McGrath RentCorp (MGRC) 2011 Q1 法說會逐字稿

Welcome to the McGrath RentCorp first quarter 2011 conference call. At this time, all conference participants are in a listen-only mode. Later, we will conduct a question-and-answer session (Operator Instructions) This conference is being recorded today, Thursday May 5, 2011.

Now, 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 telephone replay for up to seven days following the call by dialing 1800-406-7325 for domestic callers and 1-303-590-3030 for international callers. The passcode for the call replay is 4431778. This call is also being webcast 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 at approximately 4.05 PM Eastern Time or 1.05 PM 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 1206-652-9704 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 relating to McGrath RentCorp's business are set forth in the documents filed by McGrath RentCorp with the Securities and Exchange Commission, including the Company's most recent Form 10-K and Form 10-Q.

I would now like to turn the call over to Keith Pratt.

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.

For the first quarter 2011, total revenues increased 18% to $73 million from $61.7 million for the same period in 2010. Net income increased 45% to $9.6 million from $6.6 million and earnings per diluted share increased by 39% to $0.39 from $0.28.

Reviewing the first quarter results for the Company's Mobile Modular division compared to the first quarter of 2010, total revenues increased $1.8 million or 6% to $29.3 million, due to higher sales and rental-related services revenues, partly offset by lower rental revenues. Gross profit on rents decreased $1.1 million or 9% to $11 million, primarily due to 4% lower rental revenues, with rental margins decreasing to 55% from 59%. Lower rental margins were a result of lower rental revenues combined with flat depreciation and $0.3 million higher other direct costs for labor and materials.

Selling and administrative expenses increased 17% to $7.8 million, primarily as a result of increased investment in our Portable Storage growth initiative and increased salary and benefit costs. The lower gross profit on rents combined with increased selling and administrative expenses, partly offset by higher gross profit on sales revenues, resulted in a decrease in operating income of $1.9 million or 26% to $5.6 million.

Finally, average Modular rental equipment for the quarter was $497 million, an increase of $11 million. Average utilization for the first quarter decreased from 68% in 2010 to 66.8% in 2011.

Turning next to first quarter results for the Company's TRS-RenTelco division compared to the first quarter of 2010, total revenues increased $4.6 million or 19% to $29 million due to higher rental and sales revenues. Gross profit on rents increased $3.3 million or 52% to $9.7 million. Rental revenues increased $3.6 million or 19%, and rental margins increased to 44% from 34%, as depreciation as a percentage of rents decreased to 43% from 50%.

Selling and administrative expenses increased $0.9 million or 17% to $6.3 million, primarily due to increased salary and benefit costs. As a result, operating income increased $3.2 million or 98% to $6.5 million.

Finally, average electronics rental equipment at original costs for the quarter was $251 million, an increase of $12 million. Average utilization for the first quarter increased from 64.6% in 2010 to 65.2% in 2011.

Turning next to first quarter results for the Company's Adler Tanks division compared to the first quarter of 2010, total revenues increased $6.9 million or 89% to $14.7 million, primarily due to higher rental and rental-related services revenues. Gross profit on rents increased $5.3 million or 135% to $9.3 million. Rental revenues increased $6.2 million or 102% and rental margins increased to 76% from 65%, as depreciation as a percentage of rents decreased to 15% from 18%, and other direct costs decreased to 9% from 17%.

Selling and administrative expenses increased $0.9 million or 35% to $3.6 million, primarily due to increased salary and benefits costs. As a result, operating income more than tripled to $6 million from $1.6 million.

Finally, average rental equipment for the quarter was $134 million, an increase of $54 million. Average utilization for the first quarter increased from 67.9% to 86%.

On a consolidated basis, interest expense for the first quarter 2011 remained flat at $1.5 million compared to the same period in 2010, as a result of the Company's lower average interest rates, [partly] offset by higher average debt levels. The first quarter provision for income taxes was based on an effective tax rate of 39.2% compared to 38.8% in the first quarter 2010.

Next, I would like to review our 2011 cash flows. For the quarter ended March 31, 2011, highlights in our cash flows included: net cash provided by operating activities was $35.4 million, an increase of $6.8 million or 24% compared to 2010. The increase was primarily attributable to decreased income taxes receivable in 2011 and higher income from operations, partly offset by other balance sheet changes.

