McGrath RentCorp (MGRC) 2010 Q4 法說會逐字稿

Welcome to the McGrath Rentcorp fourth-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, Wednesday, February 23, 2011. I would now like to turn the conference over to Geoffrey Buscher of SBG Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon. I am 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 replay for up to seven days following the call by dialing 1-800-406-7325 for domestic callers, and 1-303-590-3030 for international callers. The passcode for the call replay is 439-9097. 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.

Our press release was sent out today at approximately 4.05 PM Eastern Time which is 1.05 Pacific Time. 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 purely historical are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, including statements regarding McGrath Rentcorp expectations, beliefs, intentions, or strategies regarding the future. All forward-looking statements are based upon information currently available to McGrath Rentcorp. 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. The Company also announced a 2% increase of the cash dividend to $0.23 per share for the first quarter of 2011, representing on an annualized basis approximately a 3.6% yield on the February 22, 2011 closing stock price.

For the fourth quarter 2010, total revenues increased 20% to $79.9 million from $66.5 million for the same period in 2009. Net income increased 43% to $12.7 million or $0.52 per diluted share from $8.9 million or $0.37 per diluted share for the same period in 2009.

Reviewing the fourth-quarter results for the Company's Mobile Modular division compared to the fourth quarter of 2009, total revenues increased $1.5 million or 5% to $32.1 million, due to higher sales and rental-related services revenues, partly offset by lower rental revenues. Gross profit on rents decreased $1.4 million or 10% to $12.7 million due to 3% lower rental revenues, with rental margins decreasing to 61% from 66%.

Lower rental margins were a result of lower rental revenues combined with flat depreciation and $0.7 million higher other direct costs for labor and materials.

Selling and administrative expenses increased 12% to $7.1 million, primarily as a result of increased investment in our portable storage growth initiative.

The lower gross profit on rents combined with increasing selling and administrative expenses, partly offset by higher gross profit on rental-related services and sales revenues, resulted in a decrease in operating income of $1.3 million or 13% to $8.7 million. Average modular rental equipment for the quarter was $496 million, an increase of $13 million. Average utilization for the fourth quarter decreased from 69% in 2009 to 67.4% in 2010.

Turning next to fourth-quarter results for the Company's TRS-RenTelco division compared to the fourth quarter of 2009, total revenues increased $3.8 million or 14% to $30.4 million due to higher rental and sales revenues. Gross profit on rents increased $2.6 million or 37% to $9.7 million. Rental revenues increased $2.7 million or 14% and rental margins increased to 43% from 36% as depreciation as a percentage of rents decreased to 42% from 48%.

Selling and administrative expenses decreased $0.2 million or 3% to $5.6 million, primarily due to lower personnel costs. As a result, operating income increased $3.3 million or 85% to $7.2 million from $3.9 million.

Finally, average electronics rental equipment at original cost for the quarter was $251 million, an increase of $8 million. Average utilization for the fourth quarter increased from 63.6% in 2009 to 66.2% in 2010.

Turning next to fourth-quarter results for the Company's Adler Tank's division compared to the fourth quarter of 2009, total revenues increased $6.9 million or 90% to $14.5 million, primarily due to higher rental and rental-related services revenues. Gross profit on rents increased $4.8 million or 124% to $8.6 million. Rental revenues increased $5.8 million or 99% and rental margins increased to 73% from 65% as depreciation as a percentage of rents decreased to 16% from 17%, and other direct costs decreased to 11% from 18%.

Selling and administrative expenses increased $1.1 million or 48% to $3.4 million, primarily due to increased salaries and benefits for additional sales and operational employees. As a result, operating income more than tripled to $5.9 million from $1.8 million.

