McGrath RentCorp (MGRC) 2015 Q4 法說會逐字稿

Welcome to the McGrath RentCorp third quarter 2015 conference call. At this time all conference participants are in a listen-only mode. Later we will conduct a question and answer session. This conference is being recorded today, Thursday February 25, 2016.

Now I would like to turn the conference over to Keith Pratt, Chief Financial Officer.

Thank you Travis. Good afternoon and thank you for joining us on today's call. We are here today to discuss McGrath RentCorp's fourth quarter and full year 2015 results which were reported today after the market close. Joining me on the call is Dennis Kakures, President and CEO.

In addition to the press release issued today, the company also filed with the SEC the earnings release on Form 8-K for the quarter and the Form 10-K for 2015. The company also announced a 2% increase of the cash dividend to $25.5 cents per share for the first quarter of 2016. Representing on an annualized basis, a 3.9% yield on the February 24, 2016 closing stock price.

Please note that this call will be available for telephonic 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 pass code for the call replay is 4343650. This call is also being broadcast live via the Internet and will be available for replay purposes in the Investor Relations section of the company's Web site at MGRC.com.

Before getting started let me remind everyone that the matters that 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 the company's expectations, beliefs, intentions or strategies regarding the future.

All forward-looking statements are based upon information currently available to the company and the company 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 the company's business are set forth in the documents filed with the Securities and Exchange Commission, including the company's most recent Form 10-K.

With these formalities out of the way, I will turn to our review of the financial results. For the fourth quarter 2015 total revenues decreased 6% to $105.3 million from $111.8 million for the same period in 2014. Net income decreased 17% to $11.5 million from $13.9 million and earnings per diluted share decreased 9% to $0.48 from $0.53.

Reviewing the fourth quarter results for the company's Mobile Modular division compared to the fourth quarter of 2014. Total revenues increased $5.8 million or 13% to $50.2 million due to higher rental and rental related services revenues partly offset by lower sales revenues. Gross profit on rents increased $2 million or 13% to $17.2 million. Rental revenues increased $4.9 million or 18% and rental margins decreased to 54% from 57% as depreciation as a percentage of rents decreased to 16% from 17% and other direct costs as a percentage of rents increased to 30% from 27%.

Selling and administrative expenses increased 7% to $12.1 million primarily as a result of increased employee [head count], salaries and benefit costs and higher allocated corporate expenses. The higher gross profit on rental and rental related services revenues partly offset by lower gross profit on sales revenues and higher selling and administrative expenses resulted an in increase in operating income of $1.6 million or 18% to $10.4.

Finally, average modular rental equipment for the quarter was $696 million, an increase of $69 million. Equipment additions supported growth across all regions and our portal storage business. Average utilization for the fourth quarter increased to 77.5% from 74.9%.

Turning next to the fourth quarter results for the company's TRS-RenTelco division compared to the fourth quarter of 2014. Total revenues decreased $4.1 million or 12% to $29.7 million due to lower rental and sales revenues. Gross profit on rents decreased $2.5 million or 21% to $9.5 million. Rental revenues decreased $2.8 million or 11% and rental margins decreased to 42% from 47% as deprecation as a percentage of rents increased to 43% from 40% and other direct costs as a percentage of rents increased to 16% from 13%.

Selling and administrative expenses were flat at $5.9 million. The lower gross profit on rental and sales revenues and flat selling and administrative expenses resulted in a decrease in operating income of $3.8 million or 36% to $6.7 million. Finally, average electronics rental equipment, at original cost for the quarter, was $264 million, an increase of $2 million. Average utilization for the fourth quarter decreased from 63.3% to 61.2%.

Turning next to the fourth quarter results for the companies Adler Tanks division compared to the fourth quarter of 2014. Total revenues decreased $3.6 million or 14% to $23.1 million due to lower rental and rental related services revenues.

Gross profit on rents decreased $2.9 million or 23% to $9.8 million. Rental revenues decreased $3.2 million or 16% and rental margins decreased to 60% from 65% as depreciations as a percentage of rents increased to 25% from 20% and other direct costs as a percentage of rents was flat at 15%.

