McGrath RentCorp (MGRC) 2014 Q3 法說會逐字稿

Good day, and welcome to the McGrath RentCorp third quarter 2014 conference call. At this time, all conference participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions on how to ask a question will be given at that time. This conference is being recorded today, Wednesday, October 29, 2014.

Now, I'd like to turn the conference over to Geoffrey Buscher of SBG Investor Relations. Please go ahead, sir.

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 1-888-203-1112 for domestic callers, and 1-719-457-0820 for international callers. The passcode for the call replay is 5559358. 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, which is 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 21-E 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 third quarter 2014, total revenues increased 4%, to $113 million from $108.8 million for the same period in 2013. Net income increased 9%, to $13.7 million from $12.6 million, and earnings per diluted share increased 10%, to $0.53 from $0.48.

Reviewing the third quarter results for the Company's mobile modular division compared to the third quarter of 2013, total revenues increased $6.6 million, or 17%, to $46.2 million due to higher rental, rental-related services and sales revenues.

Gross profit on rents increased $4.7 million, or 66%, to $11.9 million primarily due to 21% higher rental revenues and higher rental margins of 47% in 2014, compared to 34% in 2013. Higher rental margins were a result of $4.4 million higher rental revenues and $1 million lower other direct costs for labor and materials partly offset by $0.6 million higher depreciation.

Selling and administrative expenses increased $1.5 million, or 16%, to $11 million primarily as a result of increased employee headcount, salaries and benefit costs.

Higher gross profit on rental, sales and rental-related services revenues, partly offset by higher selling and administrative expenses, resulted in an increase in operating income of $4 million, or 158%, to $6.6 million.

Finally, average modular rental equipment at original cost for the quarter was $608 million, an increase of $58 million.

Equipment additions supported growth across all regions and our portable storage business. Average utilization for the third quarter increased from 69.1% to 73.3%.

Turning next to third quarter results for the Company's TRS-RenTelco division compared to the third quarter of 2013, total revenues decreased $1.2 million, or 3%, to $32.7 million primarily due to lower sales and rental revenues.

Gross profits on rents increased $0.2 million, or 1%, to $12.2 million. Rental revenues decreased $0.2 million, or 1%, but rental margins increased to 48% from 47%, as other direct costs as a percentage of rents decreased to 12% from 14%. Selling and administrative expenses increased $0.1 million, or 2%, to $5.8 million.

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 $0.4 million, or 4%, to $9.9 million.

Finally, average electronics rental equipment at original cost for the quarter was $261 million, a decrease of $5 million. Average utilization for the third quarter was flat at 62.5%.

Turning next to third quarter results for the Company's Adler Tanks division compared to the third quarter of 2013, total revenues decreased $0.1 million to $25.7 million primarily due to lower rental revenues partly offset by higher rental-related services revenues.

Gross profit on rents decreased $0.9 million, or 7%, to $12.2 million. Rental revenues decreased $0.4 million, or 2%, and rental margins decreased to 65% from 68%. Lower rental margins were due to the lower rental revenues and $0.3 million higher depreciation expense. Selling and administrative expenses increased $0.1 million, or 2%, to $6.5 million.

Lower gross profit on rental and rental-related services revenues and higher selling and administrative expenses resulted in a decrease in operating income of $1.3 million, or 15%, to $7.2 million.

Finally, average rental equipment at original cost for the quarter was $294 million, an increase of $26 million. Average utilization for the third quarter decreased from 66.8% to 62.7%.

On a consolidated basis, interest expense for the third quarter 2014 increased 11% to $2.4 million from the same period in 2013 as a result of the Company's higher average debt levels partly offset by lower average interest rates.

The third quarter provision for income taxes was based on an effective tax rate of 39.2%, unchanged from the third quarter 2013.

Next, I'd like to review our 2014 cash flows. For the nine months ended September 30, 2014, highlights in our cash flows included -- net cash provided by operating activities was $85 million, a decrease of $14.9 million compared to 2013. The decrease was primarily attributable to a higher increase in accounts receivable and other balance sheet changes.

We invested $113 million for rental equipment purchases, compared to $93.4 million for the same period in 2013, partly offset by $22.9 million proceeds from sales of used rental equipment.

Property, plant and equipment purchases increased $1.1 million to $9.1 million in 2014, and we received $2.5 million from the sale of an excess property.

Net borrowings increased $32.3 million, from $290 million at the end of 2013 to $322.3 million at the end of the third quarter 2014. Dividend payments to shareholders were $19.2 million.

