McGrath RentCorp (MGRC) 2014 Q2 法說會逐字稿

Welcome to the McGrath RentCorp second-quarter 2014 conference call. (Operator Instructions) This conference is being recorded today, Thursday, July 31, 2014.

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 7 days following the call by dialing 1-888-203-1112 for domestic callers and 1-719-457-0820 for international callers. The pass code for the call replay is 9026752. This call is also being webcast live over the Internet and will be available for replay. We encourage you to visit the Investor Relations section of the Company's website at MGRC.com.

Our press release was sent out today at approximately 4:05 PM Eastern Time, or 1:05 PM 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 and the Form 10-Q for the quarter.

For the second-quarter 2014, total revenues increased 10% to $95.7 million from $87.2 million for the same period in 2013. Net income increased 4% to $10.2 million from $9.8 million. And earnings per diluted share increased 3% to $0.39 from $0.38.

Second-quarter 2014 results included a $0.8 million nonoperating gain on sale of an excess property, which contributed $0.02 per diluted share.

Reviewing the second-quarter results for the Company's Mobile Modular division, compared to the second quarter of 2013, total revenues increased $7.8 million or 26% to $37.3 million due to higher sales, rental, and rental-related services revenues. Gross profit on rents increased $0.5 million or 6% to $9.2 million, primarily due to higher rental revenues, partly offset by a decrease in rental margins to 41% from 44%.

Lower rental margins were primarily a result of $1.8 million higher other direct costs for labor and materials and $0.4 million higher depreciation. Selling and administrative expenses increased $1.5 million or 18% to $10.1 million, primarily as a result of increased employee headcount, salaries, and benefits costs. Higher gross profit on sales, rental, and rental-related services revenues, partly offset by higher selling and administrative expenses, resulted in an increase in operating income of $0.3 million or 12% to $3 million.

Finally, average modular rental equipment at original cost for the quarter was $585 million, an increase of $45 million. Equipment additions supported growth across all regions and at our portable storage business. Average utilization for the second quarter increased from 66.8% to 70.3%.

Turning next to second-quarter results for the Company's TRS-RenTelco division compared to the second quarter of 2013, total revenues decreased $1 million or 3% to $32.1 million primarily due to lower rental and sales revenues. Gross profit on rents decreased $1.2 million or 10% to $11.2 million.

Rental revenues decreased $0.9 million or 4%, and rental margins decreased to 46% from 49%, as depreciation as a percentage of rents increase to 42% from 38%. Selling and administrative expenses decreased $0.3 million or 5% to $6 million, primarily due to decreased marketing and administrative costs. As a result, operating income was flat at $9.1 million.

Finally, average electronics rental equipment at original cost for the quarter was $261 million, a decrease of $3 million. Average utilization for the second quarter decreased from 63.5% to 59.3%.

Turning next to second-quarter results for the Company's Adler Tanks division compared to the second quarter of 2013, total revenues increased $0.8 million or 3% to $25.2 million, primarily due to higher rental and rental-related services revenues, partly offset by lower sales revenues.

Gross profit on rents increased $0.5 million or 4% to $12.3 million. Rental revenues increased $1 million or 5%, and rental margins decreased to 66% from 67%. Lower rental margins were primarily due to $0.4 million higher depreciation expense.

Selling and administrative expenses increased $0.8 million or 14% to $6.9 million, primarily due to increased bad debt expense and employee headcount, salaries, and benefit costs. As a result, operating income decreased $0.6 million or 9% to $6.7 million.

Finally, average rental equipment at original cost for the quarter was $287 million, an increase of $26 million. Average utilization for the second quarter decreased from 65.8% to 63.2%.

On a consolidated basis, interest expense for the second-quarter 2014 increased 8% to $2.3 million from the same period in 2013 as a result of the Company's higher average debt levels and higher average interest rates. The second-quarter provision for income taxes was based on an effective tax rate of 39.2%, unchanged from the second-quarter 2013.

Next I would like to review our 2014 cash flows. For the 6 months ended June 30, 2014, highlights in our cash flows included net cash provided by operating activities was $55.2 million, a decrease of $11.1 million compared to 2013. The decrease was primarily attributable to a lower increase in accounts payable and accrued liabilities, an increase in accounts receivable, lower income from operations, and other balance sheet changes.