Selling and administrative expenses decreased 5% to $6.7 million primarily due to lower allocated corporate expenses. The lower gross profit on rental revenues partly offset by lower selling and administrative expenses and higher gross profit on rental related services resulted in a decrease in operating income of $2.3 million or 35% to $4.3. Finally, average rental equipment for the quarter was $307 million, an increase of $9 million. Average utilization for the fourth quarter decreased from 65.1% to 54%.

On a consolidated basis interest expense for the fourth quarter 2015 increased $0.6 million or 24% to $2.9 million from the same period in 2014 due to the company's higher average debt levels and higher average interest rates.

The fourth quarter provision for income taxes was based on an effective tax rate of 37.8% compared to 42.7% in 2014. The lower tax rate was driven by the full year 2015 effective tax rate decreasing to 39% as compared to 40.3% for 2014 primarily as a result of lower business levels in states with higher tax rates.

Next I'd like to review our 2015 cash flows. For the 12 months ended December 31, 2015 highlights in our cash flows included net cash provided by operating activities was $144.6 million, an increase of $21.6 million compared to 2014. The increase was primarily attributable to decreased prepaid expenses and other assets partly offset by lower income from operations and other balance sheet changes.

We invested $131 million for rental equipment purchases compared to $152 million for the same period in 2014. Property, plant and equipment purchases decreased $3.4 million to $9.3 million in 2015. Net borrowings increased $58.9 million from $322.5 million at the end of 2014 to $381.4 million at the end of 2015. Dividend payments to shareholders were $25.8 million.

During the 12-months ended December 31, 2015, the company repurchased $2.4 million shares of common stock for an aggregate repurchase price of $64 million or an average price of $26.56 per share. As of February 25, 2016 $1.6 million shares remain authorized for repurchase.

With total debt at quarter end of $381.4 million, the company had capacity to borrow an additional $208.6 million under its lines of credit. At the ratio of funded debt to the last 12 months actual adjusted EBITDA was 2.32 to 1.

For 2015, fourth quarter adjusted EBITDA decreased $5.2 million or 11% to $42.9 million compared to the same period in 2014. With consolidated adjusted EBITDA margin at 41% compared to 43% in 2014. Our definition of adjusted EBITDA and our reconciliation of adjusted EBITDA to net income are included in our press release for the quarter.

Turning next to 2016 financial outlook, entering 2016 the level of uncertainty in some of the markets served by the company is high and it is challenging to develop our outlook for the year. Overall, comparing 2016 with 2015, we currently expect operating profits to be higher at Mobile Modular, roughly flat at TRS-RenTelco and lower at Adler Tanks.

In 2016, total company operating profit, adjusted EBITDA and earnings per diluted share are expected to be comparable to 2015. For the full year 2016 we expect rental revenues to be flat to up 3% over 2015, sales revenues to be comparable to 2015, rental equipment depreciation expense to be between $73 and $75 million, other direct costs of rental operations primarily for rental equipment, maintenance and repair to be between $62 and $64 million. Selling and administrative costs to be between $106 and $108 million, full-year interest expense to be between $12 and $13 million, effective tax rate to be 39.5% and diluted share count to be between 23.9 and 24.1 million shares.

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 $4.9 million or 18% to $31.7 million from a year ago. This is the 11th consecutive year-over-year quarterly rental revenue increase for our modular division.

During the fourth quarter we experienced at 2% increase in division-wide year-over-year first months rental revenue bookings for Modular buildings compared to a very strong fourth quarter 2014 booking levels.

For all of 2015 booking levels were up 16% over 2014. We're also continuing to see rental rates rise for various sized products as demand exceeds readily available supply. Modular division average in [ending] utilization for the fourth quarter of 2015 reached 77.5% and 76.9% respectively and increased from 74.9% and 75.1% a year ago.