With total debt at quarter end of $322.3 million, the Company had capacity to borrow an additional $227.7 million under its lines of credit, and the ratio of funded debt to the last 12 months adjusted EBITDA was 1.96 to 1.

For 2014, third quarter adjusted EBITDA increased $3 million, or 7%, to $46.4 million compared to the same period in 2013, with consolidated adjusted EBITDA margin at 41% compared to 40% 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 $4.4 million, or 21%, to $25.4 million from a year ago. This is the sixth consecutive year-over-year quarterly rental revenue increase for our modular division.

During the third quarter, we experienced a 66% increase in division-wide year-over-year first month's rental revenue bookings for modular buildings, with an increase of 50% in California and 84% outside of the state. Our favorable modular building rental booking trends have continued to date in the fourth quarter of 2014. We also continue to see rental rates rise for various sized products, as demand exceeds readily available supply.

Modular division average and ending utilization for the third quarter of 2014 reached 73.3% and 74.2%, respectively, an increase from 69.1% and 70.4% a year ago. This is the highest modular division third quarter average utilization level since 2008.

Modular division income from operations for the quarter more than doubled, to $6.6 million from $2.5 million a year ago. This strong increase in profit was driven primarily by higher rental revenues and rental-revenue margin expansion. Gross margin on rental revenues increased to 47% for the quarter, from 34% a year ago.

Although modular division inventory center production continued at full capacity during the quarter, we benefitted from lower equipment preparation costs compared to the third quarter of 2013.

Direct costs associated with renting equipment and inventory center operations were $9.2 million for the quarter, a reduction of $1 million, or 10%, from $10.2 million during the same period in 2013.

Keep in mind, the majority 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.

We also experienced higher SG&A expenses during the quarter from a year ago. These costs were primarily related to increased sales and operation staffing levels to support the recovery of our modular rental business as well as the continued 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 solids containment tank and box division, decreased by $0.4 million, or 2%, to $18.7 million, from $19.1 million a year ago.

Average utilization was 62.7% for the third quarter of 2014, down from 66.8% a year ago. However, ending utilization for the quarter was 65.1% compared to 64.6% in 2013. Further, third quarter period end equipment on rent reached $193.3 million, our highest quarter ending level to date. This compares to $176.4 million at the same point in 2013. During 2014, we have experienced some delayed project starts that have contributed to these utilization dynamics.

Overall fleet average monthly rental rates for the quarter declined to 3.39% from 3.56% a year ago. This is reflective of a continuing highly competitive market for 21K tank rental assets. Despite downward pressure on 21K tank rental asset rates, we have continued to selectively purchase boxes and specialty tank products to support market demand and to round out our fleet offerings in our newest markets, albeit at reduced levels from 2013.

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.

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 been successful in generating higher business activity levels across a broader mix of nonfracking and historically less volatile vertical markets. Fracking-related rental revenues made up 12% of total rental revenues during the quarter, consistent with the same period in 2013.

Adler Tank Rentals income from operations for the quarter decreased by $1.3 million, or 15%, to $7.2 million, from $8.5 million a year ago. Beyond the reduction in rental revenues for the quarter, other factors contributing to the decline in income from operations from a year ago included lower profit on rental-related services and higher depreciation, employee headcount, salaries and benefit costs.

Now let me turn our attention to TRS-RenTelco and their results. Rental revenues for TRS-RenTelco, our electronics division, declined by $0.2 million, or 1%, to $25.5 million from a year ago. However, despite the decline in rental revenues, income from operations for the quarter increased by $0.4 million, or 4%, to $9.9 million, from $9.5 million a year ago. The increase in income from operations for the quarter from a year ago was driven primarily by higher profit on equipment sales and lower laboratory and equipment processing costs.

The slight decline in rental revenues year over year is primarily due to a greater churn of rental equipment. Although first month's rental bookings are approximately 6% higher over the first nine months of 2014 compared to the same period in 2013, first month's rental returns are up about 5%. 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 rental business compared to a year ago. Communications test equipment rentals typically have shorter rental terms than general-purpose test equipment.

Average utilization was 62.5% for the third quarter, flat from a year ago, but up from 59.3% during the second quarter of 2014. Period ending utilization for the third quarter was 64.2%, compared to 62.3% a year ago and 62.2% at the end of the second quarter of 2014.