Average rental equipment for the quarter was $123 million, an increase of $52 million. Average utilization for the fourth quarter (technical difficulty) from 71.3% to 81.8%. On a consolidated basis, interest expense for the fourth quarter 2010 decreased $0.1 million to $1.5 million from the same period in 2009 as a result of the Company's lower average interest rates, partly offset by higher average debt levels. The fourth-quarter provision for income taxes was based on an effective tax rate of 37.1% compared to 35.8% in the fourth-quarter 2009.

Next, I would like to review our 2010 cash flows. For the 12 months ended December 31, 2010, highlights in our cash flows included net cash provided by operating activities was $100.6 million, a decrease of $21.8 million or 18% compared to 2009. The decrease was primarily attributable to increased accounts receivables in 2010, primarily due to higher business levels at Adler Tanks and Enviroplex, partly offset by other balance sheet changes and higher income from operations.

We invested $122.7 million for rental equipment purchases compared to $70.5 million for the same period in 2009, partly offset by $28.7 million in proceeds from used rental equipment sales in 2010.

Property, plant, and equipment purchases increased $9.9 million to $12.1 million in 2010.

Dividend payments to shareholders were $21.4 million. Net borrowings increased $18.3 million from $247.3 million at the end of 2009 to $265.6 million at the end of 2010.

With total debt at year end of $265.6 million, the Company had capacity to borrow an additional $101.4 million under its lines of credit. And the ratio of funded debt to the last 12 months actual adjusted EBITDA was 2.01 to 1.

For 2010, fourth-quarter adjusted EBITDA increased $7.3 million or 23% to $39.2 million compared to the same period in 2009 with consolidated adjusted EBITDA margin at 49% compared to 48% in 2009. Our definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income are included in our press release for the quarter.

We are currently exploring completing a new issuance of senior notes that would, when completed, secure access to an additional source of capital and convert a portion of our current variable interest rate debt to fixed interest rate debt. This issuance of senior notes would likely increase the Company's average interest rate in 2011, while also providing greater interest rate certainty for 2011 and future years.

We expect to complete the issuance of senior notes during the first half of 2011. However, we cannot guarantee that the issuance will be successfully finalized during this timeframe.

Turning next to 2011 earnings guidance, we expect 2011 full year earnings per diluted share to be in a range of $1.52 to $1.62 -- to $1.52 to $1.62 $1.62. In 2011, we expect approximately 10% growth in rental revenues compared to 2010, and higher sales revenues. We expect rental revenue growth in each of our rental divisions with strongest growth in Adler Tanks. However, significant level of uncertainty remains in the California modular rental market.

Rental equipment depreciation expense is expected to increase to $58 million to $59 million, driven by rental fleet growth. Selling and administrative costs are expected to increase to approximately $77 million to $79 million to support business growth, continued investment in Adler Tanks and our portable storage initiative, and removal of employee cost austerity measures in place during 2010.

Full year interest expense is forecasted to be approximately $9 million and we expect the 2011 effective tax rate to be 39.2%.

Now 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 $0.7 million or 3% from a year ago to $20.8 million. Rental revenues were relatively flat compared to the third quarter of 2010 at $20.9 million. Income from operations for the quarter was down 13% from a year ago to $8.7 million. However, modular gross profit was down only 3% in line with the rental revenue reduction.

The higher percentage reduction in income from operations due to higher SG&A expense is primarily associated with the continued expansion of our portable storage rental initiative. Compared to the third quarter of 2010, both modular income from operations and gross profit were up 53% and 21%, respectively, in the fourth quarter. This is primarily due to higher material and labor inventory center costs for readying customized modular complex projects during the third quarter that weren't repeated in the fourth quarter.

Modular utilization at the end of the fourth quarter was relatively flat at 67.2% compared to 67.4% at the end of the third quarter. Quarterly average utilization has stayed within a very narrow range of approximately 1/2 percentage point throughout 2010. (technical difficulty) flat utilization rate throughout 2010, coupled with approximately a 2% rental revenue increase in the second half of 2010 compared to the first half of the year, and higher business activity levels thus far in 2011 compared to a year ago reflect an increasingly stable modular rental market.

