rental equipment for the quarter was $476 million, an increase of $22 million. Average utilization for the second quarter decreased from 82% in 2008 to 75.3% in 2009.

Turning next to second quarter results for the company's TRS-RenTelco division, compared to the second quarter of 2008, total revenues decreased $8 million, or 25%, to $24 million due to lower rental and sale revenues. Gross profit on rents decreased $4.7 million, or 49%, to $5 million.

Rental revenues decreased $5.8 million, or 24%, and rental margins decreased to 28% from 41% as deprecation as a percentage of rents increased to 57% from 46%. Selling and administrative expenses decreased $0.8 million, or 12%, to $5.6 million. As a result, operating income decreased $4.5 million, or 77%, to $1.4 million from $5.9 million.

Finally, average electronics rental equipment at original cost for the quarter was flat at $248 million. Average utilization for the second quarter decreased from 69.4% in 2008 to 59.5% in 2009.

Turning next to second quarter results for the company's Adler Tanks division, which was acquired on December 11, 2008, compared to the first quarter of 2009, second quarter total revenues decreased $0.3 million or 5% to $5.2 million due to lower rental revenues. Gross profit on rents decreased $0.5 million or 18% to $2.3 million. Rental revenues decreased $0.3 million or 7%, and rental margins decreased to 62% from 71% as depreciation as a percentage of rents increased to 21% from 17%. Selling and administrative expenses increased $0.3 million or 15% to $2.1 million. As a result, operating income decreased $0.8 million or 59% for the second quarter 2009 to $0.6 million.

Finally, average rental equipment for the quarter was $55 million, an increase of $8 million. Average utilization for the second quarter decreased from 64.5% to 53.3%. On a consolidated basis, interest expense for the second quarter 2009 decreased $0.3 million to $2 million from the same period in 2008 as a result of the company's lower average interest rates partly offset by higher average debt levels.

The second quarter provision for income taxes was based on an effective tax rate of 39.1%, compared to 39.2% in the second quarter 2008.

Next, I'd like to review our 2009 cash flows. For the six months ended June 30, 2009, highlights in our cash flows included net cash provided by operating activities was $65.7 million, an increase of $20.3 million or 45% compared to 2008. The increase was primarily attributable to reduced accounts in income taxes receivables and other balance sheet changes partially offset by lower operating results.

We invested $33.7 million for rental equipment purchases, compared to $54.7 million for the same period in 2008 partly offset by $15.2 million in proceeds from used equipment sales. Property, plant and equipment purchases decreased $10.7 million to $0.6 million in 2009. Dividend payments to shareholders were $10 million. And net borrowings decreased $36.9 million from $305.5 million at the end of 2008 to $268.6 million at the end of the second quarter 2009. We continue to have a solid, low-leverage balance sheet.

For 2009, second quarter adjusted EBITDA decreased $4.3 million, or 12%, to $30.3 million, compared to $34.6 million in 2008, with consolidated adjusted EBITDA margin at 46% compared to 47% in 2008. Our definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income are included in our press release and Form 10-Q for the quarter.

Turning next to 2009 earnings guidance, at this time, based on the results for the first six months of 2009 and our outlook for the remainder of the year, we are narrowing our previous 2009 full-year earnings guidance range of $1.30 to $1.45 per diluted share to an updated range of $1.30 to $1.40 per diluted share. At this point I would like to turn the call over to Dennis.

Thank you, Keith. Let's go right to our results for our modular rental business. Mobile Modular's rental revenues for the quarter decreased by 7% from a year ago to $23.5 million. In California, during the second quarter we continued to experience lower business activity levels and very competitive educational and commercial markets as a result of the macroeconomic environment, underutilized equipment inventories, and the state's financial challenges.