We invested [$29.9 million for] rental equipment purchases compared to $25.1 million for the same period in 2010. Property, plant and equipment purchases increased $5.8 million to $7 million in 2011, consisting primarily of the acquisition of an operating facility in New Jersey, information technology projects and the expansion of our inventory center in Livermore, California.

Dividend payments to shareholders were $5.5 million. Net borrowings increased $0.2 million from $265.6 million at the end of 2010 to $265.8 million (Audio Gap).

Again, pardon me, Mr. Pratt, are you there? And ladies and gentlemen, we're experiencing some technical difficulties, please do not disconnect. Once again, we are experiencing technical difficulties, please do not disconnect.

And pardon me, ladies and gentlemen, we're still experiencing technical difficulties, management should be dialing back in shortly, please do not disconnect. Once again, management should be dialing in again shortly, please do not disconnect. Thank you.

Hi, this is Keith Pratt for McGrath RentCorp rejoining the call. I just like to apologize to all our listeners, we did have a local power outage that interrupted our phone service, but we're back. I'd like to just start again to recap the 2011 cash flows.

For the quarter ended March 31, 2011, highlights in our cash flows included: net cash provided by operating activities was $35.4 million, an increase of $6.8 million or 24% compared to 2010. The increase was primarily attributable to decreased income taxes receivable in 2011 and higher income from operations, partly offset by other balance sheet changes. We invested $29.9 million for rental equipment purchases compared to $25.1 million for the same period in 2010. Property, plant and equipment purchases increased $5.8 million to $7 million in 2011, consisting primarily of the acquisition of an operating facility in New Jersey, information technology projects and the expansion of our inventory center in Livermore, California.

Dividend payments to shareholders were $5.5 million and net borrowings increased $0.2 million from $265.6 million at the end of 2010 to $265.8 million at the end of the first quarter of 2011. With total debt at quarter end of $265.8 million, the Company had capacity to borrow an additional $101.2 million under its lines of credit. And the ratio of funded debt to the last 12 months' actual adjusted EBITDA was 1.93 to 1.

For 2011, first quarter adjusted EBITDA increased $5.8 million or 20% to $34.5 million compared to the same period in 2010, with consolidated adjusted EBITDA margin at 47% compared to 46% in 2010. Our definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income are included in our press release for the quarter.

On April 21, 2011, we completed a new issuance of $100 million of 4.03% unsecured senior notes that will provide access to an additional source of capital and replace a portion of our current variable interest rate debt with fixed interest rate debt. This issuance of senior notes will increase the Company's average interest in 2011, while also providing greater interest rates certainty for 2011 and future years. The notes have been issued pursuant to a new $200 million note purchase and shelf agreement which allows for the issuance of up to an additional $100 million of senior notes.

Turning next to 2011 earnings guidance, our 2011 full-year earnings guidance range remains unchanged at $1.52 to $1.62 per diluted share.

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 $0.8 million or 4% from a year ago to $19.8 million. Rental revenues grew by 4% quarter-over-quarter in our markets outside of California; however, they declined by 8% within the State. (inaudible) continues to be plagued by fiscal and unemployment rate challenges.

Income from operations for the quarter declined by $1.9 million or 26% to $5.6 million from a year ago. The higher percentage reduction in income from operations is primarily due to higher SG&A expenses associated with the continued expansion of our Portable Storage rental initiative and higher inventory center cost outside of California for the preparation of equipment for rental.

Modular utilization at the end of the first quarter was down approximately one-half percentage point to 66.7% from the fourth quarter of 2010. Modular Rental booking levels for the first four months of 2011 are up favorably over the comparable period a year ago. This increase is being driven by higher business activity levels outside of the California market. A great deal of uncertainty remains in the California modular market due to the continuing headwinds of State budget shortfalls, school district austerity measures, high unemployment and lower levels of commerce.

We expect to [terminate] a very price-competitive environment in all the markets in which we operate until the utilization levels begin to rise across the industry. 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 pre-tax line.

Now, let me turn our attention to TRS-RenTelco and their results. TRS-RenTelco's rental revenues for the first quarter increased by $3.6 million or 19% to $22.1 million from a year ago. The healthy pipeline of order opportunities experienced throughout 2010 continued during the first quarter of 2011. In fact, we had our highest ever quarterly and monthly booking levels for our Electronics Rental division in the first quarter and the month of March. We are seeing favorable demand, both domestically and internationally, across a number of end markets, including semiconductors, communication products and networks.

