McGrath RentCorp (MGRC) 2012 Q4 法說會逐字稿

Welcome to the McGrath RentCorp fourth-quarter 2012 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, February 21, 2013.

I would now like to turn the conference over to Geoffrey Buscher with SBG Investor Relations. Please go ahead.

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. Representatives 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 1-800-406-7325 for domestic callers, and 1-303-590-3030 for international callers. The pass code for the call replay is 4584516. This call is also being broadcast live over the Internet and will also 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 p.m. Eastern Time or 1.05 p.m. 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 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. The Company also announced a 2% increase of the cash dividend to $0.24 per share for the first quarter of 2013, representing, on an annualized basis, a 3.3% yield on the February 20, 2013 closing stock price.

For the fourth quarter 2012, total revenues increased 20% to $102 million from $85.2 million for the same period in 2011. Net income decreased 10% to $11.9 million from $13.2 million, and earnings per diluted share decreased 11% to $0.47 from $0.53.

Reviewing the fourth-quarter results for the Company's Mobile Modular division, compared to the fourth quarter of 2011, total revenues increased $0.4 million or 1% to $30.6 million, primarily due to higher sales and rental-related services revenues, partly offset by lower rental revenues. Gross profit on rents decreased $0.9 million to $11.2 million, primarily due to lower rental margins of 56% compared with 60% in 2011, and lower rental revenues. Lower rental margins were a result of $0.7 million higher other direct costs for labor and materials.

Selling and administrative expenses increased 8% to $8.7 million as a result of higher bad debt expenses and higher salary and benefit costs, primarily related to the expansion of our portable storage growth initiative. The lower gross profit on rental revenues, and higher selling and administrative expenses, partly offset by higher gross profit on sales and rental-related services revenues, resulted in a decrease in operating income of $0.5 million or 8% to $5.6 million.

Finally, average modular rental equipment for the quarter was $532 million, an increase of $19 million. Equipment additions were primarily to support growth in the mid-Atlantic region and for our portable storage initiative. Average utilization for the fourth quarter decreased from 67.1% to 66.8%.

Turning next to the fourth quarter results for the Company's TRS-RenTelco division compared to the fourth quarter of 2011, total revenues increased $4.6 million or 14% to $38.1 million, due to higher rental and sales revenues. Gross profit on rents increased $1.2 million or 10% to $13.7 million. Rental revenues increased $1.5 million or 6%, and rental margins increased to 51% from 49%, as other direct costs as a percentage of rents decreased to 12%.

Fourth-quarter 2012 results included $3.7 million in proceeds from the sale of the TRS-Environmental rental equipment at a loss of $0.4 million. Selling and administrative expenses decreased 3% to $6.8 million. As a result, operating income increased $1.6 million or 18% to $10.1 million.

Finally, average electronics rental equipment at original cost for the quarter was $271 million, an increase of $6 million. Average utilization for the fourth quarter decreased from 67.7% to 65.4%.

Turning next to the fourth-quarter results for the Company's Adler Tanks division compared to the fourth quarter of 2011, total revenues increased $2.1 million or 10% to $23.3 million, due to higher rental and rental-related services revenues. Gross profit on rents decreased $1.5 million or 11% to $11.9 million. Rental revenues increased $1 million or 6%, and rental margins decreased to 66% from 78%, as depreciation as a percentage of rents increased to 17% from 14%, and other direct costs as a percentage of rents increased to 17% from 8%.

Selling and administrative expenses increased 35% to $6.8 million, primarily due to higher bad debt expenses, and higher personnel and benefit costs, to support the continued expansion of Adler's operations. As a result, operating income decreased $3.7 million or 39% to $5.9 million.

Finally, average rental equipment for the quarter was $244 million, an increase of $60 million. Average utilization for the fourth quarter decreased from 86.8% to 69.9%. On a consolidated basis, interest expense for the fourth-quarter 2012 increased $0.2 million or 8% to $2.3 million from the same period in 2011, primarily due to the Company's higher average debt levels. The fourth-quarter provision for income taxes was based on an effective tax rate of 36.7% compared to 37.7% in the fourth-quarter 2011.

