Feb 21, 2013
Operator
Welcome to the McGrath RentCorp Fourth Quarter 2012 Conference Call. At this time, all conference participants are in a listen-only mode.
Later, we will conduct a question-and-answer session. (Operator Instructions) This conference is being recorded today, Thursday, February 23, 2013.
Operator
I would like to turn the conference over to Geoffrey Buscher with SBG Investor Relations. Please go ahead.
Geoffrey Buscher
Thank you, operator. Good afternoon.
I am the Investor Relations advisor of 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.
Geoffrey Buscher
Please note that this call is being recorded and will be available for telephone replay for up to seven days following the call by dialing 1-800-406-7325 for domestic callers and 1-303-590-3030 for international callers. The pass code for the call replay is 4584516.
This call is also being broadcast live over the internet and will also be available for replay. We encourage you to visit the Investor Relations section of the company’s website at mgrc.com.
A 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.
A press release was sent out today at approximately 4
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.
A press release was sent out today at approximately 4
I would now like to turn the call over to Keith Pratt.
Keith Pratt
Thank you, Geoffrey. In addition to the press release issued today, the company also filed with the SEC the earnings release on Form 8-K.
The company also announced a 2% increase of the cash dividend to $0.24 per share for the first quarter of 2013 representing on an annualized basis a 3.3% yield on the February 20, 2013 closing stock price.
Keith Pratt
For the fourth quarter of 2012, total revenues increased 20% to $102 million from $85.2 million for the same period in 2011. Net income decreased 10% to $11.9 million from $13.2 million and earnings per diluted share decreased 11% to $0.47 from $0.53.
Keith Pratt
Reviewing the fourth quarter results for the company’s Mobile Modular division compared to the fourth quarter of 2011. Total revenues increased $0.4 million or 1% to $30.6 million primarily due to higher sales and rental related services revenues partly offset by lower rental revenues.
Gross profit on rents decreased $0.9 million to $11.2 million primarily due to lower rental margins of 56% compared with 60% in 2011 and the lower rental revenues. Lower rental margins were a result of $0.7 million higher other direct costs for labor and materials.
Keith Pratt
Selling and administrative expenses increased 8% to $8.7 million as a result of higher bad debt expenses and higher salary and benefit costs primarily related to the expansion of our Portable Storage growth initiative. The lower gross profit on rental revenues and higher selling and administrative expenses partly offset by higher gross profit on sales and rental related services revenues resulted in a decrease in operating income of $0.5 million or 8% to $5.6 million.
Keith Pratt
Finally average modular rental equipment for the quarter was $532 million, an increase of $19 million. Equipment additions were primarily to support growth in the Mid-Atlantic region and for our Portable Storage initiative.
Average utilization for the fourth quarter decreased from 67.1% to 66.8%.
Keith Pratt
Turning next to the fourth quarter results for the company’s TRS-RenTelco division compared to the fourth quarter of 2011, total revenues increased $4.6 million or 14% to $38.1 million due to higher rental and sales revenues. Gross profit on rents increased $1.2 million or 10% to $13.7 million.
Rental revenues increased $1.5 million or 6% and rental margins increased to 51% from 49%, as other direct costs as a percentage of rents decreased to 12%. Fourth quarter 2012 results included $3.7 million in proceeds from the sale of the TRS environmental rental equipment at a loss of $0.4 million.
Selling and administrative expenses decreased 3% to $6.8 million. As a result, operating income increased $1.6 million or 18% to $10.1 million.
Keith Pratt
Finally, average electronics rental equipment at original cost for the quarter was $271 million, an increase of $6 million. Average utilization for the fourth quarter decreased from 67.7% to 65.4%.
Keith Pratt
Turning next to the fourth quarter results for the company’s Adler Tanks division, compared to the fourth quarter of 2011, total revenues increased $2.1 million or 10% to $23.3 million due to higher rental and rental related services revenues. Gross profit on rents decreased $1.5 million or 11% to $11.9 million.
Rental revenues increased $1 million or 6% and rental margins decreased to 66% from 78%, as depreciation as a percentage of rents increased to 17% from 14%. And other direct costs, as a percentage of rents, increased to 17% from 8%.
Keith Pratt
Selling and administrative expenses increased 35% to $6.8 million, primarily due to higher bad debt expenses and higher personnel and benefit costs to support the continued expansion of Adler’s operations. As a result, operating income decreased $3.7 million or 39% to $5.9 million.