Booking activity did increase during the second quarter compared to the first quarter of 2009. However, equipment returns continued to outpace new shipments, especially in residential and nonresidential construction. The most positive news from the Golden State is that a balanced budget for the 2009/2010 fiscal year was approved during July. We anticipate that the state will now be in a position to resume the sale of its historically popular general obligation bonds to finance both educational facilities and other state infrastructure projects. With approximately $2 billion in voter approved school facility modernization bonds authorized for sale, these monies should allow previously apportioned but unfunded projects and new project applications to begin moving forward. Although we would expect this funding to move some projects ahead in the near term, the biggest impact in terms of portable classroom shipments is expected in the summer of 2010.

In Florida we've had lower new educational rental activity than in past years due to the state's financial challenges and its impact on implementing the next stage of class-size reduction and flat to slightly lower student enrollment levels. However, we continue to be well positioned versus our competitors for when business activity levels increase with our campus make-a-classroom product and the phasing out of older model code portable classrooms.

As for the commercial rental market in Florida, it continues to be a very challenging environment with lower demand and very competitive pricing, especially on single and double-wide building activity. Keep in mind that our commercial business is a very small portion of our overall Florida rental revenue base.

In Texas, commercial business activity in the quarter continued to the challenged due to decreased oil and petrochemical-related activity and general economic conditons. However, business activity levels increased towards the end of the quarter and have continued favorably thus far in the third quarter. We have experienced a lower classroom booking year in 2009 in Texas due to educational budgetary matters and school districts looking to more fully utilize their existing facilities.

In our new Mid-Atlantic and Southeast expansion, we are continuing to make progress in capturing new educational business, particularly in Maryland and Virginia with our innovative classroom products designed for these markets. We're seeing more challenging educational markets in North Carolina and Georgia related to reductions in student growth and budgetary issues. We're also continuing to see very competitive commercial rental markets in the Mid-Atlantic and Southeast, especially for single-wide building rental opportunities.

As a result of the challenges we faced across our modular rental division during the quarter, utilization fell to 74% at the end of the second quarter compared to 77% at the end of the first quarter 2009. Despite the 7% decline in rental revenues during the quarter from a year ago, income from operations actually went up 3% for the quarter. This was chiefly related to lower business activity levels, expense of (inaudible) measures, in particular the labor and material costs in our inventory centers, and a large sale of equipment off rent. The significant inventory center expense reductions allowed gross margin on rents to increase to 65% compared to 61% a year ago.

Looking forward, California will be the key to higher earnings for our modular rental building division. More specifically, if the California educational, residential and nonresidential construction markets improve, so should our financial results for mobile modular.

Now let me turn our attention to TRS-RenTelco and their results. TRS-RenTelco's rental revenues decreased 24% quarter over quarter. There also was continuing downward pressure on rental rates due to lower business activity levels during the quarter. However, the rate of equipment returns declined and order activity increased during the quarter as compared to the first quarter of 2009. In July, this trend continued as our electronics business had its highest rental booking and lowest equipment return month of the year.

We continued making good progress during the quarter in selling underutilized equipment and reducing depreciation expense. Monthly depreciation expense stood at $3.3 million in June 2009, and is down from a high of $3.9 million in October of 2008. Our gross margin on sales for the quarter increased to 31% compared to 29% a year ago.

Ending second quarter utilization was at 58.6%, compared to ending first quarter utilization of 59.9%. Our average monthly rental rate declined to 4% during the second quarter from 4.2% during the first quarter. Both of these metrics are indicators of the difficult market conditions we continued to face during the second quarter of 2009.

Although the first six months of 2009 reflect a very challenging rental environment for our electronics business, with May and June being relatively flat in rental revenues, and with our increased business activity levels in July, we are hopeful that we will see rental revenues begin to increase from our June results. Although we've pared back our purchases significantly during the first half of 2009, we have been more active during the first part of the third quarter in adding newer technology equipment models where we are seeing increasing demand.