Next, I'd like to review our 2012 cash flows. For the 12 months ended December 31, 2012, highlights in our cash flows included net cash provided by operating activities was $126.4 million, a decrease of $2.9 million compared to 2011. The decrease was primarily attributable to the receipt of a $6.1 million income tax receivable in 2011 that did not recur in 2012, and lower income from operations, partly offset by other balance sheet changes.

We invested $131.8 million for rental equipment purchases compared to $155 million for the same period in 2011, partly offset by $31 million in proceeds from sales of used rental equipment. Property, plant and equipment purchases decreased $3 million to $14.2 million in 2012. Net borrowings increased $5.5 million from $296.5 million at the end of 2011 to $302 million at the end of 2012. Dividend payments to shareholders were $23.1 million.

With total debt at quarter-end of $302 million, the Company had capacity to borrow an additional $228 million under its lines of credit. And the ratio of funded debt to the last 12 months actual adjusted EBITDA was 1.91 to 1. For 2012, fourth-quarter adjusted EBITDA decreased $1.9 million or 4% to $40.6 million compared to the same period in 2011, with consolidated adjusted EBITDA margin at 40% compared to 50% in 2011. Our definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income are included in our press release for the quarter.

Turning next to 2013 earnings guidance. We expect 2013 full-year earnings per share to be in a range of $1.85 to $1.95 per diluted share. For the full-year 2013, we expect 4% to 7% growth in rental operations revenues over 2012. Sales revenue is expected to be approximately 10% lower than 2012, but gross profit from sales is expected to be comparable to 2012. Rental equipment depreciation expense is expected to increase to between $67 million and $69 million, driven by rental fleet growth.

Selling and administrative costs are expected to increase to between $89 million and $91 million to support business growth, and the continued investment in Adler Tanks and our portable storage initiative. Full-year interest expense is expected to be approximately $9 million. We expect the 2013 effective tax rate to be 39.2%, and the diluted share count to increase to between 25.3 million and 25.7 million shares.

Now I would like to turn the call over to Dennis.

Thank you, Keith. Although companywide rental revenues increased by 4% from a year ago, we had an 11% decrease in EPS for the quarter. This is primarily a result of lower rental revenues for our tank rental business relative to its current cost structure. While Adler rental revenues grew by approximately 6% over last year's fourth quarter, its income from operations declined by approximately 39%.

Over the past year, we have executed on ramping Adler Tank Rentals' national footprint to support higher rental revenues and earnings levels in the years ahead. These costs are primarily related to filling management, sales, office, and inventory center positions, facilities, and winch rolloff tractor infrastructure. This is all by design.

Adler's profitability was also impacted negatively during the quarter by $1.3 million higher bad debt write-offs from a year ago. Finally, we also experienced a $0.7 million higher expenses during the quarter from a year ago in relocating underutilized equipment from the dry gas Marcellus region to other Adler geographies in need of equipment. We have now completed the great majority of these interregional asset movements, and we anticipate this expense category will be materially lower in 2013.

Adler's average rental equipment utilization for the fourth-quarter 2012 stood at 69.9% compared to 86.8% a year ago, and 68.9% in the third-quarter 2012. Although we would like to see higher utilization levels, as we continue to expand our tank and box rental business across the US, it is essential that we have the right mix and depth of inventory on the ground in all of the markets in which we operate, in order to respond to a variety of end market needs.

Adler is serving a wide variety of market segments, including industrial plant, petrochemical, pipeline, oil and gas, waste management, environmental field service, and heavy construction. Our percentage of overall rental revenue derived from E&P gas and oil fracking has declined from a quarterly high of approximately 35% in 2011 to 15% in the fourth quarter of 2012. And at the same time, we grew rental revenues by 6%. We had $171 million of average equipment on rent in the fourth quarter of 2012, compared to $160 million for the same period a year ago, or approximately a 7% increase.

Overall, Adler division-wide business activity levels have remained favorable. In fact, booking levels during the fourth quarter of 2012, based upon first month's rent or billing rate, were 45% higher than for the same period a year ago, and was Adler's highest-ever quarterly booking level.