We invested $68.1 million for rental equipment purchases compared to $56.2 million for the same period in 2013, partly offset by $13.8 million proceeds from sales of used rental equipment. Property, plant, and equipment purchases increased $1.9 million to $6.1 million in 2014, and we received $2.5 million from the sale of an excess property.

Net borrowings increased $17 million from $290 million at the end of 2013 to $307 million at the end of the second-quarter 2014. Dividend payments to shareholders were $12.8 million.

With total debt at quarter end of $307 million, the Company had capacity to borrow an additional $243 million under its lines of credit. And the ratio of funded debt to the last 12 months' actual adjusted EBITDA was 1.9 to 1.

For 2014, second-quarter adjusted EBITDA increased $1.9 million or 5% to $40.2 million compared to the same period in 2013, with consolidated adjusted EBITDA margin at 42% compared to 44% in 2013. 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 2014 earnings guidance, our 2014 full-year earnings guidance range remains unchanged at $1.70 to $1.85 per diluted share. Now I would like to turn the call over to Dennis.

Thank you, Keith. Now let's take a closer look at each rental business for the quarter.

Modular division-wide rental revenues for the quarter increased $2.7 million or 14% to $22.7 million from a year ago. This is the fifth consecutive year-over-year quarterly rental revenue increase for our modular division.

During the second quarter, we experienced a 29% increase in division-wide year-over-year first month's rental revenue bookings for modular buildings, with an increase of 23% in California and 33% outside of the state. Our favorable modular building rental booking trends have continued to date in the third quarter of 2014.

We are also continuing to see rental rates rise for various sized products, as demand exceeds readily available supply.

Modular division average and ending utilization for the second-quarter 2014 reached 70% and 72%, respectively, an increased from 67% and 68% a year ago. This is the highest modular division's second-quarter average utilization level since 2009.

Modular division income from operations for the quarter increased by $0.3 million or 11% to $3 million from a year ago. The lower percentage increase in income from operations compared to rental revenues is primarily due to higher divisional booking levels and the significant increase in related inventory center costs for labor and materials to prepare and modify equipment for rental.

This is compounded by needing to redeploy various rental assets that have been sitting idle for extended time frames, which tend to have higher processing costs than inventory that turns more frequently. In fact, inventory center costs, primarily for the preparation of modular building booked orders and anticipated near-term orders, were approximately $1.8 million or 23% higher than during the second quarter a year ago. These expenditures reinforce our belief that our modular building rental business is experiencing a strong turnaround.

Keep in mind that almost all of our inventory center costs for building preparation and modification work are expensed in the quarter in which they are incurred. However, we benefit from the associated rental revenue stream from such expenditures in the quarters ahead. Over the past two quarters we have begun to experience year-over-year rental revenue utilization lift associated with these higher-than-normal inventory center expenditures.

We also had higher SG&A expenses during the quarter from a year ago. These costs were primarily related to increased sales and operations staffing levels to support the recovery of our modular rental business, as well as the continuing expansion of our portable storage rental business. Finally, some of these increased costs were offset by higher gross profit on sales of equipment from a year ago.

Now let's turn our attention to Adler Tank Rentals and their results. Rental revenues at Adler Tank Rentals, our liquid and solid containment tank and box division, increased by $1 million or 5% to $18.7 million from a year ago. The year-over-year increase in rental revenues was driven by growth in branch locations open less than 2 years.

Average utilization was 63% for the quarter, which was down from 66% for the same period a year ago, but up from 61% during the first quarter of 2014. Average equipment on rent for the second quarter of 2014 was $181 million compared to $171 million during the same period a year ago, albeit on a higher average equipment level of $287 million in 2014, compared to $260 million in 2013.

Despite downward pressure on 21K tank asset utilization levels and rental rates, we have continued to purchase boxes and specialty tank products to support market demand and to round out our fleet offerings in our newest markets. Overall fleet average monthly rental rates for the quarter remained relatively flat at 3.44%, compared to 3.45% a year ago.

We have been able to offset some of the downward pressure on rental rates for 21K tank assets by renting larger quantities of box and specialty tank products that have higher average monthly rental rates and yields, but shorter average rental terms. At current utilization and inventory levels our new equipment purchases likely will decrease significantly over the next 12 months, as we have meaningful earnings horsepower potential from our existing pool of rental assets.

As 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, by design we have pursued and been successful in generating higher business activity levels across a broader mix of non-fracking and historically less volatile vertical markets. Fracking-related rental revenues made up 12% of total rental revenues for the second quarter of 2014.