Now let's turn our attention to Adler Tank Rentals. Adler's rental revenues declined to $3.7 million during the quarter from $4 million in the first quarter of 2009 and income from operations for the quarter declined to $0.6 million from $1.4 million in the first quarter of 2009. Adler faced lower business activity levels in a very competitive market environment during the quarter. The markedly larger reduction in income from operations compared to rental revenues during the quarter was chiefly related to planned expenditures associated with expanding Adler Tank Rentals into the Northern and Southern California and Pittsburg markets and rental equipment purchases and transportation expenditures to support all branch locations.

Although the difficult macroeconomic environment and some seasonality factors negatively impacted Adler's top line during the quarter, business activity levels picked up materially during the latter part of the quarter and have continued into the third quarter. In fact, June's rental billing level was approximately 20% higher than May's level and we shipped our highest level of tanks in boxes thus far in 2009.

We feel very good regarding the increased rental demand we are currently experiencing, the new markets we entered during the first half of 2009, and our overall prospects for growing our tank rental business going forward. We believe this will be reflected in the stronger financial performance for our tank rental business in the second half of 2009 compared to our first six months results.

Finally, during the second quarter we continued to work on various integration elements and our progress to date is in line with our expectations.

Now let me take a moment and update everyone on our two newest organic initiatives, environmental test equipment and portable storage. First, our environmental test equipment initiative continued to make good strides during the second quarter in growing its number of customers, opportunities, orders booked, and rental revenues sequentially from the first quarter. We are feeling more confident each month that our centralized sales and inventory operating structure in Dallas is optimal for lowering per-order transactional costs, as well as in creating a better customer experience. We believe we can become a significant rental provider in this industry over the next few years.

For our portable storage initiative, I shared on our fist quarter 2009 call that we've now expanded this business into Southern California, Texas, and Florida office locations for our modular business. We're leveraged our existing modular sales and inventory centers in these regions to reduce our cost structure in ramping our portable storage business. We are also benefiting in these new markets from synergies between our legacy modular building customers and their portable storage needs. We've been pleased with our business levels to date and the fact that we've increased rental revenues each quarter since we launched the initiative in 2008.

It's important to emphasize that the rental revenue levels associated with both of these organic initiatives are small relative to our modular and electronics businesses, as well as to our new tank rental business. However, we expect both rental legs to become increasingly important to our earnings in the years ahead.

Now for some closing remarks. Today, in effect, we have five rental businesses, compared to a year ago when only had two, modular buildings and electronic test equipment. We also now operate our modular building rental business in seven states as compared to only three states two years ago.

Our electronics business also has a broader international footprint with our 24/5 Dallas-based operation center coverage window, online ordering, and sales representation in Southeast Asia. 2009 and the next few years are all about the recovery of our core modulars and electronic businesses and getting these additional investments in both new rental products and geographies increasingly successful. Our greatest strength as a company has always been our rental operations prowess. We understand the value proposition of getting the operating details of each rental business just right. This includes the customer experience, smart marketing, asset management, equipment processing, and regional-specific issues.

We believe we are well positioned today to become a larger and more profitable company as economic conditions improve. However, for as long as the general economy and the California marketplace in particular remain challenged, we would expect a difficult earnings environment. That being said, we would also expect McGrath RentCorp to fair better than many companies due to the countercyclical nature of portions of our rental businesses, our strong cash flows, and low-leverage balance sheet. We'll also continue to manage our expenses tightly and look to take more costs out of our businesses if activity levels warrant. As for the strength of our cash flows, during the first half of 2009 we decreased debt by $36.9 million, increasing unused capacity under our lines of credit to $110.4 million, and reducing our key borrowing metric of funded debt to EBITDA to 1.99:1.0.

Longer term, we believe that our strategy of investing in new earnings engines in more diverse business-to-business rental market segments will generate growth in income and share value while maintaining our financial strength, protecting our balance sheet, providing attractive dividends, and making the company more resilient to future economic cycles.

With respect to our dividend, while we are working hard on increasing the value of our shares, at today's share price we provide a dividend yield of approximately 4.5%.

And now Keith and I welcome your questions.

(Operator Instructions). David Gold, Sidoti & Company.

