McGrath RentCorp (MGRC) 2013 Q1 法說會逐字稿

Welcome to the McGrath RentCorp first-quarter 2013 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, May 1, 2013. Now I would 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 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 4611866. This call is also being webcast 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.

For the first quarter 2013, total revenues increased 12% to $88.7 million from $78.9 million for the same period in 2012. Net income decreased 7% to $9.2 million from $9.9 million, and earnings per diluted share decreased 8% to $0.36 from $0.39.

Reviewing the first-quarter results for the Company's Mobile Modular division, compared to the first quarter of 2012, total revenues increased $0.6 million or 2% to $29 million, primarily due to higher sales revenues partly offset by lower rental and rental related services revenues. Gross profit on rents decreased $1 million or 10% to $9.4 million, primarily due to a decrease in rental margins to 49% from 53% and lower rental revenues. Lower rental margins were a result of $0.4 million higher other direct costs for labor and materials.

Selling and administrative expenses increased $0.3 million or 4% to $8.8 million primarily as a result of increased personnel and benefit costs. The lower gross profit on rents and higher selling and administrative expenses, partly offset by higher gross profit on sales, resulted in a decrease in operating income of $1.1 million or 28% to $2.9 million.

Finally, average modular rental equipment for the quarter was $535 million, an increase of $18 million. Equipment additions were primarily to support growth in the mid-Atlantic region and for our portable storage business. Average utilization for the first quarter decreased slightly from 66.5% to 66.4%.

Turning next to first quarter results for the Company's TRS-RenTelco division compared to the first quarter of 2012, total revenues increased $2.2 million or 7% to $32.7 million, due to higher rental and sales revenues. Gross profit on rents increased $0.9 million or 8% to $11.8 million. Rental revenues increased $1.4 million or 6%, and rental margins increased to 48% from 47%, as other direct costs as a percentage of rents decreased to 13% and depreciation as a percentage of rents was flat at 40%.

Selling and administrative expenses decreased $0.6 million or 9% to $6.1 million primarily due to decreased salary and benefit costs related to the exit of the environmental test equipment business in November of 2012. As a result, operating income increased $2.1 million or 29% to $9.5 million. Finally, average electronics rental equipment at original cost for the quarter was $266 million, an increase of $5 million. Average utilization for the first quarter decreased from 65.5% to 63.8%.

Turning next to first-quarter results for the Company's Adler Tanks division compared to the first quarter of 2012, total revenues increased $0.7 million or 4% to $20.8 million, primarily due to higher rental and rental-related services revenues. Gross profit on rents decreased $1.9 million or 16% to $10.4 million. Rental revenues increased $0.2 million or 1%, and rental margins decreased to 63% as depreciation as a percentage of rents increased to 20% from 16%, and other direct costs increased to 17% from 8%.

Selling and administrative expenses increased $0.9 million or 18% to $6 million primarily due to increased personnel and benefit costs and bad debt expense. As a result, operating income decreased $3.1 million or 37% to $5.2 million.

Finally, average rental equipment for the quarter was $252 million, an increase of $51 million. Average utilization for the first quarter decreased from 76.5% to 64.7%. On a consolidated basis, interest expense for the first-quarter 2013 was flat at $2.2 million. The first-quarter provision for income taxes was based on an effective tax rate of 39.2%, unchanged from the first quarter 2012.

Next, I'd like to review our 2013 cash flows. For the quarter ended March 31, 2013, highlights in our cash flows included net cash provided by operating activities was $41.6 million, an increase of $6.1 million compared to 2012. The increase was primarily attributable to a decrease in prepaid expenses and other assets and other balance sheet changes partly offset by lower income from operations.

We invested $25.2 million for rental equipment purchases compared to $35 million for the same period in 2012, partly offset by $6.8 million proceeds from sales of used rental equipment. Property, plant and equipment purchases decreased $0.2 million to $1.6 million in 2013. Net borrowings decreased $20.7 million from $302 million at the end of 2012 to $281.3 million at the end of the first quarter 2013. Dividend payments to shareholders were $6.1 million.