We also benefited from improved pricing levels, as yield on equipment on rent increased from 3.99% a year ago to 4.48% during the first quarter of 2011. Although rental revenues increased 19%, income from operations nearly doubled to $6.5 million. In addition to higher rental revenues, our Electronics business also benefited from higher gross profit on equipment sales and lower depreciation, laboratory and SG&A cost as a percentage of rental revenues from a year ago.

Sales revenue increased by approximately $1 million and gross margin on sales to 45% from 36% compared to a year ago. The used equipment sale market comprised of end user and broker sales continues to be very healthy. Depreciation, laboratory and SG&A costs as a percentage of rental revenues declined to 42.6%, 13.6% and 21.9%, respectively, from a year ago. We benefited from our disciplined approach to equipment purchases and inventory management, and more fully leveraging our existing base of employees during the quarter.

Finally, as a result of our higher business activity levels and more tightly managing our rental inventory, average first quarter utilization increased to 65.2% in 2011 from 64.6% in 2010.

Now, let's turn our attention to Adler Tank Rentals. Our Tank Rental business more than doubled rental revenues to $12.2 million for the quarter from $6 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 inventory. 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 more than 3.5 times from a year ago to $6 million , as the business continued to more fully leverage prior-quarter new employee and other infrastructure investments. Business activity levels and bookings have continued very favorably through the first quarter of 2011. Period-end utilization for the first quarter of 2011 increased to 89.4%, compared to 66.4% 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 make good progress during the first quarter of 2011. We saw the number of order opportunities increase by 45% from the same period a year ago. We also saw booking levels based on first month's rent more than double from the first quarter of 2010. This is chiefly due to an improving marketplace and gaining more traction with customers. 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 the environmental test equipment industry.

Our Portable Storage initiative also continued to make good progress during the quarter. Rental revenues grew by 7% sequentially over the fourth quarter of 2010, and more than 2 times compared to the first quarter 2010. We are working hard at expanding our Portable Storage business in the California, Texas, and Florida markets, and we're continuing to explore smaller fleet acquisition opportunities to accelerate our growth. We're also continuing to add sales professionals 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 40% over the first quarter of 2010. 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 of rental revenues and profitability levels for the mid-Atlantic region going forward are very positive.

Although these new initiatives are relatively small today compared to our legacy rental businesses in Adler Tank Rentals, collectively, between our environmental test equipment, portable storage, and mid-Atlantic initiatives, they are contributing on an annualized basis approximately $9 million in rental revenues based on a first quarter 2011 rental run rate. This is up from an annualized rental run rate of $5.2 million from the first quarter of 2010.

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's 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. The faster we can ramp the rental revenues of these initiatives in our larger rental divisions, the sooner we can absorb and further leverage these higher SG&A expense levels to produce higher margin levels and greater profitability.

Now, for some closing remarks. We have started 2011 with very good momentum in our electronic and environmental test equipment, tank and portable storage rental businesses. For our Modular Rental division, we experienced our highest booking level based on first month's rent for the first four months of the new year since 2008.

Our Modular Rental division new business activity varies by region. We've seen much stronger year-over-year booking levels in each of our regional markets outside of California; however, California was down slightly year-over-year for the January to April time frame. It's important to note that our California K through 12 public school modular classroom business is an important income contributor to our overall Company results; however, as of the first quarter 2011, it only represented approximately 10% of our total Company rental revenues.

Our 2011 first quarter rental revenues at $54 million were our highest first quarter results in the Company's history. This is also our fourth consecutive quarter-over-quarter increase in both rental revenues and net income, coming out of the great recession. The 39% increase in EPS for the quarter from a year ago was driven primarily by higher rental revenues from strong business activity in the second half of 2010 continuing into 2011 primarily from our electronics and tank rental businesses. We also benefited from higher profit on sales, improved depreciation expense management by our Electronics division, and increased leverage of our existing base of employees and other infrastructure.

As we stated in the past, there are many different moving parts to our multiple rental business platform that can make earnings projections challenging. This is especially true entering or exiting a recession. Given our solid first quarter results and encouraging signs for further growth in rental and sale revenue in 2011, our bias today is to increase our full-year earnings guidance range. However, given the current significant California budget deficit and the lack of an imminent resolution to balance the budget and in turn, the risks and potential negative impact to our Modular business in California, we thought it best to leave our 2011 full-year guidance range unchanged at $1.52 to $1.62 per diluted share. We'll continue to revisit our annual guidance range for 2011 in the quarters ahead.