Hey, good afternoon. So a couple of questions for you. One, just looking at the three businesses, I guess just the quick peek in the Q shows utilization down at end of period for I guess all three a little bit. So I'm just curious on thoughts on basically how the rest of the year shakes out. It sounds like from Adler's perspective and from the RenTelco perspective things are maybe picking up a bit in July. Would that be about right based on my comments?

That's a fair comment, yes.

Then the other sort of question or I think maybe you could hash out for us a little bit is, what happens from here say for the next few months for Mobile Modular? I guess -- California now has a budget in place, but presumably I guess you basically you said basically summer next year would be the big movement period I guess because of the booking season has sort of passed a little bit?

That's accurate. We would expect, assuming the state begins to start selling bonds again, which is what our expectation here in the very short timeframe, that because of the school's years starting in late August, early September, that the window for most modernization projects will get then bumped to next summer. Although we do expect some off season work to commence. We've heard that from some districts. So the good news is that there's a budget. B, they will be able to start selling bonds again. That will -- and there's an adequate supply of bond monies to support the backlog of projects. The dynamic we're dealing with is just timing.

Okay. So from here to there you still -- I guess you see some project completions and more returns than let's say boxes go out?

What we should see is typically you'll see most of your returns for that toward the end of the second quarter and the beginning of the third quarter. So once the school year starts, you typically don't see a lot of returns from school districts because they're in session. So we'll learn more here with our third quarter number, but there certainly can be some further erosion to the utilization for modulars. I don't think we believe it will be very significant related to schools because most of that has transpired, although there is some in the third quarter. And then it's really more of a dynamic with residential and nonresidential construction activity and is there a pick up there ore is there further erosion in that market? So it's going to be -- it should be challenging between now and probably next spring and time will tell here.

All right. But I guess the other side of that is, the guidance implies a step up from an EPS perspective presumably in the second half of the year, well from here anyway. And with Mobile Modular coming in some, would it be more a function of say further cost reductions to get here?

Actually there's a number of factors and I'm going to let Keith speak to it.

I'll speak to a couple of things, David. One thing, I think you've got a sense of some of the challenges and opportunities across the different businesses on the rental revenue side. Generally we find sales activities on the modular side of the business are a bit stronger in the second half of the year. And we would expect that this year as well. And then EnviroPlex, which had a very strong year last year, this year it's a much tougher climate for them and their sales will be considerably lower than a year ago. But the sales that we are expecting are going to be occurring in the second half of the year. We've had very low sales from EnviroPlex in the first half. We know there will be a significant uptick in the second half and so that's another factor as you look at the mix.

And then the other thing, in terms of cost reductions, across our divisions we've been working on cost reduction throughout the year and even during the second quarter. So we should be able to keep costs in check as we roll into the second half of the year. And we have a couple of particular items such as some furloughing activity in parts of our business that will happen later in the year which again will help us on the cost side.

Gotcha. And one just last quick one if I might. The other thing I guess I noted was you'd negotiated some covenant relief in the senior notes and kicked those up to 2.5 from 2.25. And it didn't seem like you were getting that close there, but just curious what brought that one and at what cost it would come.

Yes, well first of all, you're absolutely right, we're not putting pressure on the covenants. In fact, the leverage covenant was 2.15 on December 31st and it was 1.99 at the end of June. So we've actually been increasing the cushion on our covenant. I think the key here is to note that for the note it's a relatively small amount of capital, $24 million. But it did have a slightly different alignment of covenants. So really what we wanted to do was align with our revolver and that provides us more flexibility whether it's if we face any future volatility in operating performance or if we want flexibility such as in areas like M&A.

So the covenant change, you're correct, it's moving from 2.25 to 2.5 for the note agreement. That aligns it with the revolver agreement that we put in place last year. The other change that we have is we can include EBITDA from an approved acquisition. We already have that under the revolver, we don't have it under the note agreement. But with the amendment we will. And then we've also modified the limit on priority debt. Previously that was a calculated number, 15% of tangible net worth. Under the note agreement it's now a straight $30 million and again, that aligns with the revolver agreement.