With total debt at quarter-end of $281.3 million, the Company had capacity to borrow an additional $248.7 million under its lines of credit. And the ratio of funded debt to the last 12 months actual adjusted EBITDA was 1.77 to 1. For 2013, first-quarter adjusted EBITDA increased $0.3 million or 1% to $37 million compared to the same period in 2012, with consolidated adjusted EBITDA margin at 42% compared to 47% in 2012. 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, our 2013 full-year earnings guidance range remains unchanged at $1.85 to $1.95 per diluted share.

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

Thank you, Keith. Although companywide rental revenues increased by only 2% and EPS declined by 8% for the quarter from a year ago, our overall results mask the underlying favorable business activity levels and momentum we are experiencing in each of our rental businesses.

Rental revenues at Adler Tank Rentals, our tank and box division, grew by 1% or $0.2 million, to $16.4 million compared to a year ago. There is typically some seasonality in our tank and box rental business during the first quarter in the colder weather geographies. However, first month's rental revenues and units booked for the quarter were up 28% and 41% respectively over the same period in 2012. We saw increased bookings year over year in each of Adler Tank Rental's regional markets. We would expect these higher booking levels to be reflected in our 2013 financial results in the quarters ahead.

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. By design, we have pursued and have been successful in generating higher business activity levels across a broader mix of non fraccing and historically less volatile vertical markets.

Although Adler Tank Rentals average utilization decreased to 65% for the quarter from 77% a year ago, this was primarily a result of the continued redeployment over the past 12 months of underutilized northeastern US gas field rental assets to other Adler geographies in need of equipment and seasonality factors during the first quarter of 2013 as mentioned earlier.

Over the past 15 months, Adler Tank Rentals has entered 7 new US markets. In addition to having relocated excess 21K tank inventory to serve these new markets as well as established markets, we have continued to purchase new rental equipment to support the mix of tanks and boxes needed in each region. This is supported by the fact that although average equipment utilization for the quarter is down 12 percentage points from a year ago, we had an average of $163 million of equipment on rent during the first quarter of 2013 compared to $154 million a year ago.

We are continuing to execute in building our national footprint to support higher rental revenue and earnings levels in the years ahead. Ideally, we'd like to see narrower or more consistent utilization ranges. However, we are at a critical juncture in our growth and it's 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 response to a variety of end market needs. As Adler Tank Rentals continues to mature as a national company, we will gain greater knowledge on the drivers of demand for various tank and box rental products in all of our regional markets, and in turn, we would anticipate a narrowing of utilization swings period over period.

The tank and box rental business isn't without its blemishes related to rapid growth as reflected in our decline in income from operations of 37% or $3.1 million to $5.2 million for the first quarter of 2013 compared to a year ago. The quarterly decline in profitability from a year ago is primarily related to higher equipment depreciation expense as a percentage of rents, and increased costs for interregional equipment transportation, salaries for new hires, bad debt, and fleet maintenance and supplies. Although we again had significant expense during the quarter related to underutilized rental equipment moving from the dry natural gas Marcellus region to other Adler geographies in need of equipment, we anticipate 2013 expenses for interregional equipment transportation to be markedly lower than in 2012.

During the quarter, we continued our close monitoring, escalation and clean-up of delinquent customer account receivables, as well as our credit and collections process improvements. We have put more organizational resources to bear to improve upon both DSOs and bad debt levels. We have plenty of work to do. However, we are hopeful that all of these efforts will reflect favorably upon these metrics in future quarters.

Now let me turn our attention to TRS-RenTelco and their results. TRS-RenTelco's rental revenues for the first quarter increased by $1.4 million, or 6%, to $24.8 million from a year ago. We are seeing favorable demand in some selective electronics and aerospace and defense sectors as well as in communications, product and network end markets. We saw our yield on equipment on rent increase to 4.88% during the quarter from 4.57% 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 than general purpose test equipment.