We are continuing to see a flow of larger commercial construction project opportunities in California and our other modular markets primarily associated with state infrastructure development and public works projects. State bond monies as well as federal stimulus funds have helped to support an increase in these projects.

In the Texas market, we are experiencing higher commercial construction and industrial project opportunities related to higher oil prices and a stronger regional economy. The Florida commercial rental market continues to be challenged by weak residential and nonresidential construction and high unemployment. In the health-care mid-Atlantic market, commercial market activity is improving. Although overall commercial market conditions for our modular division have improved over the course of 2010, we expect it to remain a very price competitive environment in all of the markets in which we operate until utilization levels begin to rise across the industry.

Our educational rental markets and in particular the California market continue to face the headwinds of state budget shortfalls and related local school district austerity measures. We currently have limited visibility on the strength of our various educational rental markets in 2011. However, we should have a much better perspective as the classroom ordering season progresses over the next few months.

Please keep in mind that as our modular rental business returns to growth, it will require limited new capital investment to increase rental revenues and we would expect to see a disproportionate [share of] this revenue convert to the pretax line.

Now let me turn our attention to TRS-RenTelco and their results.

TRS-RenTelco's rental revenues for the fourth quarter increased by $2.7 million or 14% to $22.5 million from a year ago. We experienced a later and less significant seasonal reduction in business activity levels during the fourth quarter than we had forecast. The healthy pipeline of order opportunities experienced through the first three quarters of 2010 continued during the fourth quarter. We are seeing favorable demand both domestically and internationally across a number of end markets including semi-conductors and communication products and networks.

Although rental revenues increased 14%, income from operations increased 85% over last year's fourth quarter to $7.2 million. In addition to higher rental revenues, our electronics business also benefited from higher gross profit on equipment sales and lower SG&A expenses from a year ago. Sales revenue increased by approximately $1 million in gross margin on sales to 38% from 36% compared to a year ago.

The used equipment sale market comprised of end-user and broker sales continues to be healthy. Despite higher rental revenues for TRS-RenTelco during the quarter, our actual SG&A expenses declined from a year ago with SG&A expense as a percentage of rental revenues declining to 25% from 29%. We benefited from more fully leveraging our existing base of employees, lower compensation costs, and reduced bad debt during the quarter from a year ago.

Although we have had a very good year in rental revenue growth in our electronics division, we have maintained our discipline in what level of inventory to carry on specific products, what orders we elected to pursue and at what rates. This discipline is reflected in two key metrics.

First, depreciation as a percentage of rents declined to 45% for 2010 from 53% for 2009. And second, yields on equipment on rent increased to 4.2% -- 4.26% for 2010 from 4.16% in 2009 with fourth-quarter 2010 rising to 4.51%. These disciplines in the management of our inventory and pricing levels should benefit us in driving greater profitability over an extended period of time through good and bad economies.

As a result of our higher business activity levels and more tightly managing our rental inventory, average fourth-quarter utilization increased to 66.2% in 2010 from 63.6% in 2009.

As we begin the new year, we are continuing to see a healthy pipeline of opportunities for TRS-RenTelco and are hopeful that favorable business activity levels experienced thus far in 2011 continue.

Now let's turn our attention to Adler Tank Rentals. Our tank rental business nearly doubled rental revenues to $11.7 million for the quarter from $5.9 million a year ago. The strong increase in rental revenues was directly related to higher business activity levels, supported by new branch locations, a larger sales force, and expansion of Adler's Rental equipment. We are serving a wide variety of market segments including industrial plant, petrochemical, pipeline, oil and gas, waste management, environmental field service, and heavy construction.

Income from operations for the quarter was up over threefold from a year ago to $5.9 million as business continued to be more fully leveraged -- excuse me as the business continued to more fully leverage prior quarter, new employee, and other infrastructure investments. Business activity levels in bookings have continued very favorably into the first quarter 2011.