Gotcha. And was there a cost to it?

A very minor administrative fee.

Gotcha. Very good. Thank you both.

Jamie Sullivan, RBC Capital Markets.

Hi, good afternoon. I wanted to just ask about the returns. I think you said a lot of those were still coming from the non-res and residential side of the business or were some of your comments that you'd get some returns from your education customers as well during this time of year?

That's correct. We saw some further erosion between the second and first quarter in both residential and non residential construction. So those two segments, which make up about 20% of our revenue rental base have still seen challenges on the return side and lower business activity and what's going out. So we're looking to see those decline, to start to diminish here, that's our hope. The school season in terms of returns, typically most returns occur between the months of late May and July and into early part of August. But typically that's when we see returning equipment for the most part.

Okay. And on the cost cutting side, is there any way that you can quantify some of those efforts, whether it's where your workforce stands today versus where it was at the beginning of the year? Anything to help us out on the extensiveness of those efforts?

Yes, I can give you a feel for some of those statistics. I'm just looking -- if we look at our headcount just to give you an order of magnitude feel, if we went from the beginning of the year, we're about 10% lower in total headcount in spite of the fact we've been increasing in some parts of the business including Adler.

And if you were to look at it on a year over year basis, we're down about 15% excluding Adler that we added in December. So we definitely not only reduced the total number of heads which is obviously a difficult thing to do and we've done it very selectively largely based on business volumes, but we also have a broad range of austerity measures that we outlined in February that impact all employees and obviously we're not alone in that in Corporate America. But we've definitely tightened our belt.

Right Okay. And are a lot of those measures done at this point or do you expect more to roll in in the second half?

Well, we've set -- we did a number of things to start the year that are in place that we'll continue to benefit from in the second half of the year. And as Keith mentioned earlier, some of the furlough dynamics are such that we'll benefit more in that in the second half of the year than the first half. So that's kind of the best way to describe things. So -- and we continue to look to take costs out of the business as appropriate.

Yes, I think our feeling is we're appropriately staffed based on the business volumes we're seeing today.

Okay and just a couple of quick ones. On TRS, you talked about some of the stabilization and uptick there. Any particular type of customer that you're seeing or type of equipment or trends that you're seeing there? Is it the communications customers, general electronics? Any comments there would be helpful.

No specifics other than it's terribly broad based which is ideally what we like to see.

We did see some evidence where orders that were in the backlog pipeline where customers were really ready to act but had not acted, we saw some of that business actually take place in the recent past.

Okay, so that's loosening up a bit.

A little bit.

It feels like it.

And again, with all this it's still very hard to forecast and to some extent we have to take each month as it comes.

Sure. Lastly, on the M&A strategy if you could just update us there. You have multiple rental legs at this point. Are you looking to make those bigger through acquisitions or are you looking to broaden the portfolio further from what you have today?

Really the former. If there are opportunities at appropriate valuations for our existing five rental businesses, that's what we're most interested in. We're not really spending any significant time or resources on additional rental legs. We've put enough on our plate that we've got enough to work on and this is also a good window from a valuation standpoint to be able to spend time on looking for those types of opportunities in businesses that we already have knowledge and a base of business. So that's where we're really trying to focus.

Okay. And is the pipeline pretty active? I know a lot of companies have talked about valuations being difficult to negotiate. Between the buyer and the seller there seems to be a disconnect. What are you seeing in your experience?

You certainly have those dynamics that occur in various types of transactions and sometimes you can get something done and other times you can't. So that's the natural course of negotiating and we just take those one at a time and this is a window in which fortunately for buyers you can be selective. And we're not apt to pay EBITDA multiple premiums that are higher than we think we should

Okay. Thanks a lot.

(Operator Instructions). Jim Giannakouros, Oppenheimer.