Despite higher rental revenues for the second quarter, Adler Tank Rentals income from operations decreased by $0.6 million or 9% to $6.7 million from a year ago. The decline in income from operations was primarily driven by $0.8 million or 14% increase in SG&A expenses, chiefly related to a single account bad debt write-off, increased employee headcount, salaries, and benefit costs, and secondarily by an increase in rental equipment depreciation expense of $0.4 million or 11% from the same period a year ago.

As I shared earlier this year, we have elected not to pursue any further geographic expansion during 2014 for our tank and box rental business. With having opened nine new locations since 2012, it is essential that we execute on making all of these new market investment successful before expanding our footprint. Adler's management team is working hard to refine its sales, operational, and administrative structures and processes in order to expand margins and enhance the customer experience.

Now let me turn our attention to TRS-RenTelco and their results. Rental revenues for TRS-RenTelco, our electronics division, declined by $0.9 million or 4% to $24.4 million from a year ago. Average utilization for the second quarter fell to 59% from 64% year-over-year; however, ending second-quarter utilization for 2014 was 62%, down only slightly compared to 63% in 2013.

The decline in rental revenues is primarily related to a greater churn of rental equipment. Although first month's rental bookings are approximately 9% higher over the first half of 2014 compared to the same period in 2013, first month's rental returns are up about 8%. The combination of relatively flat net first month's rental booking growth coupled with shorter average rental terms in 2014 year-to-date, compared to the first half of 2013, drove the lower rental revenue level.

We believe the increased churn of rental equipment is chiefly driven by a larger mix of communications versus general-purpose test equipment business compared to a year ago. Communications test equipment rentals typically have shorter rental terms than for general-purpose test equipment.

Despite the year-over-year quarterly rental revenue decline, income from operations was flat at $9.1 million. As compared to the same period in 2013, during the second quarter of 2014 we benefited from increased gross profit on equipment sales, lower SG&A and laboratory costs, partially offset by higher equipment depreciation expense.

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 from a year ago. Rental revenues for the second quarter of 2014 grew by 40% year-over-year.

Individual branch as well as overall business segment profitability is continuing to grow. We entered the greater Chicago and Charlotte markets earlier this year and are looking forward to their contribution to our portable storage rental business long-term financial success. We are pleased with the progress we have made to date towards building a meaningful sized storage container rental business with attractive operating metrics.

Now for a few closing comments. Our full-year EPS guidance range of $1.70 to $1.85 remains wide due to the many moving parts to our portfolio of rental businesses. Currently, the most material variables include: one, the strength of the recovery underway in our modular building division; two, increasing utilization levels of our liquid and solid containment tank and box rental business assets; three, the potential for further softness in general-purpose test equipment rental demand in our electronics division; and four, no meaningful slowdown in modular building rental opportunities anticipated over the next few quarters.

With an eye on 2015, we may elect to invest in additional modular building preparation work completed in 2014 to support capturing a larger portion of the strong business activity levels we continue to experience. We are excited about the current strength and earnings outlook for our modular building rental business.

We have made a significant amount of investment in our tank and box modular and portable storage businesses over the past few years that have created near-term EPS headwinds. These investments were made with significant forethought towards creating materially higher earnings levels in our future than if we had not made them. We are working very hard to realize these objectives.

Last, please keep in mind McGrath RentCorp has a very strong balance sheet, with a funded debt to last 12-months actual adjusted EBITDA ratio of 1.90-to-1 and with the current capacity to borrow an additional $243 million under our lines of credit. We can be very opportunistic in growing our business lines with the availability of such funding.

We are committed to making each of our rental businesses meaningful in size and earnings contribution and with the best operating metrics by industry. We plan to continue to make favorable strides during 2014 towards achieving these goals.

Now, Keith and I welcome your questions.

(Operator Instructions) Scott Schneeberger, Oppenheimer.

Thanks. Good afternoon, guys. Dennis, let's start out with California and what you anticipate for a potential bond in the fall, updates on what you are hearing on the political front there, please, as it relates to Mobile Modular.

With respect to the educational facilities bond that has been in discussion for November of 2014, we should know definitively within about 2 weeks whether or not there is going to be one on the ballot. The bond measure has received wide support from the educational community, from the trade union, from the teachers union, as well as from parents.

However, the Governor is not aboard at this juncture. So you have a legislature that is supporting it and these other impacted groups, but the Governor, for a variety of reasons, not the least of which he thinks that there perhaps should be a new funding medium rather than state providing 50% of the funding through bonds, and at this juncture there is not agreement on how to move forward.