Now let me take a moment and update everyone on our portable storage business. Mobile modular or 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 third quarter of 2014 grew by 44% 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's 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. Despite continued heavy investment in equipment preparation expenses for mobile modular and challenging market conditions for Adler Tank Rentals and TRS-RenTelco, we expect full-year EPS to remain within our guidance range of $1.70 to $1.85. In our modular building and rental business, we have continued to invest heavily in the preparation of rental equipment to support the ongoing strength of our order booking levels for shipment in the months and quarters ahead. We are excited about the current strength and earnings outlook for our modular building rental business.

We are also working hard within Adler to address underutilized 21K tank rental assets, develop its management team and to refine its sales, operational and administrative structures and processes in order to expand margins and enhance the customer experience.

And in our electronic test equipment rental business, although rental revenue and profit are relatively flat from a year ago, with our strong industry leadership position, we expect to benefit favorably when the market environment improves.

Last, please keep in mind that McGrath RentCorp has a very strong balance sheet, with a funded debt to last 12 months adjusted EBITDA ratio of 1.96 to 1 and with the current capacity to borrow an additional $227 million under our lines of credit. We can be very opportunistic in growing our business lines and pursuing new strategic opportunities 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 towards achieving these goals in the quarters and years ahead.

And now Keith and I welcome your questions.

(Operator Instructions) David Gold, Sidoti.

So, a couple things. One, I wanted to go over a little bit the trends or what you see -- what's driving the growth of mobile modular, particularly California. Is that the 50% first month pickup?

Well, primarily in California we have benefitted from -- and it's different really by region of California. If you look at Northern California, we benefitted from a very strong commercial market as well as a very much improved educational rental market. In Southern California, we've had some lift, although the business levels there -- although we're booking more, we've had a few more returns, and we haven't seen as much lift out of that market.

Keep in mind that that was our largest modular rental profitability location or region in the country coming into the Great Recession, so we still are looking for much more significant lift out of that region in the quarters and years ahead. But primarily in California, it's been Northern California commercial and educational, some commercial lift in Southern California, some educational lift there, but not to the levels of Northern California.

Got you. Okay. And Dennis, can you speak a little bit to what's happening on the educational side, how things are being funded sort of in light of the lack of a bond issue this year?

Well -- and what David is speaking to is that there was discussion throughout the year that there would be a facilities bond measure on the November upcoming ballot to help fund both new school construction as well as modernization of California schools, and that did not materialize.

However, what we have seen over the last couple of quarters and, actually, over the last year is that because of all the local bond measures that have been passed over the last few years, or parcel taxes, that a lot of districts have proceeded ahead just to fund their projects directly at a local level, and with some likely hoping to be reimbursed by the state at a later date.

So the landscape is such that we've had a very dry period of funding for some time now at the state level. However, at the local level, they've been fairly flush, and I think what is occurring is you're seeing X amount of school districts are just proceeding ahead with projects just because of the needs, both on modernization as well as on new facility construction.

So this November ballot also has a number of local bond and parcel tax measures on it throughout the state of California as school districts are moving forward to fund future projects from those sources.

Longer term, we'll have to see how all of this plays out. The one thing that is occurring is that demand continues to be pent up for both modernization of schools as well as for new building construction. As a silver lining, we may very well benefit from the standpoint of if there are no new monies really available to do new construction at the state level, the least expensive alternative is really to rent relocatable classrooms, that we could benefit potentially from that in the quarters and years ahead.

But the next opportunity for a statewide bond measure would be in 2016, and we're not exactly holding our breath. It may very well be that the landscape of funding for California schools is going to change, which may not be a bad thing, over time and that the funding sources may be very much more locally driven. But we'll have to see how all that transpires over the next few quarters and years.

Got you. Okay. And then shifting to Adler for a second, a big pickup there in quarter-end utilization versus the average during the quarter. I'm curious. I know -- I think you referenced some projects with late starts. Is that what you would attribute that to?

Yes. Some of the projects that we had expected or anticipated would come online earlier were delayed for various reasons but are coming on now. And there may be some longer -- we may benefit from that into the fourth quarter here longer than we would've otherwise.

Got you. Okay. Just one other, if I can. On the guidance, a pretty wide range for your business, which presumably has some pretty decent visibility. Any insight into that?