[Period end] utilization for the fourth-quarter 2011 increased to 84.9% compared to 77.4% at the end of the third quarter of 2010 and 71.2% a year ago.

Looking forward, we are very enthusiastic about the prospects for Adler becoming an increasingly significant contributor to McGrath Rentcorp's earnings.

Now let me take a moment and update everyone on our organic initiatives. First, TRS-Environmental, our environmental test equipment rental initiative, continued to grow its base of rental revenues during the fourth quarter of 2010 as it has for each quarter during the year. Rental revenues rose by 9% sequentially over the third quarter of 2010 and by 64% over the fourth quarter of 2009. This is chiefly due to gaining more traction with customers in an improving marketplace.

Thus far in 2011, we have seen a stronger pipeline of order opportunities from the same period in 2010 and our outlook for the remainder of the year is very optimistic. We believe that as the economy improves and project work increases, coupled with our country's increasing sensitivity on environmental matters, we can become a significant rental provider in environmental test equipment industry.

Our portable storage initiative continued to -- continued to make good progress during the quarter. Rental revenues grew by 17% sequentially over the third quarter of 2010 and over 2.5 times compared to the fourth quarter of 2009. We are working hard at expanding our portable storage business in the California, Texas and Florida markets; and we are continuing to explore smaller fleet acquisition opportunities to accelerate our growth.

We are also continuing to add sales professional and operations staff in growing the business. Looking forward, we are excited about the momentum and opportunities for growth in our portable storage initiative.

Lastly, our Mid-Atlantic modular expansion continues to achieve favorable growth. Rental revenues grew by 9% sequentially over the third quarter and by 59% over the fourth quarter of 2009. We are seeing improving commercial market activity, especially for larger building complexes, and are continuing to make good progress in capturing new educational classroom rental business with our innovative classroom products designed specifically for these markets. Our outlook for growing the base rental revenues and profitability levels for the Mid-Atlantic (technical difficulty) going forward are very positive.

Although these new initiatives are all relatively small today compared to our legacy rental businesses and Adler Tank Rentals, collectively between our environmental test equipment, portable storage, and Mid-Atlantic initiatives, they are contributing on an annualized basis approximately $9.5 million in rental revenues based on a fourth-quarter 2010 rental run rate. This is up from an annualized rental run rate of $5 million from the fourth quarter of 2009.

It should also be noted that these results have been achieved in a very challenging economy. That being said, we believe that we will be able to grow the current base of rental revenues for each of these new initiatives to much higher levels as we move forward in an improving economy.

During 2011, we plan to continue to invest capital for rental equipment purchases and in SG&A to support accelerated growth of Adler Tank Rentals and our portable storage environmental test equipment and Mid-Atlantic modular initiatives. It is essential that we take full advantage of various market and competitive dynamics that currently exist in order to attract more customers and create higher rental revenue levels in these businesses sooner rather than later.

In addition, during 2011, we are reversing various employee remuneration austerity measures that have been in place for the past two years as a result of the great recession. The faster we can ramp the rental revenues of these rental initiatives and our larger rental divisions, the sooner we can absorb and leverage these higher SG&A expense levels to produce higher margin levels.

Now for a few closing remarks. This is our third consecutive quarter-over-quarter increase in the rental revenues and net income coming out of the recession. As we have stated in the past, and it was certainly true during the fourth quarter, there are a lot of moving parts to our multiple rental businesses that can make earnings projections challenging. This is especially true coming out of or entering recessions.

The significant increase in EPS for the quarter from a year ago and from our third-quarter guidance update was driven primarily by a later and less significant seasonal reduction in our electronics business, projected seasonality for Adler Tank Rentals that did not materialize, higher profit on sales, and lower inventory center costs than projected for our modular business.