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 as the macroeconomic picture improves.

It's once again clear from this quarter's results that our strategy of creating additional earnings engines through greater product and geographic diversity is working.

And now, Keith and I welcome your

(Operator Instructions) David Gold, Sidoti.

Hi, good afternoon.

Sorry about that. Hi David.

Hi David.

Just a couple of follow up questions, first on Adler, can you speak a little bit, the utilization there looks to be terrific, can you give us some color on, what a healthy level is there, a) and then b) how do you think about that vis-a-vis capital allocation to Adler, to maybe get utilization level down a little bit, to give you some breathing room?

Yes, David, this is Keith. If you look at the last two quarters, the average utilization has been north of 80%, I think our view is 80% or above is extremely healthy in that business, you're obviously correct in observing, we ended the first quarter a little over 89%. We really haven't been in that zone before, it's very high. Our goal is to feed more equipment to that business, you'll see that we added a little over $12 million to the fleet during the course of the first quarter and still ended with that very high period end utilization.

So, the team there is executing very well, the demands we're seeing in the market is very healthy. So our goal is really to keep feeding new equipment to the team and if they continue to do a good job and market conditions continue to be strong, the goal is to grow that business. I think you're right that the utilization right now, is on the high side, it means it's hard for us to be responsive to new customer inquiries and we have customers actually waiting for equipment from us. It's a bit of a high class problem, but really a more normalized level is the site that where we ended the first quarter.

And the key really as we look ahead, and as we mentioned, we had a very good first quarter and we're very encouraged by what we're seeing in the business. The key now is to keep a steady flow of new equipment and that's really going to be the pacing issue for what additional further growth we can achieve with Adler. And that is a top priority for our CapEx for this year.

Got it. Perfect. And then following on the utilization question, but shifting a little bit to Mobile Modular. Can you give us a sense, I guess we're pretty far along in the natural bookings season and I think you've been very clear about the potential effects of the risks from California. But just a sense there as to what you're seeing by way of bookings is the budgetary issue a truly an overhang or are the municipalities sort of going forward anyway given some dollars in their budgets?

Well, just to be clear on the bookings across the region, it's a level set everybody. If you looked at classroom bookings in the Florida market, we had a very good booking season. And a lot of that activity were -- virtually all of that were flowing in the second and third quarters, you won't get a full quarter to the fourth quarter. In the Greater Houston market due to the petrochemical industry and related businesses doing well, our business has really taken off there in the first four months of the year with us having to go deeper into our inventory. And there is some more expense there in the first quarter to repair equipment for rental and a lot of this is larger complexes for longer-term projects.

So, both Florida and Texas are doing very well. The mid-Atlantic is growing very favorably. We're pleased with their progress on new classroom bookings and also commercial complexes. In California, the weak player in all this where we were down booking wise is slightly over last year. And at the same time, we're not getting the benefit yet of the classroom bookings this year that will again flow into the second and third quarters. And we've also had a steady flow of returns in California. That's been a bit of a challenge. We're booking fairly favorably, but equipment does come back on a routine basis. So, we are still experiencing 12% unemployment rate in the state.

And we have, needless to say, the budget situation with a $25 billion budget deficit. The Governor has proposed making up half of that in cuts and the other half in extension of tax increases that were due to expire. And there has not been a resolution to that yet, though we are being somewhat guarded until we understand better whether it's going to be an all-cuts budget, which I think that less likely than some type of combination of cuts with perhaps some higher tax revenues coming in, in the spring here, which we've just gotten some initial comments on coupled with perhaps, a) short-term extension of the tax increases until they can get an initiative on the ballet to do that over a longer-term basis.

So that's some color on the whole dynamics by market. And also just speaking to the guidance question, we had a very good start to the year. And the May revise is coming out in the California budget within about a week to 10 days. And we're going to know more when then hits the street and then what the Legislature in Governor's office are going to do with that.

Gotcha. And Just one last, probably again, I know you mentioned 10% of total revenues K through 12 at this point. Can you give us a little - sorry, for California, right sorry. Can you give us a number for California revenue in aggregate?

For the rental revenue mix, California would account for approximately 23% of the company's total rental revenues.