Finally, average rental equipment for the quarter was $244 million, an increase of $60 million. Average utilization for the fourth quarter decreased from 86.8% to 69.9%.
Keith Pratt
On a consolidated basis, interest expense for the fourth quarter 2012 increased $0.2 million or 8% to $2.3 million from the same period in 2011, primarily due to the company’s higher average debt levels. The fourth quarter provision for income taxes was based on an effective tax rate of 36.7% compared to 37.7% in the fourth quarter 2011.
Keith Pratt
Next, I would like to review our 2012 cash flows. For the 12 months ended December 31, 2012 highlights in our cash flows included net cash provided by operating activities was $126.4 million, a decrease of $2.9 million compared to 2011.
The decrease was primarily attributable to the receipt of a $6.1 million income tax receivable in 2011 which did not recur in 2012 and lower income from the operations, partly offset by other balance sheet changes.
Keith Pratt
We invested $131.8 million for rental equipment purchases compared to $155 million for the same period in 2011, partly offset by $31 million in proceeds from sales of used rental equipment. Property, plant and equipment purchases decreased $3 million to $14.2 million in 2012.
Net borrowings increased $5.5 million from $296.5 million at the end of 2011 to $302 million at the end of 2012.
Keith Pratt
Dividend payments to shareholders were $23.1 million. With total debt at quarter end of $302 million, the company had capacity to borrow an additional $228 million under its lines of credit and the ratio of funded debt to the last 12 months actual adjusted EBITDA was 1.91 to 1.
For 2012, fourth quarter adjusted EBITDA decreased $1.9 million or 4% to $40.6 million compared to the same period in 2011, with consolidated adjusted EBITDA margin at 40% compared to 50% in 2011. Our definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income are included in our press release for the quarter.
Keith Pratt
Turning next to 2013 earnings guidance, we expect 2013 full year earnings per share to be in a range of a $1.85 to a $1.95 per diluted share. For the full year 2013, we expect 4% to 7% growth in rental operations revenues over 2012.
Sales revenue is expected to be approximately 10% lower than 2012, but gross profit from sales is expected to be comparable to 2012. Rental equipment depreciation expense is expected to increase to between $67 million and $69 million driven by rental fleet growth.
Selling and administrative costs are expected to increase to between $89 million and $91 million to support business growth and the continued investment in Adler Tanks and our Portable Storage initiative. Full year interest expense is expected to be approximately $9 million.
We expect the 2013 effective tax rate to be 39.2% and the diluted share count to increase to between 25.3 million and 25.7 million shares.
Keith Pratt
Now, I would like to turn the call over to Dennis.
Dennis Kakures
Thank you, Keith. Although companywide rental revenues increased by 4% from a year ago, we had an 11% decrease in EPS for the quarter.
This is primarily a result of lower rental revenues for our tank rental business relative to its current cost structure. While Adler rental revenues grew by approximately 6% over last year’s fourth quarter, its income from operations declined by approximately 39%.
Dennis Kakures
Over the past year, we have executed on ramping Adler Tank rentals national footprint to support higher rental revenues and earnings levels in the years ahead. These costs are primarily related to filling management, sales, office and inventory center positions, facilities and winch/roll-off tractor infrastructure.
This is all by design. Adler’s profitability was also impacted negatively during the quarter by $1.3 million higher bad debt write-offs from a year ago.
Dennis Kakures
Finally, we also experienced $0.7 million higher expenses during the quarter from a year ago in relocating underutilized equipment from the dry gas Marcellus region to other Adler geographies in need of equipment. We have now completed the great majority of these interregional asset movements and we anticipate this expense category will be materially lower in 2013.
Dennis Kakures
Adler’s average rental equipment utilization for the fourth quarter 2012 stood at 69.9% compared to 86.8% a year ago and 68.9% in the third quarter 2012. Although we would like to see higher utilization levels as we continue to expand our tank and box rental business across the U.S., it is essential that we have the right mix and depth of inventory on the ground in all of the markets in which we operate in order to respond to a variety of end market needs.
Adler is serving a wide variety of market segments, including industrial plant, petrochemical, pipeline, oil and gas, waste management, environmental field service, and heavy construction.
Dennis Kakures
Our percentage of overall rental revenue derived from E&P gas and oil frac-ing has declined from a quarterly high of approximately 35% in 2011 to 15% in the fourth quarter of 2012, and at the same time we grew rental revenues by 6%. We had a $171 million of average equipment on rent in the fourth quarter 2012 compared to $160 million for the same period a year ago, or approximately a 7% increase.