Divisional income from operations increased by 29% or $2.1 million to $9.5 million from a year ago. This significantly higher percentage increase in profitability as compared to rental revenues was primarily related to lower SG&A, equipment depreciation, and laboratory expenses all as a percentage of rental revenues from a year ago. These expenses as a percentage of rental revenues declined to 18.6%, 39.5%, and 13% respectively. In addition, the division benefited from an increase in gross profit on equipment sales of $0.7 million, or 26%, to $3.4 million from a year ago.

The combination of increased operating leverage and higher equipment sales produced an EBIT margin of 29% for the first quarter of 2013 compared to 24.1% a year ago. Ending first quarter TRS-RenTelco utilization was 63.3%, down from 65.1% a year ago and continues to be in acceptable range. Although average utilization was lower and average total equipment was relatively flat from last year's quarter, the higher average rental rate for the period produced an overall average yield on total equipment of 3.11% in 2013 compared to 3% in 2012.

In producing these strong operating metrics, we continued to benefit from our disciplined approach to equipment purchases and inventory management, appropriate depreciable equipment lives, and our highly skilled, efficiency driven and experienced work force.

Now let's go over our results for our modular rental business. Modular division rental revenues for the quarter decreased by 3% or $0.6 million from a year ago to $19.3 million. Rental revenues grew by 6% quarter-over-quarter in our markets outside of California, and declined by 10% within the state. Modular rental revenues outside of California now represent approximately 47% of division-wide modular rentals.

First month's modular building rental bookings for the division increased 37% from a year ago, with bookings outside of California increasing 68%, and staying fairly flat within the state. Our Texas and Florida modular building business activity has been very favorable over the first four months of the new year. Many of these modular building and rental bookings are for classrooms and larger custom commercial complexes that tend to have longer rental terms and will not begin billing until the second and third quarters of 2013.

Although we have not seen the healthier California economy over the past few quarters reflected in our module results to date, we are hopeful that we are nearing an inflection point in our financial performance in the Golden State.

Modular division income from operations for the quarter decreased by 28% or $1.1 million from a year ago to $2.9 million. In addition to lower rental revenues for the quarter, inventory center labor and material expenses were higher from a year ago due to processing a larger number of custom projects, classrooms for late spring and summer shipment, and overall higher commercial business activity levels. We anticipate that our first quarter 2013 inventory center related costs as a percentage of rental revenue of 31.5% will decrease over the remainder of 2013 as we shift and begin to recognize rental revenues on the equipment associated with these higher inventory center costs.

Period end utilization for the first-quarter 2013 was 66.1% compared to 65.7% for the same period in 2012, and 66.7% at the end of 2012. It's important to point out that our division-wide modular quarterly average utilization over the past ten quarters has stayed within a narrow range of 66% to 68%.

Finally, modular equipment gross profit on sales was up slightly to $0.9 million compared to $0.7 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 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 its customer following, increasing booking levels, and growing rental revenues. Rental revenues grew by 20% from a year ago and the business was profitable for the quarter compared to a loss in the first quarter 2012. In April, 2013, we entered the greater New Jersey/New York market. We are leveraging the strong legacy name recognition and customer following of Adler Tank Rentals in entering this geography.

We are striving to create higher business activity levels and greater critical mass in each of the markets in which we operate. We're working hard at expanding our portable storage business in the California, Texas, Florida, New Jersey and New York markets. We also continue to explore smaller fleet acquisition opportunities to accelerate our growth. 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.

Now for a few closing comments. 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 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.

Adler Tank Rentals is a great business, but not without some growing pains as reflected in our higher interregional transportation and bad debt costs continuing in the first quarter 2013 from the second half of 2012. We believe that we have now dealt with a great majority of the idle northeastern 21K tank inventory and we are leaving no stone unturned in making top to bottom modifications to our credit and collections processes in our tank and box rental business. We anticipate reduced costs for both of these expense categories to be reflected in our financials over the remainder of 2013.

Most importantly, Adler Tank Rentals 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.