I'd also like to note that each region, including the Marcellus and Northeastern region, experienced healthy quarter-over-quarter booking growth. I want to emphasize that we are only in the early stages of ramping the other geographic footprint and customer following.

We have a great tank and box rental business, but not without some growing pains, as reflected in our higher bad debt and interregional transportation costs in the fourth quarter compared to a year ago. What's most important is that Adler is making very good headway in establishing its brand name, high-quality products, and exceptional customer experiences, over an increasingly larger geography and customer base quarter after quarter.

Now let's go over our result for our modular rental business. Modular division rental revenues for the quarter were relatively flat at $20.1 million compared to $20.3 million a year ago, and $20 million from the third-quarter 2012. Rental revenues grew by 9% quarter-over-quarter in our market outside of California, and declined by 9% within the state. Modular rental revenues outside of California now represent approximately 47% of division-wide modular rentals.

First month's rental bookings for the Modular division increased 26% from a year ago, with bookings outside of California increasing 89%, and declining by 15% within the state. Although our California modular results continue to be depressed due to macroeconomic headwinds, there are a number of positive indicators going forward.

These bright spots include the successful November 2012 personal income and sales taxes ballot initiative, and its anticipated impact on reversing public education austerity; the December 2012 statewide unemployment rate of 9.8%, down from a Great Recession high of 12.6%; scarce inventory of existing homes for sale in some regions, as market prices begin to increase; and a marked pickup in both nonresidential and residential construction.

Modular division quarter-over-quarter income from operations decreased by approximately 8% to $5.6 million from $6.1 million in 2011. However, Modular division gross profit was up slightly to $14.4 million compared to $14.2 million a year ago, and from $13.2 million in the third quarter of 2012. First, the higher [percentage] reduction in income from operations, relative to flat rental revenues for the quarter, is primarily due to an increase in bad debt expense, and secondarily to increased SG&A infrastructure costs in our portable storage business.

The increase in gross profit for the fourth-quarter over the third-quarter 2012 relates chiefly to lower inventories in our costs incurred. Period end utilization for the fourth-quarter 2012 was 66.7% compared to 67.3% for the same period in 2011, and 66.6% at the end of the third quarter of 2012. It's important to note -- to point out that our division-wide modular quarterly average utilization over the past nine quarters has stayed within a very narrow range of 66% to 68%.

Finally, modular equipment gross profit on sales was up slightly to $1 million compared to $0.9 million a year ago. 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 $1.5 million or 6% to $26.8 million from a year ago. We have seen favorable demand, both domestically and internationally, across a number of end markets, including semiconductors and communications products and networks.

We saw our yield on equipment on rent increase to 5.05% during the quarter from 4.71% a year ago. This is primarily due to a greater mix of communications equipment and, to a lesser extent, market pricing. Communications test equipment assets have shorter depreciable lives, but higher rental rates in general-purpose test equipment.

Divisional income from operations increased 18% or $1.5 million to $10.1 million from a year ago. The significantly higher percentage increase in profitability as compared to rental revenues was chiefly related to lower SG&A, laboratory, and equipment depreciation expenses, all as a percentage of rental revenues from a year ago.

These expenses as a percentage of rental revenues declined to 25.2%, 12.2%, and 36.9% respectively, and producing an EBIT margin of 26.6% for the fourth quarter of 2012 compared to 25.5% a year ago. Ending fourth-quarter utilization was 64.1% for the quarter, down from 67.1% a year ago, and continues to be in a very healthy range. In producing these strong operating metrics, we continue to benefit from our disciplined approach to equipment purchases and inventory management, appropriate depreciable equipment lives, and our highly skilled efficiency-driven and tenured workforce.

Now let me take a moment and update everyone on our portable storage business. Mobile Modular Portable Storage continued to make good progress during the quarter in building a customer following, increasing booking levels, and growing rental revenues. Rental revenues grew 29% for the quarter from a year ago and 52% for the full-year 2012 compared to 2011. We're 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.