2 weeks to go here is the timing, and there is going to be plenty of activity in terms of promoting, supporting a bill to be put before the Governor by these different groups and parties. And we will have to see how that nets out here by really mid August, which is pretty much the deadline to be able to get something onto the ballot. But that is the current status.

Thanks. Could you give us an update with regard to the size of the bond? What has been proposed originally? Has it changed? Has it been maintained?

Obviously the whole bond itself is in question. But could you just discuss magnitude of what it could be? Thanks.

The most recent information that I have -- that has been shared with me in discussion has been anywhere from $2 billion to $5 billion. My understanding, within those -- within that range, that the modernization of public school K though 12 in particular would get the lion's share.

But again, that is purely what has been -- being discussed amongst different groups, but without anything definitive. But I think the latest numbers are anywhere from $2 billion to $5 billion.

Needless to say, even a few billion dollars in support of modernization work would be very significant over the next few years, until either a new funding mechanism gets agreed upon in terms of the state's contribution or we get back on track with the standard statewide bond fundamentals as we have done historically.

Thanks. In California, with regard to that, you said you might spend more next year with regard to CapEx on modulars, and it sounds like you are seeing a lot of demand. How much does the bond impact weigh on that? And how broad-based geographically is the demand that you are seeing? Thank you.

Well, just to level-set here, this is not capital expenditures. This is expense in our inventory centers for labor and materials to prepare equipment. So this is all expensed out within the quarter as it incurs, the great majority of it.

The demand side of things has been very strong over the past 12 to 15 months. It has been very strong right through the end of July.

What we are seeing currently is we already have some significant orders that are going to be coming online in 2015 that are educationally driven. And from what we are seeing in our pipelines from an educational demand standpoint, independent of whether a bond measure is passed or not, is very favorable.

Some of this is driven by school districts that already had funding in place but just hadn't moved forward with their projects, or districts that are funding it 100% themselves, because they have the funds to do so. Again I just want to underscore, independent of whether or not a bond measure gets passed this year, the momentum that we are seeing from what had been pent-up demand in the state is starting to play itself out in school districts moving ahead. And that is a good thing for us.

The bond measure passing at this juncture would be icing on the cake for next year. But if there was no bond measure this year and not another medium next year, then we would feel that impact in 2016. So at this juncture we feel pretty good about 2015 from a booking standpoint for schools in California.

Thanks. Then just one more for me and we will go over to TRS-RenTelco. In telcom versus general-purpose, could you just take us a level deeper within each, as far as what you are anticipating going forward? Some good color in the prepared remarks, but just a little bit more elaboration on each.

And then taking a step back, we're in a hiccup right now -- do you think it is a hiccup? Do you think it is something that could be longer-term? How solid is your visibility at the moment? Thanks.

Well, first of all, our belief on the general-purpose side as to why there has been slowness -- and by the way, this has been around now for just about a year -- is both from the semiconductor industry slowness as well as on the aerospace and defense side, but more on the defense piece of that. So those are what we believe is driving it.

How long it continues, we don't know. We can't put our finger on anything else that is really having that -- driving the slowness in that, those verticals. So that is just where we stand presently.

If you look at the manufacturers as well of test equipment, they are echoing the same things that we are, for the most part In that they have seen their business levels down in those related sectors. And those are just the current dynamics.

We'd hoped that we would start seeing some turnaround by now, but we haven't yet. So we will just have to see how this continues. But there is nothing else that we can really point to at this juncture.

Okay, great. Thank you.

David Gold, Sidoti.

Hey, good afternoon. Wanted to follow up and see if we could get some additional color. I think now you called out on the investment costs during the quarter $1.8 million incremental year-to-year, if I got that right. Just wanted to see if you can give some sense on a couple of things. One, what the balance of the year could look like.

And then two, there was a small reference in the release towards having an eye towards 2015, we may elect to invest in additional preparation work. Just some color on that commentary as well. How should we interpret that?

David, just a couple of comments to try and be helpful. I think the second-quarter level of expenditure -- and you are right it was $1.8 million higher than the previous year -- that should be our peak quarter for the year. So what we are expecting is sequentially the number will drop in Q3, and then like we drop again in Q4.

The degree of those drops is really what Dennis discussed earlier in his remarks, as we look at the health of demand and potentially preparing some units in 2014 and incurring expense, but they are units we expect to go out early in 2015. So those are some of the factors at play.