Looking forward, we have started 2011 with very good momentum in our electronic and environmental test equipment, tank and portable storage rental businesses. Our modular rental business outlook is different by region. We have seen stronger booking levels thus far in the California market from a year ago. However, our business activity levels continue to be challenged by the state's fiscal uncertainty, tight school budgets, and high rates of unemployment.

Although our California K-12 public-school modular classroom business is an important income contributor to our overall Company results, keep in mind that in the fourth quarter of 2010, it only represented approximately 10% of our total Company rental revenues.

In our Florida region in which we are chiefly dependent on classroom rentals, there are continuing state budget and related school district austerity issues that may create near-term challenges for higher equipment utilization and rental revenue growth. However, in our Texas and Mid-Atlantic regions, we are experiencing more favorable business activity levels during the first-quarter 2011 as compared to last year, due to more favorable regional economics and lower unemployment rates.

Our 2010 fourth-quarter net [income] of $12.7 million reflects our highest final quarter of the fiscal year in the Company's history. Companywide rental revenues increased 17% from a year ago. This is the highest rental revenue quarter in McGrath Rentcorp's history.

For the year we reached $200 million in rental revenues, also a first. With McGrath Rentcorp's broader platform of rental products and geographies today, it has and will continue to support earnings if weakness hits one of our business units and also produce more substantial earnings growth at the macroeconomic picture improves. It is once again clear from these results that our strategy of creating additional earnings engines through greater product and geographic diversity is working.

And now, Keith and I welcome your questions.

(Operator Instructions). Scott Schneeberger with Oppenheimer.

Thanks. Good afternoon. Nice work. Everything looks really good.

I guess starting off, could you speak to pricing? I am particularly focused on modular. Sounds like we are coming off the bottom there and that's encouraging, but could you address that, I guess, with regard to when you think pricing will fall? I expect that is kind of later in the uptick year.

First comment I would make, if you look at our published rental rate, the fourth-quarter numbers were down just over 3% compared to a year ago. You've really got to pick apart by region and by type of application where we're seeing pressure, where we're seeing stability. I would say across the regional (technical difficulty) as California is probably seeing more pressure than in Texas, Florida and the Mid-Atlantic. And we've really been saying that for the last two to three years, California entering the recession early.

The pressure tends to be more on the lower end commercial units. The larger complexes, pricing is a bit more stable in that arena. But it is still tough and, as we said in the remarks, we don't expect pricing to really start changing direction in the near term until we see utilization in the fleet increase both for us and for the competition.

Thanks. Could you guys remind us what percent now are you with regard to California module or is that as a percent of whole -- I know you are much more diversified business now and I would just like to get an update there. Thanks.

Yes, I can give you a couple of percentages just for the overall business. If you look at the fourth quarter, which I think is most relevant and look at the rental revenue mix we had, 38% of rental revenues came from modulars, 41% from TRS and 21% from Adler. And we also mentioned that California K-12 public school education rentals were approximately 10% of the fourth-quarter run rate.

Thanks. Then finally, with regard to the guidance looks certainly upbeat for approximately 10% growth in rental revenue. This is a couple part question it's going to turn out to be. Could you discuss, I guess, components there to any further granularity you care to offer with perhaps same-store sales versus -- or same region stores versus expansion? Or by your three main segments?

And then more or equally as importantly, following up, there's a lot of investment spending going on. You are going to have nice topline growth. Just curious how you are thinking about how much -- how you are going to extend the investment dollars. Are you looking to show a lot of earnings growth at the expense of investment, investment at the expense of earnings growth? Just how you think about that process -- that's probably 10 questions in there, but thanks, I'll stop there.

Scott, the way I would respond to that in terms of if you look at the rental revenue growth, I'd -- just to describe kind of each business. I mean, if you look at our electronics business, we -- that business has had a very good 2010. It turned the corner in 2011. You know, very favorably, pipeline is good. I also might mention for the environmental test group, this is similar with that. And you know we are expecting 2011 to be a favorable year.