This is our highest quarterly Modular division average utilization level since the fourth quarter of 2008. Modular division income from operations or EBIT for the quarter increased to $10.4 million or by 18% from a year ago. Gross margin on rental revenues decreased to 54% from the quarter from 57% last year. The gross margin decrease is due to $2.3 million higher building preparation expenses during the quarter compared to the same period in 2014.

These higher costs were associated with favorable order demand and preparing equipment for late December 2015 and first quarter 2016 shipments. SG&A costs were higher by 7% compared to the same period in 2014. The increase was primarily related to higher sales and operation staffing levels to support this continuing recovery of our Modular building rental business as well as the growth of our portable storage footprint.

Despite the higher inventory center and SG&A costs, EBIT margin for the quarter increased to 21% compared to 20% in 2014. This is primarily due to higher rental and rental related services revenues with some offset from slightly lower profit on equipment sales.

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 fourth quarter in building it's customer following and increasing booking and rental revenue levels from a year ago.

First month's rent booking levels and rental revenues for the fourth quarter grew by 28% and 29% respectively from the same period a year ago. We're working hard to make each of our portable storage operating geographies increasingly successful. We're on track towards building towards building a meaningful sized storage container rental business with attractive operating metrics.

Now let me turn our attention to TRS-RenTelco and their results. Rental revenues for TRS-RenTelco, our electronics division, declined by $2.8 million or 11% to $22.6 million from a year ago. The year-over-year reduction in rental revenues was driven primarily by lower communications test equipment business activity in a more competitive environment.

In fact, communications test equipment and rental revenues declined by approximately 21% for the quarter compared to the same period a year ago. General purpose related test equipment rental revenues improved by approximately 4% year-over-year.

Average equipment utilization was 61.2% for the fourth quarter compared to 63.3% for the same period in 2014. Average rental rates also declined for the quarter to 4.67% from 5.1% a year ago.

The decline in average rental rates was primarily due to the business activity mixed shift from communications to general purpose test equipment as well as a more competitive communications test equipment marketplace.

EBIT for the quarter declined by $3.8 million with 36% from the same period in 2014. The reduction in rental revenue of $2.8 million was the primary contributor to the lower year-over-year EBIT along with lower gross profit on equipment sales of $1.3 million and higher laboratory costs of $0.3 million partially offset by lower depreciation expense of $0.6 million.

It's important to note that rental equipment depreciation expense (inaudible) makes up between 70% to 75% of direct rental costs. Despite having made favorable strides in lowering rental equipment depreciation expense by selling under utilized equipment during a period of top-line rental revenue decline, there's only so much depreciation expense that can readily and responsibly be taken out of the business within any given quarter.

Depreciation expense as a percentage of rental revenues was 43% for the quarter compared to 40% a year ago. We're also being impacted negatively by the higher mix of underutilized communications test equipment as compared to general purpose test equipment. In particular, with communications test equipment having much shorter depreciable lives than for general purpose test equipment, there is a significantly higher monthly depreciation expense but also higher rental rate then for general purpose test equipment.

As a result, when communications test equipment is under utilized, it impacts profitability more significantly then for general purpose test equipment due to its high carrying costs without its associated higher rental rates and revenues.

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 declined by $3.2 million for the quarter or 16% to $16.4 million from a year ago. Adler Tank Rental serves a wide variety of market segments including industrial plant, petrochemical, pipeline, oil and gas, waste management, environmental field service and construction.

Average utilization and total original cost of rental equipment were 54% and $307 million respectively for the fourth quarter of 2015 compared to 65.1% and $298 million a year ago.

Fourth quarter average equipment on rent declined to $166 million from $194 million a year ago and we ended the fourth quarter at $153 million. Average monthly rental rates also declined to 3.28% for the quarter from 3.35% in 2014.

The reductions in both utilization and rental rates from a year ago are directly related to lower crude oil prices and a significant decline in wellhead related drilling and completions activity.

Upstream oil and natural gas rental revenue declined from 21% of total Adler Rental revenues in fourth quarter 2014 to 11% for the same period in 2015. These dynamics have put increasing downward pressure on 21K multipurpose tank utilization and rental rates in upstream, midstream and downstream energy sectors as well as in other market verticals.