Our portable storage business was profitable for all of 2012, as we began to realize critical mass in our installed base of customers in some of the markets in which we operate. It should also be noted that we have favorable room to grow rental revenues within the current cost structure.

Finally, we are actively investigating and acting on additional geographies for expansion. As the economy continues to improve, and with the infrastructure and quality team we are continuing to build, our portable storage business should benefit very favorably. Looking forward, we continue to believe that we have an excellent opportunity to become a meaningful player in the portable storage rental industry.

Let me transition to various other strategic planning and positioning items. Over the past few quarters, I've mentioned that we were planning on exiting the environmental test equipment business. I'm pleased to announce that, in early November 2012, we completed the sale of this business, booking a small loss of approximately $0.4 million on a sale of its rental assets. The sale of these rental assets are included in TRS-RenTelco's equipment sales revenues for the quarter.

I want to reiterate that we are committed to rental businesses in our portfolio that can produce healthy margins, and can be scaled such that they become a material contributor to overall Company EPS.

Looking forward, we are keenly focused on leveraging the significant opportunities that Adler Tank Rentals provides us in building a much larger and more profitable tank and box rental business. There are numerous end markets and new geographies for Adler to develop in its future. I again want to emphasize that we believe Adler has a long runway for domestic growth, and that we are in the very early innings of ramping the business.

Finally, it's important to keep in mind that Adler average annual utilization for the four-year period from 2009 to 2012 was 66%, 76%, 86%, and 72%, respectively. We are still learning what normal utilization levels will look like over time for our tank and box rental business. Utilization rates are likely not to be in as narrow a range as our other rental businesses until we reach a much more mature state.

In summary, our $0.06 reduction in EPS from a year ago is primarily the result of lower Adler rental revenues relative to its current cost structure, higher bad debt expense, and increased interregional equipment relocation costs associated with repositioning rental assets from the Northeast region to other Adler geographies.

If you look at companywide total gross profit for the quarter, we were nearly flat at $44 million compared to a year ago at $44.2 million; and for the full year at $168.3 million in 2012 versus $166.8 million for 2011. These results speak to higher SG&A costs primarily associated with ramping both our tank and portable storage businesses. This is a much more accurate report card on the health of McGrath RentCorp.

In closing, I'd like to comment on McGrath RentCorp's strong cash flows. In 2012, we added a net $74 million in original cost of rental assets. These rental products were primarily for the growth of Adler Tank Rentals, and for our test equipment and portable storage businesses. We also paid out $23 million in shareholder dividends throughout the year.

Finally, we invested $14 million in property, plant and equipment expenditures, chiefly for the growth of Adler Tank Rentals. Yet our year ending notes payable only rose by approximately $5 million, and we carried a 1.91 to 1 ratio of funded debt to last 12 months actual adjusted EBITDA. Strong cash flows and a low leverage balance sheet matter greatly towards the financial strength, opportunity nimbleness, and overall shareholder returns of McGrath RentCorp.

And now Keith and I welcome your questions.

(Operator Instructions). Andrew Gadlin, CJS Securities.

In regards to your guidance, you have a comment that sales revenue is expected to be 10% lower. And I was curious what's driving that? Historically, when you have a weak sales year, your next year tends to be pretty strong.

Yes, I'd say there are two primary things. One is the disposition of the TRS-Environmental assets that was $3.7 million in the fourth quarter of 2012. That's really not a recurring or expected item that we'd see in 2013.

The other comment is Enviroplex had a big sales year in 2012. But as we know, some of the issues we ran into that we discussed on the last call, with certain projects, meant that that sales revenue didn't bring a lot of profit.

As we look into 2013, we think the sales revenue will be lower at Enviroplex. The profit margin should start to move over the course of the year back to the normal range, although we will have some of the problem projects being recognized in Q1 of this year, really, to complete that project. (multiple speakers) I would say in standard modular business and TRS business, not a significant change that we're expecting in the level of sales.

Okay. (multiple speakers)

(multiple speakers) You might want to reemphasize that the margins are (technical difficulty) --.