Dennis Kakures
Overall, Adler division wide business activity levels have remained favorable. In fact, booking levels during the fourth quarter of 2012 based upon first month’s rent or billing rate were 45% higher than for the same period a year ago and was Adler’s highest ever quarterly booking level.
I’d also like to note that each region including the Marcellus and Northeastern region experienced healthy quarter-over-quarter booking growth. I want to emphasize that we are only in the early stages of ramping the Adler geographic footprint and customer following.
We have a great tank and box rental business, but not without some growing pains as reflected in our higher bad debt and interregional transportation costs in the fourth quarter compared to a year ago. What’s most important is that Adler is making very good headway in establishing its brand name, high quality products and exceptional customer experiences over an increasingly larger geography and customer base quarter-after-quarter.
Dennis Kakures
Now, let’s go over our results for our modular rental business. Modular division rental revenues for the quarter were relatively flat at $20.1 million compared to $20.3 million a year ago and $20 million from the third quarter of 2012.
Rental revenues grew by 9% quarter-over-quarter in our market outside of California and declined by 9% within the state. Modular rental revenues outside of California now represent approximately 47% of division wide modular rentals.
First month’s rental bookings for the modular division increased 26% from a year ago with bookings outside of California increase in 89% and declining by 15% within the state.
Dennis Kakures
Although our California modular results continue to be depressed due to macroeconomic headwinds, there are a number of positive indicators going forward. These bright spots include the successful November 2012 personal income and sales taxes ballot initiative and its anticipated impact on reversing public education austerity, a December 2012 statewide unemployment rate of 9.8% down from a Great Recession high of 12.6%, scarce inventory of existing homes for sale in some regions as market prices begin to increase and a marked pick-up in both non-residential and residential construction.
Dennis Kakures
Modular division quarter-over-quarter income from operations decreased by approximately 8% to $5.6 million from $6.1 million in 2011, however, modular division gross profit was up slightly to $14.4 million compared to $14.2 million a year ago, and from $13.2 million in the third quarter of 2012. First, the higher percent of reduction in income from operations relative to flat rental revenues for the quarter is primarily due to an increase in bad debt expense, and secondarily to increased SG&A infrastructure costs in our Portable Storage business.
The increase in gross profit for the fourth quarter over the third quarter 2012 relates chiefly to lower inventory center costs incurred. Period end utilization for the fourth quarter 2012 was 66.7% compared to 67.3% for the same period in 2011 and 66.6% at the end of the third quarter of 2012.
Dennis Kakures
Important to note -- to point out that our division wide modular quarterly average utilization over the past nine quarters has stayed within a very narrow range of 66% to 68%. Finally, modular equipment gross profit on sales was up slightly to $1 million compared to $0.9 million a year ago.
Please keep in mind that as our modular rental business returns to growth, it will require limited new capital investment increased rental revenues, and we would expect to see a disproportionate share of this revenue convert to the pre-tax line.
Dennis Kakures
Now, let me turn our attention to TRS-RenTelco and their results. TRS-RenTelco’s rental revenues for the fourth quarter increased by $1.5 million, or 6%, to $26.8 million from a year ago.
We’re seeing favorable demand both domestically and internationally across a number of end markets, including semiconductors and communications products and networks. We saw our yield on equipment on rent increased to 5.05% during the quarter from 4.71% a year ago.
This is primarily due to a greater mix of communications equipment and to a lesser extent, market pricing. Communications test equipment assets have shorter depreciable lives, but higher rental rates than general purpose test equipment.
Dennis Kakures
Divisional income from operations increased 18%, or $1.5 million to $10.1 million from a year ago. The significantly higher percentage increase in profitability as compared to rental revenues was chiefly related to lower SG&A, laboratory and equipment depreciation expenses, all as a percentage of rental revenues from a year ago.
These expenses, as a percentage of rental revenues declined 25.2%, 12.2%, and 36.9% respectively, in producing an EBIT margin of 26.6% for the fourth quarter of 2012, compared to 25.5% a year ago.
Dennis Kakures
Ending fourth quarter, utilization was 64.1% for the quarter, down from 67.1% a year ago and continues to be in a very healthy range. In producing these strong operating metrics, we continued to benefit from our disciplined approach to equipment purchases and inventory management, appropriate depreciable equipment life and our highly skilled, efficiency driven and tenured workforce.