Hi, guys, good afternoon. Just one follow up question on TRS. I would have assumed a higher level of sales in the second quarter given the level of utilization entering the quarter. However, as things stabilize, how should we be thinking about your strategy as far as selling going forward in that segment? You kind of left that out in your commentary about sales going forward.

Well I think we'll continue to be very active in selling to both end users and to the broker network. And that's a natural part of that business, as you've got to turn assets as you're trying to keep the metric of depreciation as a percentage of rents in line. At 45% to 50% of the cost to rent, it's a very critical element to the business. So we continue to be proactive. We've been able to maintain still good margins on the sales side. We're being -- I would say responsibly aggressive to be able to take that cost out of the business. And also I will say that I think our team at TRS has done a very good job of keeping us clear of impairment. As well as our financial -- Keith and Dave Whitney, our Controller. So we're very studious in that regard. It's another item that you always have to be concerned about during a down market, but I think we've got that well managed as well as really starting to take costs out of the business.

What you can't do with that business is just do fire sale type sales. It's not the way to do things and you try to be as aggressive as you can be. You know where you may take some losses on certain equipment, but you really try to get way ahead of the curve. I think our team did, from last September forward when we got on really looking at trying to come out from under our higher level of depreciation expenses, we saw some forward looking market conditons change. And I think done a very good job. We'll continue to be highly focused on that and it's a real key part of the management of that business.

Okay, so if demand actually does stabilize relative to July levels, should we expect similar levels of sales? I mean just to --

Well, it's a function of the technology of new equipment coming out and what you need to then turn in your asset pool. It's a function of what assets are being more lower or more fully utilized. There's a number of different variables there. But what you really are trying to do is when you look at your asset by model number is you're looking at each one and looking at the utilization level you're able to achieve over a period of time. And to the extent that you have too much equipment or it's not the right technology, you really create a game plan for each model to move as much of that and get that balance just right of what you need to have to maintain an appropriate utilization level.

Okay, great. Thank you.

David Gold.

Sorry, just one more question. On CapEx for the second half of the year given the utilization levels, how should we think about that? I guess it sort of plays into what you were saying a moment ago about different sort of models at least on the TRS side. But when you look at the business, presumably would you expect, I guess relative to last year, would except that to be down pretty decently? Maybe you can give us some numbers around the different segments.

David, I'll try to be helpful. The first thing I do is just look at what has happened in the first six months. And to give you some context, just gross equipment CapEx is down to $34 million in the first half of this year and that compares to $55 million in the first half of last year. And more than half of what we spent this year went into Adler. And again, that's by design as we start to build that business out and expand into some new geographies. So total CapEx is well down.

If you actually look at net CapEx and take a kind of some of the proceeds from used equipment sales, that's actually $19 million in the first half of this year. That compares with $42 million in the first half of last year. So from a net CapEx we're well down. And even PP&E where we were making investments a year ago in our Florida inventory center and some computer system upgrades, that's well down from where it was a year ago. So we're on a run rate already that's much lower than the past year. That reflects the fact we're really putting very little capital into the existing modular and electronics businesses compared to what we would have done in the past. Having said that, the outlook for the second half of the year, it's all going to depend on business conditions. We may put some more into Adler if we feel it's appropriate. TRS you can sometimes put a little bit of capital in to address specific product needs for parts of the portfolio. But I think overall CapEx will come in for the year as a whole substantially below what it was a year ago.

Gotcha. Thanks. That's helpful, Keith.

Thank you. And gentlemen, there are no further questions at this time. Please continue with any closing remarks you may have.

I want to thank everybody for joining us this afternoon for our Q2 call and we will look forward to having you join us again for our Q3 call in early November. Thanks, all, very much.

Thank you. And ladies and gentlemen, this does conclude the McGrath RentCorp Second Quarter 2009 conference call. If you would like to listen to a replay of today's conference, you can do so by dialing 1-800-406-7325 or 303-590-3030 and put the access code 4117242. I would like to thank you very much for your participation today and you may now disconnect. Have a very pleasant rest of your day.