Finally, I'd like to comment on McGrath RentCorp's strong cash flows. In the first quarter of 2013 we added a net $15 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 $6 million in shareholder dividends and invested $2 million in property, plant and equipment expenditures. Yet due to the company's strong cash flows and low leverage balance sheet, our ending notes payable for the quarter fell by approximately $21 million and our ratio of funded debt to the last 12 months actual adjusted EBITDA reduced to 1.77 to 1. 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) Joe Box, KeyBanc Capital Markets.

Hey, Dennis. Hey, Keith. Question for you on the sales in the quarter. If you exclude Enviroplex, it looks like your sales revenues were up about 30% year over year. Can -- first, can you maybe give us a little bit of color on what's driving the increase at Mobile Modular? And then maybe a little bit more specific on TRS, it looks like you slowed your fleet growth over the last couple of quarters but yet your sales figure actually stepped up. Is that just a function of kind of stepping away from the environmental products business? Or is there anything else that we should read into on that?

Yeah, Joe, sales -- first comment on sales is they can be lumpy quarter to quarter. If you stand back and look at the business, generally around the third quarter it's a heavier period for sales both in our Modular business where we get some sales of both new and used equipment, and also on our Enviroplex business. I think in the fourth quarter, or sorry, in the first quarter of this year, we had a little bit of sales activity in the Modular business, some new product. It's just the timing of the sale. It was a project started late last year and there was a possibility we would have seen it show up in Q4 but it rolled into the early part of this year. That gave a little bit of a higher level of sales in the Modular business.

I would say in TRS, that business is running very well for us. Sales are an inherent part of the business and they had a slightly stronger than typical quarter, both in terms of the level of sales and the margin, and just reflects that they were executing very well and they were turning over equipment as they routinely do.

And was part of that the environmental testing equipment that got turned over?

No, no. All the environmental product was sold in the fourth quarter of last year, so we're completely out of that business and have no inventory or sales for that business,

Got it. Okay. Maybe switching gears to the Modular business, we've been watching pretty closely the inside versus outside California revenue trends. And this quarter it actually looked like revenue growth outside the state moderated somewhat and then inside the state it deteriorated a little bit. We've also kind of paid attention to your commentary on first month's booking, which seems to have been broadly positive for the last couple of quarters. So I guess with that context, is the revenue degradation that we're seeing in the Mobile Modular business solely a function of pricing now? And is there anything else that you can give us to maybe frame up some of the market strength that you're actually seeing?

Joe, I think the first place to start when you look at revenue, rental revenue decline, and in particular in California, one thing we don't control is what equipment comes back. So we can have a strong booking quarter and we may get in the same period back more equipment than we anticipated. So that's the one thing you don't control even if you're getting good, favorable numbers on the bookings side.

And then as well, in California in particular, and not really elsewhere, you have equipment that's returning off rent at a higher price than what it's going out at, although that has narrowed greatly over time. So you have those dynamics in place. The momentum in the bookings that were seen are very positive over the last few quarters and actually March and April were probably, and I'm going between quarters here, but probably our two highest months that we've had in many, many years. They were both very strong on the bookings side and hopefully we're going to see that trend continue.

What's key right now is that we are seeing -- I'll give an example, the Texas market is very healthy, driven by the oil and gas industry as well as the general economy. We're seeing an uptick in school business there and we're doing a lot of complexes there for refineries, turnaround work, we just go down the list of opportunities. So we would expect to see lift in Texas rental revenues without question this year. I don't think there's any question with respect to that market.

Florida, we've had a very good booking season that's primarily classroom related and also the commercial business has picked up some which is very good to see. And so in the Florida market I would also expect rental revenues to be increasing throughout this year.

When you go to the mid-Atlantic, they've been able to grow that business, although it's a much smaller base, favorably over the last few years. I don't think this year will be any exception on rental revenues and they've had some healthy bookings in the first part of the year.

California, let's come back to that, there's no question in California that the general economic environment is considerably healthier than it was a year ago. Now, we've also been saying, and I think in a very candid manner, we need to see it in the numbers. So booking activity levels in California, we actually in the first quarter, and this relates to some of the expense side of things, we actually did a lot of very custom work on a lot of complexes, restroom buildings and other projects that we really haven't seen over the last couple of years. And this would include sales offices. So we're seeing good business activity in the California market. The question will be, is the school piece, and the school piece we may not see any material recovery until next year because there is supposed to be a facility bond in the first half of 2014 and that would be a key catalyst to really boosting the number of market opportunities for classroom rentals.