Okay.

And that 23% is constructed with 10% of the K through 12 education and then the other 13% is other education and commercial.

Gotcha. Perfect. Thank you both.

(Operator Instructions) Scott Schneeberger, Oppenheimer.

Thanks. Could we explore a little bit more on just -- I guess, more so on the timeline for California. It seems like that's the hedge that keeps you from getting more aggressive with hedge regarding your outlook as everything else seems to be going very nicely. Dennis, could you speak a bit to the timeline you mentioned over the next week to 10 days? But when do you see getting clarity for certain?

Well, the May revise, which is the Governor's revised budget proposal, is due out at, I believe, May 16th. And really there is one of four choices, if you kind of look at the menu, one is that because they can't reach agreement currently with the Republicans on extending the tax increases that you could have an all-cuts budget potential. That would be a worst-case scenario. Now the belief system is that the Democrats likely will not vote for that. Education has already taken enough hits and that they're unlikely to go with that.

By the way the numbers we've heard in all-cuts budget for California schools was, of the additional $15 billion they would have to cut, they've already proposed $11 billion or $12 billion of how they make the cuts would have been $5 billion for public schools. So, we don't think that's the likely menu choice, but it's certainly still on the table. There has been word as of late that tax revenues are up nicely in April. We haven't heard that officially but we've heard that from a couple of different sources.

So, who knows between [into the attack] -- between the budget cuts they've already proposed at about $12 billion to $13 billion, which was part of the tax increase and budget cut piece, they might be able to through the tax, revenue increase, if it's substantiated and through maybe some other short-term borrowing et cetera be able not to make anymore significant cuts. They also may just continue to go on and have no decision and that could go deep into the summer.

The other last potential approach here on what may occur is that there is also some talk in the street that the four Republican votes they need, I believe two in each House, they are likely to have sometime in June to be able to have to legislature go ahead and extend the tax increases for a short period of time to be able to then get an initiative on the ballot. The Governor has been pretty straightforward in wanting to see the voters approve any tax increases or tax extension. And so that's an alternative there.

Again I don't think an all-cuts budget is the most likely scenario, I think there is going to be some version of the other three. But we'll have to wait and see. And to be very candid, if we have had certainty with respect to the state budget coming into the call, we very likely would have raised guidance. But with that uncertainty that looms, we thought it prudent to wait until there is a definitive information and then we'll revisit guidance in the quarters ahead.

(inaudible) Thanks, guys. I guess to the extent you can answer, under that worst-case scenario, it sounds like it was scenario one, with California K through 12 at 10% it's sounding like of your [much] revenue mix, it's sounding like that's where that would catch the brunt. What type of magnitude asking on maybe a percentage point to rental revenue, headwind, I don't know that, you can get that granular but --?

Scott, I understand your question and there is no way we can monetize that because we don't know exactly where those cuts would occur. And with a 1,000 school districts in the state everybody has a different priority or agenda as to how they might look at what austerity, additional austerity they may do. So, we don't -- we don't know and that's part of it. When you don't know and there is a potential out there, even though it's a small likelihood of a significant reduction in funding then -- that's why we're being cautious, especially this early in the year. And then we're four month into the new year and we have, like I said, we've done very well with all parts of the business except California modular. So there is a lot of goodness and we need to get another month or two under our belts in understanding better the situation in California.

Scott maybe one way to think about this and we mentioned this on the Q4 call, we have not taken an aggressive view as to what the California Modular business will deliver to profitability this year. We commented earlier in the year, we thought it's probably a flattish to financially [dawn] year for the business. So really as you look at where we are already this year with a very nice start to the year with the other parts of the business, it's really a matter of as you look across the business, very good momentum, very good opportunity with Adler and TRS and the non-California Modular business. It's just a bit of an unknown that Dennis has covered along California.

And since we can't really determine what that unknown will be at this point, it's just better to wait a few more months and then see more clearly the outlook for California. But also importantly, the good trends on Adler and TRS, further affirmation that they're continuing and that will let us calibrate what we think for the full year.

Thanks both of you. The -- one more on this topic, obviously there is a bit of a money issue in California. Can you speak to demand or the actual need for the Modulars and feel free to branch up beyond California, but specifically that's where I like to focus the question? Thanks.