Yes, and margins sort of staying in their normal ranges for both normal modular and TRS sales.

So, really it's just projecting sales to stay level year-over-year except for taking out the low-margin Enviroplex sales and the environmental?

That's a reasonable way to look at it.

Okay. Next question, in terms of Adler, can you talk about some of -- maybe some of the regions that you're targeting as well as maybe some of the end markets that you're investing in?

For competitive purposes, I will just make this comment. I won't give out any specific markets that we're targeting, because those are in the process of happening currently. I will say this, that by the end of 2014, 2013, Adler's footprint will pretty much be throughout the US, in terms of being able to touch any of the major markets where there's very active tank and box rental activity.

But I'm just trying to be very careful about this process. And, obviously, we also are looking for employees and facilities and so forth that support that. So I'm just being very guarded with that. So, I apologize.

No, that's fine. Thank you very much.

David Gold, Sidoti.

Can you -- this is going to be probably a tough one for you guys to answer, but can you give us a sense for how we should think about the movement that's happened on the Alder side, whether it be by, say, number of units that have been moved or -- and/or maybe the aggregate spend on that? Just so we can get sort of a better sense of the movement that's happened there.

Yes, a couple of comments, David. I think as you follow the journey of 2012, we started moving some equipment in Q2. We did a little bit more in Q3 and then we did more again in Q4. For the full year, we probably moved in the neighborhood of 400 tanks, and we probably spent in the neighborhood of $1.5 million for the full year for equipment moves between regions.

And those costs, even though we will have some interregional relocation of equipment costs quarterly, it should be materially lower in 2013 and going forward.

Got you. And then on the same note, I noticed you commented on the utilization side, presumably, there'd be a wider band in that business. But when you think about it and when you do your planning, what utilization target do you use?

You know, actually, we'd love to -- we think long-term, maybe mid-70% range is probably the appropriate range. We don't know that for certain, but as we work our internal analysis, and when we do our modeling, it's somewhere in that mid-70% range is probably where we line up at. And again, we have to learn more about the different geographies and the different cyclical natures of various end markets.

Perfect. Okay. And then shifting to California, I think to your point there are a lot of pluses going on there, but also still some minuses. And presumably, we're still seeing the booking levels decline a little bit. How do you think about a bottom there? And given the passage of Proposition in November, do we think that, this booking season, maybe we see a little bit of a turnaround to some flattening?

First of all, if you look at California and its numbers, you have to keep in mind that, from a shipment of equipment out versus in, it may be pretty close to a push currently. And where we're seeing the continued erosion is in the difference in rental rate that equipment that's going out is going at a lower rental rate than legacy equipment that's returning that was at a higher rental rate.

So, the good news is, is that the market is quite a bit more active in terms of equipment going out. It's -- the struggle is on the rate side, and that will only take care of itself as utilization rises across the industry.

As for 2013, we started off the year very favorably here. It's better here than it was a year ago. There's a lot of good indicators. The Prop 30 initiative that passed in November, we think, is a real good guy, although there won't be a facility bond measure on a statewide basis until 2014. So -- and then the state in January, we actually had a $5 billion surplus in tax receipts that -- you know, that's a one-time event there. But the good news is that the cash flows are very favorable currently. Let's hope the government (laughter) spends that cash wisely.

But I think California has, without question, taken the tonic it needed to. And now it's a matter of letting the economy do its thing. And it's definitely gotten better. And, again, we're anxiously awaiting to see it in the numbers, which we haven't yet. And we're being very candid that it's continued to erode to some level, but that has much more to do with rate than it does with activity.

Okay. And if you look at how maybe things there have changed in the last few months, have you seen a noticeable difference then in inquiries since, let's say, November or sort of throughout the year?

There is no -- in my mind, anecdotally, from chatting with folks and also booking numbers, I don't think there's any question that it's continued to get healthier every quarter over the past year. I know that intimately from my own experience in the office here. How that translates then into the numbers is what is the struggle.