However, at a time in which there is significant negativity surrounding the EMP sector of the oil industry, it's important to stay grounded that our smooth [wall] 21K tanks are a multipurpose product. 21K tanks are the primary containment source utilized in virtually all market verticals from construction site groundwater collection to industrial plant turnarounds to deicing fluid storage at airports.

EBIT for the quarter decreased to $2.3 million or 35% to $4.3 million from a year ago. The higher percentage decrease in EBIT at 35% as compared to rental revenues at 16% was primarily a result of higher equipment depreciation and SG&A expenses as a percentage of rental revenues of 25% and 41% respectively from 20% and 36% a year ago partially offset by higher gross margin on rental related services.

We remain cautious in our outlook for a liquid and solid containment rental business for the foreseeable future as market forces drive a material reset of both the oil and natural gas industry.

Now for a few closing comments. The company continued to repurchase its shares during the fourth quarter. For all of 2015 the company repurchases slightly over 2.4 million shares or approximately 9% of its outstanding common stock at $26.56 per average share. There are very compelling factors supporting our share buyback activity in 2015. Over the past few years we have been through a significant investment cycle in the company. During this period we launched our portable storage business, expanded our modular business to the mid-Atlantic region from Georgia to Washington D.C., entered the liquid and solid containment rental industry through the acquisition of Adler Tanks and created a national footprint for the business.

We've also managed a turnaround and continuing recovery of our modular business to improve the financial health from having lost approximately a dollar of annual EPS due to the effects of the great recession. Historically, our modular division has been our largest earnings engine. We are well on our way to creating a portfolio of meaningful size well run rental businesses whose combined annual earnings horsepower we would expect to be materially greater then we have experienced to date.

As both a business manager and an investment in McGrath RentCorp, I can fully appreciate the challenges associated with getting our different rental businesses all performing at favorable levels consistently. Cyclical challenges, as we are currently experiencing our electronics business, as well as structural change presently unfolding in the oil industry negatively impacting our liquid and solid containment division will occur from time to time.

However, these economic factors shouldn't overshadow the significant potential future financial performance of these rental businesses. Company's management and board are confident in the foundation for growth in place today supporting greater shareholder value in our future.

Our buyback efforts in 2015 are a clear signal we believe the longer-term intrinsic value of McGrath RentCorp has not been reflected in our share price this past year.

We entered 2016 with a great many unknowns and forecasting challenges regarding the oil industries evolving structural changes and their near-term impact to our liquid and solid containment rental business. Further, it would be naive of us not to factor in some downward pressure on both our modular and Portable storage businesses in the more oil economy dependent geographies in which we operate.

Add to this the cyclical challenge we are currently experiencing in the wireless communication vertical of our electronics business. On the positive side, our modular business overall is recovering very favorably with a long-run way of increasing earnings potential in front of it including the very important California educational market.

The near-term net out of these challenges and opportunities is that we believe our earnings performance for 2016 will likely be comparable to our 2015 results. What's most important for the management of McGrath RentCorp entering 2016 is to operate its businesses smartly and cost effectively, increase the return on rental assets it already owns, build up its supply of dry powder, i.e., capital and then take advantage of high return investments opportunities.

Last, the company has just declared a quarterly cash dividend of [twenty-five and a half cents] per share for the quarter ending March 31, 2016, an increase of 2% over the prior year period. This marks the 24th consecutive year in which McGrath RentCorp has raised its dividend. On an annualized basis, this dividend represents a 3.9% yield based upon yesterdays closing stock price. We are very pleased to continue our practice of providing the quarterly return on investment to our shareholders.

And now Keith and I welcome your questions.

(Operator instructions.) We'll take our first question from David Gold with Sidoti.

Hi there, good afternoon.

Good afternoon.

Good afternoon David.