Well, what we've seen is -- by the way, (inaudible) California is down from 12.6% to 12%. So, anything moving in that direction is good, although it remains higher than that in the construction development sector. So, that's been probably the weakest areas, construction development. We've seen because of stimulus monies, which are now just finally reaching us in the last couple of quarters, we've seen some larger complex work in California that's been very favorable. Also, in terms of the school business here, the bookings has been okay, because quite frankly school districts are projecting increased student population starting this year that kindergarten classes are expected to increase fairly substantially over the next couple of years.

And then we're seeing some growth issue, but it should be accelerated in the next three to four years. So, we feel very good about that with -- especially with the lack of money to build permanent school. So, we feel we're positioned very well and that activity this year has been fairly good. It just hasn't translated yet into the income statement, because, one as those bookings will not occur till the second and third quarters and when you get a steady share of returns, that are coming in the meantime it's tough to kind of show a lift.

So, when you go outside of California, booking activity has been very favorable like I said earlier in the call and the commercial market in Texas has been very strong and also the school market -- we had -- our best booking year in probably three years is in the Florida market. And the mid-Atlantic continues to do very favorably relative to its newness and size. So, I think overall if you look at the whole division as a whole, you kind of said, okay, California is still working its way through its challenges. But outside California, it's very good and even within the state, it's better than it was -- overall business activity it feels better than it was a year ago although bookings are down about 4% year-over-year, but the pipeline overall feels stronger.

Sounds good. I guess, if I can switch it over to the tank business, could you speak to just the situation with the manufacturers? Number one, who are some of the larger manufacturers, are you very fragmented from whom you source? How are they doing with regard to capacity generation, just your ability to supply capacity (inaudible) thanks?

Well, I won't mention any particular manufacturing names for a variety of reasons, most important being competitors. But I will say this, we have creatively looked at how we can get additional capacity and we've gone out and really tried to create that and I think we've done a fairly good job of that, and we're going to be seeing more flow coming along here to support all the demands. So, we're -- I'm very pleased with the senior leadership in the division and how they have gone about, being able to create more capacity. And we're going to selfishly keep that information to ourselves at this point and I am sure you understand why.

And I think, Scott, that's another one of the unknowns and it's a very positive one potentially, which is if we are successful with greater access to equipment, it at least gives us the potential to do even more with that part of the business.

All right, great. Thanks for that, guys. One more, I'm going to sneak-in on that topic. You talked in the past and it's in your presentation pack as to what vertical markets you serve in Adler. Could you just take us around the horn there? Obviously energy is going to be strong, but could you just take us a little bit around there to give us a sense of where the most robust areas are? Thanks.

Well, certainly oil and gas shale exploration and drilling is certainly very significant. And then, what you have also is industrial plant work, which is down straight from that and then you've also got the construction industry as a whole -- any type of especially infrastructure projects, dams, bridges, highways, et cetera. Tanks and boxes are used very [economically] in those applications.

Also two, environmental remediation is another area. And then also just municipalities use tanks and boxes for a lot of their - for rain water run off and there is various flood potential situations et cetera. So, it's just a very broad base of industry segment. (inaudible) if you look at airports, next time you look at a tarmac, go out and look at the tanks that are around the tarmac and a lot of those tanks there are actually holding the deicing fluid or were used for recycling deicing fluid, which has to be collected from what gets to put on in the planes that comes back into the draining systems. So, that's just another shows you kind of an application there.

Sure. And strength across all of those, any areas of weakness or fairly nice robustness across the board?

I would say, it's fairly [leveled]. The one area that we haven't seen come back nearly as robustly as it has historically is the construction piece. But we are, especially home construction and more commercial strip construction, strip malls, those type of things, generally more a commercial infrastructure as opposed to the larger construction projects. So, that's the one area that has not covered daily work close to where it has been historically.

Great. Thanks for fielding all my questions.

Sure. Thank you.

(Operator Instructions) And management, I don't show any further questions at this time.

Well, I'd like to thank everybody for being with us on today's Q1 call and I'd also like to invite everybody to our upcoming shareholders' meeting here in Livermore this coming Wednesday, June 8th at 2'o clock, and if you happen to get there earlier, we'd be happy to give you a tour of our facilities, which has Modular, Adler Tank and portable storage businesses here from Northern California. So, thank you, all, again and we look forward to seeing you either at the Annual Shareholders Meeting or on our Q2 call this coming early August. Thank you.

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.