Got you. Okay. So there is already that spend baked in there, right, for the second half?

I guess what I was curious on was, as I said, the wording in the release was along the lines of we may elect to invest. Just wanted to get a sense for if we elect to invest.

Is it fluid? Is it a function of, yes, there are orders or there is a pipeline that you are looking at, but if the orders come in you will step up the investment spend? Or is it not quite that simple?

Well, right now when you look at utilization, utilization is rising. We're between 70% and 72%. You look at any utilization of -- what did we say -- 72%. We want to take full advantage of the demand while the demand is here.

So that could mean that if we are seeing the demand continue strongly into 2015, and that means in order to realize the higher utilization levels as early next year as possible, it means preparing equipment this year, we would gladly do that. To what degree that demand will be there and lift in terms of opportunity, we don't know.

But it is really a good problem to have. Whereas if we didn't take advantage of it, yes, that would help EPS this year; but it would be at the expense of higher EPS in future years.

So demand has stayed strong. How significant the demand will remain going forward, we feel good about. But we don't -- it is hard to understand here how that will flow, especially towards the end of the -- especially in the fourth quarter.

Got you. Okay, so if that did happen -- and again, going back to the wide band of guidance -- if you do see those demand drivers and you do elect to spend a little bit more, could that take you below, say, the low end of guidance? Or are we talking about something that is within that band?

I think the latter, that it would be within the band. It should not take us below.

Okay, perfect. Then also, a little bit of color there by way of -- I guess there was some commentary as to Adler with the write-down for some bad debt. If you can just give a little color on that.

It was one account. It was an account -- it was a gas and oilfield services company that we actually had done business with for a number of years, I think probably a 4-year relationship. They got into some -- they got overextended.

We obviously collected a lot of money from them over a number of years, and they obviously hit a bump in the road and were not able to pay us on some monies that we expected to get from them. So unfortunate.

I will say this, we have really made a number of material changes in our credit-quality screening as well as in beefing up our team. And I would hope that those types of write-offs are truly an exception going forward.

But the gas and oilfield services piece of it, obviously that has been a sore point for Adler. And hopefully we have got the great, great, great majority of those challenges behind us at this point with the changes that we have made.

Keith, do you want to add anything to that?

No, I think that's it.

Perfect. Thank you, both.

(Operator Instructions) Joe Box, KeyBanc Capital Markets.

Hi, guys. Just a follow-up on David's question. So how much was the bad debt expense? If you were to ex that out, what Adler EBITDA margins actually have been positive in the quarter?

Yes, the bad debt was higher year-over-year by $300,000.

Okay. I don't think that would have been enough to drive EBITDA margin expansion at Adler.

No.

Would it have?

No.

Okay. Well, it sounds like most of your team is in place and you are happy with the infrastructure at Adler now. So how should we be thinking about maybe SG&A on an absolute number going forward and just the prospects for margin expansion at that business?

We are really, from an SG&A perspective, we are moving to lock it down, to really start working with what we have, not only in terms of equipment, which is obviously separate than SG&A, but the staffing we have. We have got a few sales positions that are currently open that are revenue generating; those are -- they pay for themselves.

But from a staffing standpoint, a driver standpoint, truck purchase standpoint, we have really got the geography that we ideally want to have right now. And as you can tell from my earlier comments, our newest markets contributed nicely towards that increase. And now is the time to really fine-tune the business, and there is not -- really from an SG&A standpoint, we are honing it.

Yes, we also made significant investments in systems over the last year. And that is all reflecting on the run rate of the SG&A of the Adler business.

Got it. Then on the CapEx front, you guys have been adding about $6 million to $7 million per quarter in assets just at Adler. With you being closer to where you want to be, how should we be thinking about maybe the incremental spend in that business?

I think you said it was going to decline. But does it go to $2 million? Does it go to $3 million?

It will reduce materially from what we have been doing for the past year, without question, and to what degree, but it will be significantly less. Because we, quite frankly, have made the appropriate moves that we have needed to make with rounding out inventory and moving equipment between locations.

So we feel we are in pretty good shape right now with what we have and the mix of equipment we have. Not that we won't be buying some from time to time, but we have worked hard to be able to build out the footprint and be in position to start realizing higher profit levels.