Yes, David, I'll offer a few comments and really try and share with you our thinking around the guidance process. I think, as you know, our practice has been to provide full-year guidance typically in the February timeframe. And when we do that, we give quite a lot of line-item commentary for key items on the income statement. And with three significant operating segments serving different end markets and each really with their own dynamics, there are a lot of moving parts overall to the McGrath RentCorp business and to its possible results. And so we believe a wide range is appropriate.

And then, really, as we've gone through the course of the year, I think our current approach is to look at the guidance range and maintain the original range, unless we believe it's highly likely that we're going to come out either significantly above or below that original range. So that's really the way we've approached the thinking on the guidance range. Rather than making minor modifications or moving, if you will, the goal posts in or out a little bit, we give you our best view at the beginning of the year. We're going to stick with that, unless we see some significant change in the outlook, either positive or negative.

Got you. All right, that's all I have. Thank you both.

Thank you.

Scott Schneeberger, Oppenheimer.

I'd like to start with TRS-RenTelco and in the general test equipment. Utilization, it sounds like, got a little bit better at the end of the quarter. Could you differentiate between communication and general test equipment and just talk about what's driving each of those and looking forward a bit? Thanks.

Well, the communications business has remained quite healthy over the last few years, and that continues to be the case today. That's really driven by really everything to do with different protocols, whether it's 3G, 4G, 4G LTE, so a lot to do with smartphones, cell phone networks, bandwidth over the Internet, wireless data bandwidth, et cetera.

So as we all know in going out and getting the next best smartphone, that all of those, whether it's protocols or it's phones themselves or it's anything to do with the communications network infrastructure-wise, all of those types of products have to have R&D work on them when they're developed as well as when they're deployed, and also have to be maintained. So we benefit nicely from that wonderful communications network market.

With the general purpose test equipment markets or verticals, that's very much chip or semiconductor driven, along with general electronics, and we have experienced some softness there. Also, aerospace and defense is a part of that as well, and we know that there's been softness in various segments there.

So we don't have a good crystal ball on the dynamics of changing the landscape for general purpose test equipment. We do know this business can go in cycles from time to time. But there's nothing really of significance on a secular front that gives us concern or consternation. And over time, we would expect the general purpose test equipment side of the business to improve. And with our leadership position in that industry segment in the Americas, we should, over time, recover very favorably.

But in the meantime, that business runs with a very tight cost structure. We've moved aggressively to sell under-utilized equipment, to lower depreciation expense, and we also get a benefit from some very good margins on sales as well. So we're managing the business very smartly today, and that's why you see even though rental revenues are down income from operations was slightly up. And that's a function of those good management practices and creating a tighter cost structure.

And Scott, just on the utilization, the improvement we saw was in both of the product categories. We saw some improvement in the general purpose and in the telecom side of the business.

Okay, thanks. And it sounds -- Keith, it sounds like, from what Dennis said, that you have confidence that the communications will continue, but the utilization level a little less certain to your visibility on general test equipment near term, but confidence longer term.

Yes.

And Scott, keep in mind there are seasonal dynamics with both of those products as we head into the fourth quarter. And that's typical annually in that business as firms wind down some of their projects, et cetera, and then they tend to ramp back up come January. So it's just a function of how many returns we get between now and the end of the year, when does that really pick up a certain pace. Sometimes it's in the middle of the fourth quarter, or sometimes it isn't until towards the end of the fourth quarter. So those are some of the seasonal wildcards.

Thanks. And on that, I'll slip in another question -- Enviroplex. Historically, it's fairly steady, but you have in years past seen spikes in the back half of the year, specifically the fourth quarter. Anything in that segment or other that you think might be unusual behavior into the fourth quarter -- or in the fourth quarter?

Yes, I think you're spot on with Enviroplex in that typically most of the sales revenue is recognized in the third and fourth quarter. I think some years it can be weighted more to the third and then less in the fourth. This year, it's probably more comparable between those two periods. So I don't think that's unusual, but there are a number of projects that should finish up in the fourth quarter and we should recognize revenue on, so that's where it stands with that business.

And again, even with that business -- getting back to forecasting -- sometimes due to site issues or weather issues, projects can slip into the first part of next year and won't be included in our 2014 results. But at this point, we expect Enviroplex to have a quarter that is maybe not quite as strong as Q3, but still quite significant.

Great. Thanks. And just a couple more, but one following up on David's question earlier about the guidance. It is a pretty broad range, so you have a pretty good feel now. And something one of you said was unless it's significantly outside, you wouldn't change it. The question embedded in all this is I get the sense you're [kind of] towards the lower range than the higher range, since it is a very broad range. Is there comfort that you will be in the range? Just the wording significantly outside kind of caught me off guard. That's why I ask.