Because we have to see it in the numbers before we get on any kind of a trend train here and say, okay, it's really turned the corner. But everything anecdotally as well as factually, as you start lining up real key elements in the economy, seems to be pointing in the right direction. But again, we need to see it in the numbers.

Sure, sure. Okay. And then just one last one. Certainly interested and intrigued by the growth that you're seeing on the storage site. And was curious there -- well, a couple of things. One, we don't have the basis for those numbers, so I have to believe, based on what we know, that it's more, for lack of a better term, market share gains than, if you will, or growing off a small base. So I'd be curious on that.

And then, two, on the G&A side, where are you investing? Is it pure hiring or are we building out a sales force? What's -- where is that money going to work?

Yes. Most of the money that we're putting into the portable storage business is for additional salespeople, sales management. We have some outlying facility yards where we're paying rent, et cetera, or buying property. But for the most part, it's building that professional team of individuals that can book business, et cetera.

So -- and yes, it's small base, but growing nicely. And, you know, the interesting thing is we didn't -- we only expanded into one new market in 2012, although we have a few of them -- very favorable ones planned for 2013. So we -- in 2012, we, in effect, focused on our existing markets, worked on critical mass in spite of the economy still struggling. And we accomplished what we set out to. We met our profitability goals and our rental revenue goals. And so we're very pleased with that. And we have a bigger base now and we plan to expand the footprint, so.

Perfect. That's all I have. Thank you both.

Thank you.

Scott Schneeberger.

This is [Danny Halbrook] filling in for Scott. (multiple speakers) I'm kind of following up on a previous question. I understand that it's your commentary about the competitive reasons there. Is there any way you can give any color on the verticals driving Adler in the quarter? I know you saw a nice sequential improvement in utilization. Any color there would be helpful.

Well, you know, when you look at it, the oil and gas industry as a whole, other than E&P, is an area in which refineries and the petrochemical industry are all areas in which we want to do more business in, and as a sweet spot for us. So I would say that those have certainly been quite favorable, and that the heavy construction market also has been more favorable. So those are probably some of the prime drivers in the verticals.

Okay.

The contribution from fracking dropped to 15% in the fourth quarter of 2012, and that compares with a number in the mid-30s percentage range throughout 2011. So that part of the business went down. And as Dennis said, the other traditional segments for tank rentals, we saw good growth.

Okay, thank you. And as far as the fracking mix going forward, should we think about this in terms of its current mix in 2013? Or is that expected to increase a bit?

You know, that's the $64 question. And we like the fracking business. And it's a question of concentration, customer concentration, as well as geographic concentration. And there are a number of dynamics to play out related to US energy policy. And if we're going to be drilling for decades to come in the Marcellus and the Bakken, and other oil and gas shale plays, well, then, we'll have to respond appropriately.

But again, we need to keep an appropriate mix and balance that's very healthy. Because as anybody who's ever tracked oil and gas knows that it is a -- can be a volatile industry. Although I would say, based upon how the US energy policy gets defined going forward, it may not be as volatile domestically as perhaps it has been historically in most markets. We'll see.

Okay, understood. Shifting to TRS, utilization in the quarter was down year-over-year. What's the specific dynamic there? Any color there would be helpful. Thanks.

You know, there's nothing really -- anything specific there. You can have fluctuations in numbers at the end of the quarter. You get a certain amount of equipment back, and we take an inventory on December 31. Those are the numbers. But there's nothing of a material nature there. In fact, we're holding very nicely this year with our rental rate throughout the year thus far in the first six to seven weeks, in spite of an unknown sequester or, you know, there's other dynamics going on with the economy that nobody can quite figure out right now. But there's nothing to read into that.

Yes. And I would say, Daniel, seasonally, for TRS, it's pretty typical to see some drop-off in utilization over the course of the fourth quarter. We typically expect to see that any time from middle of November onwards.

Okay, and a final question on portable storage. How should we think about that in 2013 in terms of a contributor to operating income? Do you have any color to provide, please?

Very small, but growing. And at some point here, we'll be able to share more information. It's essential for our growth plans that we publicly are just very careful of what we share, because it could impede us in terms of growing as fast as we'd like to, and as profitably as we'd like to. So -- but we will have more information to share on portable storage as we go forward, because it will become a more meaningful business over time.