Great. Switching over to the Mobile Modular business, I do just want to flesh out the rates a little bit. If you look at the rates this quarter, this is literally the first time since I think it was 2007 that rates didn't decline. So kudos on that front.

But in terms of maybe the pace of the recovery, I know it is going to be a slow turn. But should we think about the rate recovery on a year-over-year basis training in the low single digit range? Or is that maybe a bit conservative? Just any color you could give us on that front would be helpful.

Yes, Joe, a lot of mix issues at play there. We see different rates between educational product and commercial product. Rate can also be impacted based on the term of a contract that we sign with a customer, and you also have regional variations.

So I would agree with your comment. We were very pleased to see that metric, which is a fleetwide average metric, show a sign of stability and not decline for the first time in a long time.

On the other hand, we wouldn't be shocked if that rate moves around a bit on us. Really what I would look at first is utilization. What we believe internally is utilization is going to be the key here over the next year or two, with rate following gradually, and perhaps with some ups and downs along the way.

Yes, the yield dynamic, Joe, as you might imagine, as we rent more classrooms -- which (inaudible) we have got a good amount out towards the end of Q2, but the largest amount will be going out in Q3 for the year. Those tend to be much longer term than commercial rental, but they go out at a lower rate.

So we would much rather -- we're just fine trading term for what is a more customary lower-rate product. Because when you look at the overall yield on that product versus commercial it can be very attractive.

So even though you may see rate have some pressure on it, because that is just more the typical type of classroom rental rate that we would experience versus commercial.

Yes. And Joe, when we look at our rate for particular types of products across various markets, various geographies, the majority of those markets are showing rate increases year-over-year.

Great. Thanks for that. Then maybe just lastly -- and I apologize if I missed this; but are you still guiding 5% to 10% growth in rental revenue this year for the entire business?

Joe, we haven't updated that. I think our philosophy when we look at the guidance parameters, we told you everything we thought at the beginning of the year. We set our range.

Clearly as the year progresses some of those parameters are going to move around a little bit. I think on that particular parameter, we are very likely to be within that range for the year.

Perfect. Yes, I mean, it looks like 1Q was about 3%; this quarter it was 4% and --

Yes, well, keep in mind, that's rental -- Joe, just be careful. It's rental operations. A lot of our competitors include the delivery piece as well.

So when you look at it like that, I think our year-to-date on that metric is we are up 7% year-over-year. So you include the rental revenue stream, and then the rental-related services stream; add those together; and you look at it year-over-year.

I think you will find it is 7% year-over-year growth, compared to that comment at the beginning of the year of expecting to be in a 5% to 10% range.

Okay, good. That's helpful. I was actually thinking it was the other way around.

That's it for me. Thanks for taking my questions.

[Fred Poso], Schroders.

Hi, thanks for taking my question. My question is on utilization in modular. I was wondering; you saw nice improvement year-over-year. Was that improvement of a similar scale in commercial and in educational, or is there any major deviation?

For Q2, commercial was the primary contributor to the improvement and utilization, as in most typical years we get our big impact from educational rentals and utilization in Q3 and Q4.

So was commercial up more than 300 basis points in utilization year-over-year?

I would -- let's just say this, they were the lion's share.

Okay. Can you talk maybe about where you are seeing the best growth and the best rate opportunities outside California?

Actually, Texas and the mid-Atlantic have both been very strong in commercial as well as educational. And as you know, Florida is predominantly an educational market, which has been very nicely; it is really coming back.

So actually across-the-board outside of California. We are very pleased. There is not really a weak spot that we can speak to.

Any greenfield opportunities or any regions that you're -- that look attractive?

Well, not in terms of new geographies. We are in the right geographies. It is a matter of taking market share and also capturing the new business, and I think we're very well positioned to do both.

Mid-Atlantic for us is a very large region and there is a lot of long-term opportunity to pursue.

As far as rate, what is the strongest region on the commercial side or outside California?

It is hard to say. Texas is probably -- if you had to pick a region -- that's probably the strongest in rate. But, quite frankly, based upon the opportunity and based upon the type of product it can be very strong just on a transaction-by-transaction basis in any of the markets.

Great, thank you.

We have no further questions. I will now turn the conference back over to management for any additional or closing remarks.

Well, thank you all for joining us for our Q2 call today. We appreciate your continued support.

We are going to continue working hard here over the next few months and look forward to chatting with you again in late October or early November for our Q3 call. Thank you so much. Bye-bye.

This does conclude today's conference. I do thank you all for your participation.