Dennis Kakures
Now, let me take a moment to update everyone on our portable storage business. Mobile Modular Portable Storage continued to make good progress during the quarter in building its customer following, increasing booking levels and growing rental revenues.
Rental revenues grew 29% for the quarter from a year ago and 52% for the full year 2012 compared to 2011. We are working hard at expanding our portable storage business in the California, Texas and Florida markets, and we are continuing to explore smaller fleet acquisition opportunities to accelerate our growth.
Our portable storage business was profitable for all of 2012, as we began to realize critical mass in our installed base of customers in some of the markets in which we operate. It should also be noted that we have favorable room to grow rental revenues within the current cost structure.
Dennis Kakures
Finally, we are actively investigating and acting on additional geographies for expansion. As the economy continues to improve with the infrastructure and quality team we are continuing to build, our portable storage business should benefit very favorably.
Looking forward, we continue to believe that we have an excellent opportunity to become a meaningful player in the Portable Storage rental industry.
Dennis Kakures
Let me transition to various other strategic planning and positioning items. Over the past few quarters, I had mentioned that we were planning on exciting the environmental test equipment business.
I am pleased to announce that in early November 2012, we completed the sale of this business, booking a small loss of approximately $0.4 million on the sale of its rental assets. The sale of these rental assets are included in TRS-RenTelco’s equipment sales revenues for the quarter.
I want to reiterate that we are committed to rental businesses and our portfolio that can produce healthy margins and can be scaled such as they become a material contributor to overall company EPS.
Dennis Kakures
Looking forward, we’re keenly focused on leveraging the significant opportunities that Adler Tank rentals provides us in building a much larger and more profitable tank and box rental business. There are numerous end markets and new geographies for Adler to develop in its future.
I again want to emphasize that we believe Adler has a long runway for domestic growth and that we are in the very early innings of ramping the business.
Dennis Kakures
Finally, it’s important to keep in mind that Adler average annual utilization for the four-year period, from 2009 to 2012 was 66%, 76%, 86%, and 72% respectively. We are still learning what normal utilization levels will look like over time for our tank and box rental business.
Utilization rates are likely not to be in this narrow range as our other rental businesses, until we reach a much more mature state. In summary, our $0.06 reduction in EPS from a year ago was primarily a good result of lower Adler rental revenues relative to its current cost structure, higher bad debt expense and increased interregional equipment relocation costs associated with repositioning rental assets from the Northeast region to other Adler geographies.
Dennis Kakures
If you look at companywide total gross profit for the quarter, we were nearly flat at $44 million compared to a year ago at $44.2 million and for the full year at $168.3 million in 2012 versus $166.8 million for 2011. These results speak to higher SG&A cost primarily associated with ramping both our tank and portable storage businesses.
This is a much more accurate report card on the health of McGrath RentCorp.
Dennis Kakures
In closing, I’d like to comment on McGrath RentCorp’s strong cash flows. In 2012, we added a net $74 million in original cost of rental assets.
These rental products were primarily for the growth of Adler Tank rentals and for our test equipment and Portable Storage businesses. We also paid out $23 million in shareholder dividends throughout the year.
Finally, we invested $14 million in property, plant, and equipment expenditures chiefly for the growth of Adler Tank rentals. Yet, our year ending notes payable only rose by approximately $5 million and we carried a 1.91 to 1 ratio of funded debt to last 12 months actual adjusted EBITDA.
Strong cash flows and a low leverage balance sheet matter greatly towards the financial strength, opportunity nimbleness, and overall shareholder returns of McGrath RentCorp.
Dennis Kakures
And now, Keith and I welcome your questions.
Operator
We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Andrew Gadlin with CJS Securities.
Andrew Gadlin
In regards to your guidance, you have to comment that sales revenue is expected to be 10% lower, and I was curious what’s driving that? Historically when you have a weak sales year, your next year tends to be pretty strong.
Keith Pratt
I’d say there are two primary things. One is the disposition of the TRS environmental assets that was $3.7 million in the fourth quarter of 2012, that’s really not a recurring or expected item that we’d see in 2013.
The other comment is Enviroplex had a big sales year in 2012, but as we know some of the issues we ran into that we discussed on the last call with certain project meant that, that sales revenue didn’t bring a lot of profit. As we look into 2013, we think the sales revenue will be lower at Enviroplex, the profit margin should start to move over the course of the year back to the normal range, although we will have some of the problem projects being recognized in Q1 of this year really to complete that project.
I would say in standard modular business and TRS business, not a significant change that we are expecting in the level of sales.