And some of the wildcards there is with respect to the general economy and growth coupled with how well our international part of that business continues to grow. And so, but if you -- standing today towards the end of February, we feel very good about the momentum there.

For Adler Tank Rentals, needless to say, it had a fantastic 2010. Again coming into 2011, very strong metrics for the business. The equipment is limited in that industry. There's a shortage. And we are trying to take advantage of building out our regional markets and getting enough assets into those markets to support the demand from various market segments.

So our outlook in 2011 is that we would expect Adler to have another very strong year.

When you go to the modular business, that's the big wild card. California, currently 12.5% unemployment rate. Florida, 12% unemployment rate. So two of our main states there, they are still experiencing budget challenges and general economic woes. Although we would like to believe, and I think it is proving out in the numbers, that things have stabilized.

So you know could we be surprised and do better than we are projecting? Certainly. Do we think we are going to do a lot worse? Probably not. But you know, we still haven't seen any sustainable upticks in either one of those two significant markets. So you know, appropriately so in forecasting, we are going to be relatively conservative.

If you go to the other modular regions, the Mid-Atlantic and Texas both have good momentum coming. They had good momentum towards the end of last year and that's perhaps accelerating to start 2011. The Mid-Atlantic market will be material, much more material at some point in the future, but it's made great strides. Texas has come back very nicely.

So that's the best way we kind of [go in] stride and it's that -- we look at 10%, it is the mix of all those pieces and I won't break anything out there but just let you, perhaps from that color, draw your own conclusions. But it's just very tough coming out of a recession with the different -- each region of the country is just responding differently to and coming out of the recession. It is just very different between California and let's say a state like Virginia or Maryland or Texas.

And we are just trying to calibrate that as best we can. But that's probably as good as we can get in terms of color on the rental revenue side of things.

Thanks. I appreciate that. And could either of you address just on investment spend versus earnings growth and how you are thinking -- what's the decision process with regards to how much of your foot you put on the gas pedal there?

Know that when we add rental assets you know, typically there is market demand that is there. So the great thing about all of our rental businesses is that we are not having to make advanced purchases six months in advance in timing the market. So we then have -- that's one of the great benefits of having equipment that we can get fairly readily for all of our businesses.

What I would say is when you talk about investments, it's more has to do with what the investment in people and new locations. Because those don't technically in effect the math, they don't pay for themselves right away the way equipment does. And it's where we continue to make investment in both portable storage and ramping that [assessment] and there's no question in 2010 if we hadn't done some of the expansion that we had that we would've had some added profitability there. And we also want to continue to take advantage of various market opportunities to get the base of that business as broad as we can as soon as we can as the economy is recovering.

And again, I will say it is recovering at different paces in different regions.

So put on the accelerator there are nothing I would say that's highly unusual there but we are going to continue to add people and ramp locations with Adler. There is a wonderful opportunity for that business domestically as well as potentially internationally in the years ahead. And we are going to take advantage of those opportunities as we see this year.

The great news is for that business is you can see by the margins within the businesses that we are really leveraging a very experienced group of people, and a very solid following of customers. And as we said when we made the acquisitions what they needed was capital to grow the business and you -- by adding new equipment and that is really coming into fruition. So we are very excited about that there.

But this investment piece has much more to do with the people and locations as opposed to equipment, because when we added 120 -- what? Approximately $120 million in new asset adds this year, that you could see the kind of results we generated especially in the last couple of quarters by those investments. So we are, you know, we are doing the right things to be able to put McGrath Rentcorp in a position to have materially higher earnings over the next couple of years, assuming the general economy continues to improve.

Great. Thanks, Dennis. I appreciate all the color.

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

Good afternoon. Couple of follow-up questions for you. One is, can you speak a little or give a little more color on Adler as to if they are specific either geographies or areas where the terrific growth is coming from? And then part two of that, as you think about investing there or buying more equipment is it for certain markets or is that for geographic expansion?