So we're close to 2014, we're not there yet. We have seen some pretty good activity this year, but not to where we would like to see it. And hopefully in the first part of next year, if that funding is in place, then we're going to see a lift in the California business because it has been declining on rental revenues and X amount of that is really related to rate and that we don't really control what comes back. But we've been in this now for over 5 years and there's no question in my mind, anecdotally and factually with the statistics in the market, that it's a much healthier economy. So at some point, especially with the school piece next year, if that comes to fruition, we are very hopeful that we'll see lift.

Excellent, that's really helpful. Thank you, Dennis. One last question then I'll turn it over. Can we just, can we dig in a little bit to the 7 new Adler locations? I know you guys typically start with an asset light model when you go into each market, can you maybe just give us a sense of how the revenues are trending in that market relative to the added costs and maybe just talk about the profitability at some of those new locations?

Well, those new locations, they vary between Texas, Utah, Maryland. So it's a number of different geographies. And as you mentioned appropriately, we have a very low cost start up, profits. We hire either an industry veteran from the tank and box rental industry or an industrial type salesperson that has worked in the industrial sector. And typically they work out of their home or they work out of a truck with a cab in the back, and they have obviously a computer and lists of customers, etc., and opportunities, and they really start selling quite immediately. And as they garner business, we ship equipment into the market to support them. As we develop critical mass in the market, then we'll rent inventory space. And then eventually as we develop further critical mass and we're having more of a turn of assets, we typically will go out and buy a piece of property and get the operating expenses down and we know we're there for the long-haul. So that's very typical of how we've opened all of our new markets other than -- and again, even with our established locations for modulars where we already have infrastructure. But it's really adding the people first, the equipment follows, and then additional infrastructure.

Thanks, guys.

Scott Schneeberger, Oppenheimer.

Thanks. Good afternoon, guys. Hey, just following up on the Adler question, the new geography, to see CapEx in the quarter, total company $25 million, $35 million last year. How big a component was Adler and what's the plan on spend this year for Adler and total company please?

Just on the CapEx, Scott, Adler was $7 million of equipment additions in the first quarter of this year. That compares with $22 million in the first quarter of last year. So definitely lots of new capital going into the business really for specialized items that we needed to complement the existing fleet. And we have a lot of equipment that is ready to be put to work there.

Thanks. And then still on the topic of the 7 new markets, how are you allocating the new fleet? Obviously you're still moving out of northeast. Sounds like that is getting near the final innings. And then the specialized fleet, how does that work? Is it broadly spread, Keith, or going to one or two locations?

The way it works is, and as you said, the 21K tank product, which is the primary product in the rental fleet, we've been able to fill all the needs in most of the new markets. And again, the 7 new markets over the last 15 months, so some of that equipment came new. But the more recent ones have all been filled through coming out of the northeast region or other regions that may have had an excess per period. Then the specialty equipment, whether it's vacuum boxes or double wall tanks, weir tanks, etc., those are then added in as a market has, as we examine a market and we look at the type of verticals that they have and we support that with new equipment coming right out of the factory. Or if we happen to have an excess in another region, we'll move that equipment there. But it's done in a very thoughtful manner and we put in a certain mix and then we'll deepen those supplies as it warrants in terms of market activity.

Great, thanks. Then you guys highlighted this bad debt in Adler. Could you speak to the trend a little bit, what you've seen over each of the quarters of the last year and were you think that goes going forward? And just why highlighting it now?

Yes, Scott the bad debt was $0.6 million in the most recent quarter, Q1, and that was up $0.4 million from a year ago. But down significantly from the fourth quarter where it was $1.6 million. And I think for us there's a couple of things. One is, we haven't executed well and we've made a number of personnel changes and working on tightening up our processes to do a better job on the collections and credit side. There's a portion of the Adler customer base that's a tougher collect for us compared to the businesses that we've been in historically and we're working hard to get things into a better place.