Okay, thanks, guys.

Thank you.

(Operator Instructions). Joe Box, KeyBanc.

Keith, you gave us a good target earlier for just total company SG&A. Can you maybe give us a sense for run rate by segment?

I would say -- I would just look at the run rates you have today in the business. Adler is probably where we're going to invest a little bit more, as Dennis mentioned earlier, with the goal of serving more markets and having people in place to do that.

TRS, I wouldn't expect an unusual increase there. Modulars includes portable storage, so there will be a little bit more investment there, but no -- you know, nothing dramatic in any of those segments. Part of the cost here is just the normal employee-related costs, benefit costs. We'll see a little bit of an uplift there. And we're operating with a bigger team today than we had in February of 2012.

Okay, that's helpful. Can you give us an update on the percentage of your TRS fleet that is currently communication equipment? I think it used to be one-third communication equipment? And maybe just how you see that trending next year -- or this year, I should say?

Yes. It's probably in the same neighborhood, but growing more quickly than the GP side. So it's moving higher, but I wouldn't say it's materially higher.

Is it fair to say then that there should be more upside to the yield, just as you get a more favorable mix?

Yes, it's possible. The yield right now is pretty good. I mean, as Dennis mentioned in the prepared remarks, that the high yield we saw in Q4, it's largely a mix issue. I would say that's a pretty high number.

Right, I'm just trying to understand. I mean, if you're going to continue to grow your communication equipment, will you have a positive mix shift throughout the year?

You know, it's -- I think we've answered as best we can at this juncture. It should be ticking upward, and then we'll have to see what happens on the general-purpose side (multiple speakers) in terms of activity. Because that's a big question mark now with aerospace and defense spending potentially a week from today, or a week from tomorrow, being cut through this sequester dynamics. So there's a number of things up in the air.

Okay, appreciate the color there. Dennis, can you maybe just put a little bit more color around the 45% booking increase that you talked about at Adler?

Well, I think that's representative of the fact that Adler is becoming just a much more well-known name in the industry. They have the youngest fleet in the industry. They've got an exceptionally good sales force. We're focused on just doing tanks and boxes. We don't do filters and pumps and other things.

So I think what you're seeing is just the natural progression of us building out branches, and staff getting more tenured and qualified, and us being able to now fully support with equipment that people were so starved for a year ago. So, I think if you put all that together, that's why you're seeing those types of numbers.

Got you. And I think you said earlier that there's more outbound activity in California that there has been in the past. And one of the issues that you're seeing there is it had tends to be more on the rate side. I guess, based on the activity levels that you're seeing now, where do you think you need to see utilization at before you reach rate parity? Or even maybe asked a different way, how long do you think it might take before we'd get to rate parity?

That's a -- that is a great question, and we've been trying to answer that for some time now. I would say personally, once you start seeing movement continually on utilization going up in consecutive quarters, you're likely to start seeing some of that. And what will happen is it won't be across the board on all sizes and types of equipment.

It will be -- like today, for example, there are certain pieces of inventory, like larger complex floors, that are very scarce. They're in high demand. And so rates on that product, for example, has actually gone up very favorably over the past few quarters.

So, those are the types of things you'll start seeing it in pockets of certain types of equipment. But again, it will take consecutive quarters of utilization upticks, and then you'll start seeing likely some form of progression there. When you actually get to that across the board in the entire fleet, is it in the early 70 -- the low 70% range? It very well might be. That probably wouldn't be an unreasonable area, so.

Great. That's good color. And that's all I have. Thank you.

Great. Thank you.

There are no further questions at this time. I would like to turn the call over to management for closing remarks.

We'd like to thank everybody for their participation on today's call. We greatly appreciate the support. And we'll look forward to chatting with everybody again on our Q1 2013 call in early May. Thank you so much.

Ladies and gentlemen, this does conclude the McGrath RentCorp fourth-quarter 2012 financial results conference call. Thank you for your participation. You may now disconnect.