So couple of questions for you. The first one is, note in some of your commentary -- well, before that I just wanted to go over the percentage because you went through it quickly; upstream exposure at this point. Did you say 11% on the --

In the fourth quarter of 2015 it was 11% and that compared with 21% in the fourth quarter of 2014.

Okay, perfect. Thanks, that's helpful. And then second as we think about it, and I know some commentary in there, as we think about the impact of oil leaking into your other businesses, so to speak, how should we -- you know, particularly obviously Mobile Modular, how would you think about that from the distance?

Well, if you -- when we first look at the oil dynamic with respect to our other businesses we go straight to the Texas market, you know, it's our most oil sensitive modular market and we look at the fact that in any kind of a depressed oil environment, and we're already seeing it in Texas, there's unemployment, increases in unemployment, that can impact home buying, home building, it can impact commercial construction, so it's really -- it impacts the entire economy at various levels. And, again, I think we're only starting to see the early innings of some of the impact in Texas in particular.

Now, our results haven't reflected that but we've been, you know, to the rodeo before and these types of precipitous drops in oil prices as well as commodities, you know, are not isolated. They can really impact an economy broadly.

Gotcha. Okay, and then speak a little bit Dennis if you can, about the -- thinking Mobile Modular the way of the California school bond, two questions there, number one, obviously the governor's on record saying he's going to oppose it. How impactful do you think that can be? And two, timing of -- should it pass seeing those dollars translate into business?

All right so with respect to the first question about the governor having opposed it, he actually tried to put a different bond measure on the June ballet. At the start of 2016 he tried to muster forces to do that and was --

Do something smaller.

Yeah, he wanted to do something smaller and he was unsuccessful in that effort. Now he's still opposed to it, however, the momentum behind the bond measure is as strong as I've ever seen it and it has brought support from a great many legislators from industry groups, school districts -- when I look at the list of supporting entities it's overwhelming. So I think quite frankly we'll have to see how significant an effort the government puts into it of opposing it but I think you have some other projects that he probably has more energy and I would say at this juncture despite his opposition it looks pretty favorable to pass in November. I don't doubt that really for a moment right now but, again, there's a lot of time between now and November and we'd have to see just how much of a, you know, opposition he wants to put up to it.

My sense is it's not going to be significant because I think with the June alternative ballet measure having not been able to get on, I think that was the most -- the easiest vehicle by which he could take focus away from November and, of course, the whole dynamic about not wanting the school facility bond on the November ballet is because he wants the tax increase that would expire here shortly to go ahead and get renewed by the voters. So he's concerned about the competition between a facilities bond of a large scale and a tax increase measure that he feels the state needs very significantly. So that's for Question Number 1.

On Number 2, in terms of how soon the impact of the -- if the bond measure does pass it's likely to be felt in the market. We always tend to give it a little bit of time because school districts have to really, you know, gather their various project factors in place and get contractors hired, etc. However, currently due to the fact that there's been no bond measure passed since November of 2006, so this would be ten years later, there's approximately from what we know from our lobbyist, about $2 billion worth of shovel-ready projects. Some of those are new construction, some are modernization, etc., but that's a pretty significant backlog and I would categorize these projects as having been preliminarily approved either having monies that have been allocated but not available yet but really these are -- you get $2 billion worth of demand like that, that would mean that a lot of the school districts are lining up pretty quickly [put] those projects into play. So the earliest we're going to see probably uptick will be in terms of ordering would be in the spring of 2007 -- spring of 2017 and from there it will just -- we'll just have to see. We would expect when you look at the way rental revenues hit for modular's, even though we may get an uptick in bookings in 2017, a lot of that equipment won't go on rent until the summer months of that year so the first full quarter we actually get of any rental revenue associated with that kind of an uptick is typically the fourth quarter but then you would start seeing a full year impact the next year but then it would really come in to blossom really in the 2018 time period.

And keep in mind that if the bond measure passes with $9 billion and that's a mix of both the funds for modernization K through 12 community college work and permanent facilities etc., that this bond measure will be supporting school district facility building and modernization for many years to come. So, there's a lot of goodness in this down the road.