Well, to answer the latter part of the question it -- currently, we need to be able to support the existing locations that we have in the existing regions. So for the most part, equipment is necessary to be able to support existing demand in markets that we are currently in. And then quite frankly, we can touch most parts of the country from where we're at today in terms of any sizable type of opportunity.

As for where business is coming from, it is very broad-based. There is certainly the industrial side of things. It's certainly picked up in the second half of last year in multiple markets. The oil and gas field work has continued to be strong with high utilization. We are seeing some more heavy construction type work related to more infrastructure projects and stimulus funds and various superfund sites that work there as well, and general environmental type needs, and municipality needs.

So it is very broad-based. And you know one of our you know objectives in 2010 was to do -- get the mix broader and I think we've done that very nicely and that is a key objective for 2011 is to make certain that we're having -- we have sufficient equipment to be able to meet the regular common everyday needs within all the markets as we were much -- we were heavier towards oil and gas fields entering 2010.

That's helpful. And then sort of a I guess tougher question, I know I guess Scott had a crack at it. Basically as we think about the guidance, essentially, and I know presumably you don't want to get into hard numbers but when we think about the guidance just thinking broadly about what's embedded in there. What do you think happens for both Mobile Modular and the construction -- for the construction piece of Mobile Modular and education? I mean, obviously, I know it's difficult to say on the one hand. On the other hand presumably you have some thoughts on that.

Let me take a crack at it. And the way I characterize the guidance really echoing some of Dennis's earlier comments, Adler has clearly been very important to the growth we achieved in 2010. We have ended 2010 with a much larger fleet (technical difficulty) Adler and so clearly we are well-positioned entering the new year to see that business continue to grow. And that will continue to be a growth focus.

We've talked about TRS and the ongoing improvement in market conditions and opportunity for some additional growth there. I think in modular, just as Dennis pointed out, you have got to go region by region. I think modulars, as a whole, we believe can have some modest growth in 2011. The strong areas are going to be the additional portable storage business, the strength in some of those regional markets in the Mid-Atlantic, Florida, and Texas. We are more cautious on California. There is more uncertainty in that market and that may be a market that is more flat to slightly down in 2011.

But in terms of the guidance, we are not betting aggressively on growth from California. We are taking a fairly cautious view and we will see how the year plays out.

Okay. Got you. And then sort of, lastly, when you look at -- when I look at the bump in G&A, and obviously there are a few factors in there, can you give a sense for -- maybe give us a better sense for how we break down the different factors versus the jump -- you know, how much of that is let's say the removal of the US austerity measures, etc.?

Sure. And just to frame it, we had about $66 million in SG&A for 2010. The first thing I would say is, adding back the cost that we capped during the austerity period, that adds back about $3 million to the annual run rate. And then as we talked about ramping the business and Dennis mentioned some of our new branches, particularly in the portable storage area, and then hiring that supports really all of our growth initiative areas, there will be some substantial hiring occurring during the course of 2011. That will add approximately $6 million to the SG&A cost structure for 2011. So it's a substantial add related to the people who are working on the growth side of the business.

And then the balance, I would characterize that as really infrastructure-related. We have everything in there from some upgrades in our IT systems that are going to be rolled out in the course of this year. We have new locations where we will be paying facilities rent, supporting some of our branch expansion and other general infrastructure and overhead-related costs to support growth and expansion of the business.

So those will be the three primary categories. The austerity at about $3 million. Hiring, accounting for about $6 million and then the balance more related to infrastructure.

Terrific. That's helpful. Thanks so much.

Thank you.

(Operator Instructions). Gentlemen, I'm showing no further questions at this time. Please continue.

All right, well, thank you all for joining us on our Q4 2010 call today. We'll look forward to chatting with everybody again in early May on our Q1 2011 call. Thanks so much.

Thank you, sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325 followed by the access code of 439-9097 followed by the pound key. This does conclude our conference for today. Thank you very much for your participation and you may now disconnect.