Well, all this is forecasting, Scott, and our forecast is never perfect, but based on everything we see in the business today, we expect to be in the range. And again, if you think of the work we did at the beginning of the year to set that range, we've done, I think, a good job in light of the fact we've spent more operating expenses in the modular business preparing equipment and we've had some slightly tougher market challenges both at Adler and TRS than we might have expected at the beginning of the year.

Now, in spite of all that, we still think we're going to be within our original range. And maybe to be helpful to you, I think if you look at it objectively with our year-to-date earnings and look at some reasonable projections for the fourth quarter, it's probably more likely that we're going to be towards the lower end of the range than the upper end of the range. But, again, you can do your own assessment of Q4.

Understood. Yes, thanks. And it has been quite consistent through the year, and nice work on the projections. Lastly, I want to swing over to the CapEx, and I think one of you mentioned that utilization issues are really in 21K tanks. I'm curious, where are you spending -- two-part question. Where are you spending CapEx across the three or four segments, however you want to count it? Where -- degrees of magnitude, if you could rank order where you're spending? And then the second part of the question is are you doing anything extra special where you might be taking out 21K tanks from Adler or just trying to redeploy? Thanks.

Scott, I'll talk to the year-to-date progress in terms of where we've spent capital first, and I think, first of all, big picture -- if you look at it a year ago in the first nine months, we spent $93 million. This year in the first nine months, we spent $113 million. And if we look by line of business, the really big difference is we've spent quite a lot more in the modular business this year, in the modular segment.

Now, that includes our portable storage business as well as the traditional modular buildings. And within modular buildings, we've definitely spent heavily in the Texas market and the Mid-Atlantic region. We've also been spending in Florida and also doing some capitalized refurb of equipment in California.

So again, the big difference compared to a year ago is a lot of healthy market conditions leading to capital being spent in the modular business. By comparison, in the first nine months of this year, we've spent less at TRS and less at Adler, and that's not a surprise given the fleet utilization for those two divisions.

And Scott, let me address your question on the 21K tank under-utilization and the steps that we're taking. One of the items is that we need more salespeople in our largest markets to handle more opportunities that are there. So we're understaffed in some of the key markets.

Two is we need more major account development, that we're working on. Three is there's some targeted geographic expansion that could help us with the deployment of those assets. And really, last is taking some of those assets that are in existing markets and moving some of those to other markets to support higher demand. And then last would be where we can sell some 21K tanks here and there, that helps the situation.

At the same time, we're confident that over time, that equipment will be appropriately utilized across our different markets, even without any real significant sales.

Got it. Thanks. That's good color. I appreciate it, guys.

(Operator Instructions) Joe Box, KeyBanc Capital Markets.

So something that seems like a bit of a standout to me was the 84% increase in first month bookings outside of California. I guess I would've thought that that was possible inside of California, given it was coming from such a low level, but can you maybe give us a little more color on what's driving that? Is it one state in particular? Is it portable storage? Just any sense on that would be helpful.

First of all, those numbers are exclusive of portable storage. It's strictly modular buildings, and quite frankly, it's very broad-based. It's the Mid-Atlantic, it's Texas, it's Florida, and we've been very, very pleased with the lift that we're seeing in those markets. And we've been booking fairly high levels for some time now, and it's just been continuing. So I think that speaks well for future quarters' results and being able to raise utilization and top-line rental revenue growth and, ideally, margin expansion on the bottom line.

I guess one thing that I was curious about, then, Dennis, is is this an acceleration and there's actually some stickiness to this trend, or is it just a one-off quarter? I guess it's encouraging that it's coming from a broad base, but just any more color on that?

I would just say that if you kind of look at these results over the last few quarters, it's been pretty consistent that we're growing. At first -- we've been consistent growing outside of California for some time now, and finally California kicked in, but we haven't done that -- that hasn't come at the expense of really business falling off outside of California. I mean, it can ebb and flow between quarters, but we've had some very, very strong results.

Great. Switching over to Adler, it seems like a little bit of a mixed message there. The amount of fleet on rent at the end of the quarter was up by about 10%, yet we did see a little bit of a yield decline, and you cited challenges in that business. I guess as we think about the appropriate growth rate for this business, should we be thinking kind of in the range of mid-single-digit revenue growth going forward, or is that maybe a bit optimistic?