Gotcha, gotcha. Okay, perfect. That's helpful. And then Keith, as we look at some of the numbers embedded in the guidance, I was curious if you could comment a little bit on SG&A and that's a number that jumped out with call it a 6% to 8% jump on your 0% to 3% revenue jump. So just curious what's happening there.

Yeah, a good portion of that, I'd say about two-thirds of it, is related hiring. We have some, what I'd call replacement positions, open positions in the company and we need to get those filled just in our normal operations and then about two-thirds of [the MI] that's related to hiring is for new positions and that's mostly focused on modular's and portal storage and as you heard in Dennis' comments, those are both businesses that are very healthy, have grown significantly in 2015 and we expect further growth as we look into 2016. There are some other issues typically as you would expect they'll be merit related adjustments that we have to budget for and then some of the variable comp programs that -- where we did not experience payments in 2015 we budget those at a funded level in 2016. So really, you know, compensation, hiring merit and variable comp driving the vast majority of the planned increase.

Gotcha, gotcha. Okay. And then just last one as we think about repurchases going into the year. I mean, this was a very successful half on that front but how are you thinking about that for 2016?

Yeah, the first thing I would emphasize is we were very active in 2015 and you observed $2.4 million shares, very significant activity by the company. As you also know, we tend to be opportunistic with our repurchase activities. We don't broadcast any specific plans as we enter the year. I think as is normal, we look at our capital allocation priorities and we typically put organic investment in rental equipment at the top of the list. We need to keep some flexibility if there's any M&A opportunities for basically a good business at a fair price. The dividend is the other top priority and then buyback really follows those priority items.

So we have capacity available, there's still 1.6 million shares authorized that have not been repurchased yet so it's an option that's available to us and we'll continue to assess as we go through the year.

Perfect. Thank you so much.

We'll take our next question from Joe Box with Keybanc Capital Markets.

Hey guys.

Hi Joe.

Hi Joe.

So question for you on the first month's bookings. It sounds like it was, you know, a tough comp from the prior year so it was up only 2% but clearly it was good when you average it across the entire year. Can you maybe just help us with the cadence of utilization improvement and maybe even your thoughts on rental rate improvement for Mobile Modular as we go through 2016?

Well, if you look at utilization and you've seen the numbers over the last couple of years we've been improving steadily year-over-year and there's some dips that can occur in the fourth quarter just because of some seasonality dynamics but we would expect to continue up and to the right and obviously a very essential element to how significant that up and to the right movement will be the success of rentals in the California educational market. Because that's -- if you look at available inventory today that is currently underutilized, that's the largest portion today rests in California and in particular in southern California. And we are very hopeful with the bond measure passing and with what we know today about pent-up demand that we can be able to utilize a great deal of that equipment for an extended period of time.

And then I want to go back to a prior question on kind of the contagion effect. Curious, are you guys explicitly factoring this into your forecast? You're obviously calling for a similar EPS outcome, I'm just curious is contagion actually factored in or are you basically just raising the issue and saying this could be something that we need to be aware of?

Well, I can tell you when we go through our financial planning process and we sit with our leaders of the different businesses we, of course, ask the hard questions about, you know, their points of view, what are the dynamics around the numbers that we talk about initially and then we test pretty hard about potential for negative and positive. So it's a -- these are multi-week, multi-month discussions and we asked leaders of both our Adler and Modular businesses to go back and spend more time processing the potential contagion dynamics and it's amazing, and you know that period of time between December and January, how things turned a lot darker and I think both our leaders made appropriate adjustments in their plans accordingly, they made them downward. So, yes, it is baked into our numbers without question and I think it was prudent.

Got it. And then I want to go back to the SG&A guide as well. Look, I get the increase in compensation factoring that back into the numbers, you know, obviously the merit increase is going to be there on an annual basis but Dennis, when do we get to the point where we can actually see some leverage on the existing cost structure? Is that maybe a back half 2016 thing, is that a 2017 thing? Curious, you know, your outlook on that question?