Thanks. Lastly, I noticed with the portable storage container business, moving up into the northeast you're using the Adler brand which seems logical. Is that something that's done nationally? Could you just I guess speak to the brand strategy there? And then you're also speaking to how that can be meaningful to earnings. Might we get quantification on a quarterly call soon on how meaningful that is? Thanks.

Well let me answer both, address both questions. With respect to the Adler name, obviously we're testing that in the greater New York, New Jersey market. And if that's successful, then we'd certainly have to consider that strategy in other new markets that we enter. So we're hopeful that that will be successful.

With respect to growing the portable storage business and trying to really quantify either current size, potential size, etc., we will be very guarded with that until we're almost forced to report separately based upon whatever rules and regulations. And that's done strictly because we don't want to tip off our competitors as to what we're doing, where we're doing it, how much we're doing, etc. So our goal is to really try to ramp that business as quickly and as responsibly as we can and it's in the best interest of our shareholders that we don't share any more than we absolutely need to with respect to that. The business is now profitable and needless to say, we understand the business well and we believe we can be very successful at it.

Thanks, and then final question, congratulations on your profitability in that business segment. How are you seeing yield in that space? Is it -- is that a large contributor? Is it -- are you using price in entering new markets or is it something that you find you don't have to use and you're having good success? Thanks.

That business is not really about price degradation. Pricing in that industry has been very stable for an extended period of time and it's really done based upon how efficient you can create your operations as well as providing a great customer experience. I know that sounds over simplified, but those are really the nuts and bolts of it.

Great. Thanks a lot, guys.

(Operator Instructions). Les Bryant, UBS Financial Services.

Hi. I had one question, something that was troubling me in the report. There was no indication of Enviroplex. Is that -- or any backlog or any business. Could you give us a little update of what Enviroplex is doing now?

Well Enviroplex, as you know, that business has been impacted negatively by the lack of public school funding for new construction. However, Enviroplex has actually done I think an exceptional job of finding work with charter schools and private schools and it's been able to fill its backlog with that. So it's no different this year. I think that business ideally, if there's a facility bond next year, it's going to potentially greatly improve the revenue levels, but more importantly, EBIT in the business, as we obviously took some negative impact from a project or two this past year that didn't go as we'd like to see it.

But they have a great product, they have a great brand name, they have a very significant customer following. What you really need for that business is the state funding for 50% of the cost of projects to be put in place. And hopefully that will occur next year.

Are you accounting for that in the modular division now?

No, really Enviroplex is -- no, that's not -- when we project our numbers, Enviroplex isn't going to take us one way or the other, so it's a pretty neutral event.

If you'd like to see more detail on Enviroplex, in our segment summary at the back of the press release , you'll actually see that Enviroplex is listed out as one of the operating segments within the business.

Well I'm aware of that, but in the past you have given some indication of what they're doing and I didn't know if after the problems we had last year that we had ceased to be in that business or if -- I just wanted a little color on it.

Thank you, Les, it's a good question. And as you know, we are a business to business rental company and that gets all of our time and attention and that's where the greatest dollars are in terms of profitability and shareholder growth and value. And so that's where we're focused. But at the same time, Enviroplex will push along here.

Well, I just missed it in the report and I know in the past you have commented on their activity. And I just thought I might have missed the fact that you were no longer going to be in that business.

Les, thank you for your good question. We appreciate it.

And I'm showing no further questions in the queue. Please continue with any closing remarks you may have.

Well we'd like to thank everybody for joining us this afternoon for our Q1 call. Our annual shareholders meeting is this coming June 12th and we'd love to see as many of you be able to attend that as you can. If not, please make certain that you return your proxy card. Otherwise, we'll look forward to chatting with everybody in early August on our Q2 call. Thanks so much.

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect. This conference will believe available for replay after today through May 8th, 2013 at midnight. You may access the replay system at any time by dialing 303-590-3030 or 1-800-406-7325 and entering access code 4611866. Thank you. You may now disconnect.