I would just say this -- we're in 95% of the markets we want to be in. And we're -- it's all about getting the right people in the right positions and getting inventory right-sized by location and geography, and we're making those strides every quarter. So I'm very confident about that business. I would hope that it's at those levels, if not better, as we get things operationally correct to be able to really get greater lift in the future.

Understood. Thanks. And then, I guess, maybe just a follow up to that. Great job just minimizing Adler SG&A, and I think you said earlier that you were looking to put in place either some new technology or new processes. But I'm curious how we should just be thinking about SG&A or other cost uptick in this business.

Well, for some time, I think we've shared that we -- the SG&A that we had in the business certainly had room to grow the top line and that we had capacity within that. And I think that's what you're seeing now. And we can do more with what we have, and so we wouldn't expect to see any material SG&A growth in that business in the quarters and the next couple of years unless there was a very significant effort on geographic expansion in many, many markets. But that is not what we're planning. We are planning some selective markets, so the headwinds from that type of a broad expansion we would not expect to see.

Okay. And I know that you guys have limited oil-and-gas exposure at Adler, or at least it's significantly less than it's been. But with oil softening up and potentially E&P CapEx declining in FY15, have you seen any competitors out there kind of investing in some of the same tanks that you've been investing in? And if so, is it possible that we see some of those assets get deployed into some of the other end markets that you guys have been playing in recently?

That can always be the case. There are lots of different views on what's transpiring now with oil at about $81 on the current price. And quite frankly, I think that drilling will continue fairly robustly. I think there's a lot of -- when you look at the marginal cost of a barrel of oil to produce is at about $65 a barrel, I think there's still quite a bit of headroom. And there may be some ebb and flow there. And yes, there could be, perhaps, some of those tanks that are not as highly utilized moved into some of the other verticals, but we'll have to see over time.

Now, keep in mind that the type of products that Adler builds for a 21K tank is a smooth-wall enamel product, and a lot of the frac tanks that are in the well head into the market or upstream are corrugated and can't be used in other vertical markets because you can't get them clean enough. So we've always built our assets such that it could be deployed over multiple verticals in case there are movements in utilization based upon various economic market situations.

Right. I just wasn't sure if you were seeing some of your competitors show up in the oil-and-gas market with a smooth-wall tank as well.

Well, right now I would -- if you look at production of 21K tanks, there wouldn't be or shouldn't be much production out there with the over-supply that currently exists. And people that bought a corrugated type tank or a less expensive tank, they've got those to utilize, and unfortunately, a lot of those can only be utilized in the gas and oil fields and they're really kind of shut out in other verticals. So I doubt if they'd be adding smooth-wall enamel products when they've got assets that are tying up capital.

Keith, I apologize if I missed this, but did you give your CapEx guidance for 2014?

We didn't comment it so far on this call. I think when we entered the year, we've said a few times that we expected to be at or slightly below the 2013 number, and that number was $133 million. Based on my comments earlier, particularly with the modular business being stronger in the first nine months of the year in terms of new market demand and the opportunity to deploy some additional fleet, at this point I'd say we're looking at a number at or slightly above the 2013 number.

So it's really shifted a little bit from looking at a number at or below to more a number at or above. And again, we did $133 million last year, and we've done $113 million in the first nine months of this year.

And I know it might be a bit preliminary, but how should we be thinking about FY15?

Yes, we're literally going through our planning process over the next month and a half, and that's when we work that in greater detail. I mean, what you can observe is over the last two full years, 2012 and 2013, the number was right in the low 130's neighborhood. We're not going to be hugely different from that for this year.

And as we look into next year, I think the big levers are going to be what's happening in the modular business, including the portable storage segment. I think with Adler, we've stated we've got a very good fleet and it's a pretty good size, so probably don't need to add as much there. And TRS, we do spend capital more in a maintenance mode as equipment turns over. So those are just some of the pushes and pulls as we do the work over the next few months to build our plan.

I appreciate it. Thanks, guys.

Thank you.

And that does conclude our question-and-answer session for today, and I'd like to turn the conference back over to Management for any additional or closing remarks.

Well, Keith and I would like to thank everyone for joining us on today's Q3 call and for your continued support of the Company. We'll look forward to chatting with everyone again on our Q4 call, which will be towards the end of February 2015, at which time we'll also provide guidance for the full year for 2015. Thank you all, and have a wonderful evening.

That does conclude our conference for today. Thank you for your participation.