You know, it's a fair question. It's one of the items that we scratch our heads on and when we [sit in] and we look at the numbers every year and look how can we reduce rather then increase. There's a couple of things that stare us right in the face; one is healthcare and some of the challenges we've had on those types of expenses.

You know, the other dynamics are in the portable storage business we're adding, you know, to build those different geographic expansion projects there's a lot of initial overhead that goes into that and those are items there. If you kind of look at corporate overhead, you know, you think a lot of this might be back office, it really doesn't rest here. You know, we run a pretty Spartan operation here in Livermore but we do have these other types of dynamics that come into play; one with expanding the business and getting the modular business back to health as well means we're adding sales positions, etc. You're likely to see more leverage coming in on the operational side with gross margin on rents as we, you know, build in that larger -- you know, more business under fixed overhead in those businesses.

I'm going to let Keith also comment on this topic, he can add to it.

Yeah, the other comment I would make Joe, and we discussed this in the past, the portable storage business that has progressed very well for us and is now profitable and has a very attractive margin profile, the cost structure and the way we report it means that it is a more SG&A intensive business than some of our other businesses.

And maybe one way to think about it is if you look, for example, at the Modular business or the Adler Electronics, relatively speaking they have more DCRO-type costs. In the case of the container business, DCRO where the cost to maintain the equipment is relatively low, but the SG&A is much higher and so part of what you see here when you focus on that SG&A is it's funding a business that has been growing, expanding its geographic coverage and it employs people to do that. So, we view that as all sensible investment for growth in a business that is healthy and profitable.

Got it, thanks guys.

Thank you.

We'll take our next question from Scott Schneeberger with Oppenheimer.

Good afternoon guys, this is Daniel filling in for Scott. How are you?

Hi Daniel.

Hi Daniel.

I'm just curious, I know you noted in your release you have pricing pressure on the non-energy or the downstream in Adler Tanks, but on the volume side, how is visibility in non-energy end markets at Adler?

In the non-energy market?

Yeah.

I don't think we're seeing any particular weakness in any non-energy markets. I think we're, in some respects, a little cautious on the construction side because we -- how late are we in that cycle to question but I wouldn't say I've seen any weakness in any areas outside of energy that I can speak to that would be of any --

Yeah, I'm not going to name the segments. As you know, we serve various end markets but just looking across those end markets and the rental revenues we saw in the fourth quarter of 2015 compared to the fourth quarter of 2014, we had two of those markets were flat, one was up and two down in addition to the oil and gas. So, overall, yeah, I think it's balanced and, you know, the oil and gas is where the issue is, upstream oil and gas, the rest of the business, while there's some pressure it's not in any way as pronounced as what we've seen in the oil and gas arena.

Okay, got it. Finally one from the capex Keith by segment, can you provide some color there, how do you think about that in 2016?

Sure I'll just start with the full year perspective and as you'll see in what we reported, we spent gross capex was $131 million in 2015 and for 2016 in our plans as we enter the year. The number is lower, it's a number more in the 90 to 100 range. We'll definitely have lower capex. However, that's not to say it will be zero, there will be a small amount for some specialty equipment for particular customer needs. TRS is likely to run slightly below what it did in 2015 and modular's and portable storages we start the year, we're just being more measured in the new capital that we're releasing. And keep in mind particularly in the California market we still have a lot of product that is not yet utilized. We do have to spend some operating expense to get it rental ready but we have fleet there available that can allow us to grow our rental revenues without new capex being incurred. So as we start the year it's a step down from the prior year. It's partly the business conditions in some of those markets. It's partly plans to utilize some of the idle fleet as we see demand in those markets look a little more healthy but that's the outlook.

Okay, thank you very much.

Thank you.

That concludes today's question and answer session. At this time I will turn the conference back to management for any additional or closing remarks.

We'd like to thank everyone for joining us this evening for our Q4 call, we greatly appreciate that and we'll look forward to joining back with you for our Q1 call in the spring. Thank you so much.

That concludes today's presentation, thank you for your participation.