Dennis Kakures
And at the margins?
Keith Pratt
Yes, and margin is sort of staying in their normal ranges for both normal modular and TRS sales.
Andrew Gadlin
So, really it’s just projecting sales to stay level year-over-year except for taking out the low margin Enviroplex sales and the environmental?
Keith Pratt
That’s a reasonable way to look at it.
Andrew Gadlin
Okay. Next question in terms of Adler, can you talk about some of maybe some of the regions that you are targeting as well as maybe some of the end markets that you are investing in?
Dennis Kakures
For competitive purposes, I will just make this comment. I won’t give out any specific markets that we are targeting, because those are in the process of happening currently.
I will say this that by the end of 2014, 2013 Adler’s footprint will pretty much be throughout the U.S. in terms of being able to touch any of the major markets, where there is very active tank and box rental activity.
But I am just trying to be very careful about this process and obviously we also are looking for employees and facilities and so forth that support that. So, I am just being very guarded with that.
So, I apologize.
Andrew Gadlin
That’s fine. Thank you very much.
Operator
Our next question comes from the line of David Gold with Sidoti.
David Gold
Can you -- and this is going to be probably a tough one for you guys to answer, but can you give us a sense for how we should think about the movement that’s happened on the Adler side, whether it be by, say, number of units sort of been moved or – and/or maybe sort of the aggregate spend on that. Just so, we can get sort of a better sense of the movement that’s happened there?
Dennis Kakures
Yes, a couple of comments, David, I think as you followed the journey of 2012, we started moving some equipment in Q2, we did a little bit more in Q3, and then we did more again in Q4. For the full year, we probably moved in the neighborhood of 400 tanks.
And we probably spent in the neighborhood of a $1.5 million for the full year for equipment moves between regions.
Keith Pratt
And those costs even though we will have some interregional relocation of equipment costs quarterly, it should be materially lower in 2013 and going forward.
David Gold
Got you. And then on the same note, Dennis you commented on the utilization side, presumably a bit wider band in that business, but when you think about it and when you do your planning, what utilization target do you use?
Dennis Kakures
You know actually we’d love to - we think long-term maybe mid-70% range is probably the appropriate range. We don’t know that for certain, but as we work our internal analysis and when we do our modeling, it’s somewhere in that mid-70% range is probably where we line up that and again, we have to learn more about the different geographies and the different cyclical natures of various end markets.
David Gold
Perfect, okay. And then shifting to California, I think to your point, there are a lot of pluses going on there, but also still some minuses and presumably we’re still seeing booking levels decline a little bit.
How do you think about a bottom there and given the passage of proposition in November? Do we think that this booking season maybe we see a little bit of a turnaround to some flattening?
Dennis Kakures
Yes. First of all, if you look at California and its numbers, you have to keep in mind that from a shipment of equipment out versus in, it may be pretty close to a push currently and where we’re seeing the continued erosion is in the - difference in rental rate.
The equipment that’s going out is going out at a lower rental rate than legacy equipment that’s returning, that was at a higher rental rate. So, the good news is that the market is quite a bit more active in terms of equipment going out.
It’s -- the struggle is on the rate side and that will only take care of it as utilization rises across the industry. As for 2013, we’ve started off the year very favorably here.
It’s better here than it was a year ago. There is a lot of good indicators.
The Prop 30 initiative that passed in November we think is a real good guy, although there won’t be a facility bond measure on a state wide basis until 2014. So, and then the state in January actually had a $5 billion surplus in tax receipts that - that’s a one-time event there, but the good news is that the cash flows are very favorable currently, let’s hope the government spends that cash wisely.
But I think California is without question taken the tonic it needed to and now it’s a matter of letting the economy do its thing and it’s definitely gotten better and again we are anxiously awaiting to see it in the numbers, which we haven’t yet. We’re being very candid here that it’s continued to erode to some level, but that has much more to do with rate than it does with activity.
David Gold
Okay. And if you look at sort of how maybe things there have changed in the last few months have you seen a noticeable difference then in inquiries since, let’s say November or sort of throughout the year?
Dennis Kakures
There is no -- in my mind, anecdotally from chatting with folks and also booking numbers, I don’t think there is any question that it continue to get healthier every quarter over the past year. I know that intimately from our own experience and then also how that translates then into the numbers is what -- is the struggle.
Because we have to see it in the numbers before we get on any kind of a trend train here and say okay, it’s really turned the corner. But everything anecdotally as well as factually as you start lining up real key elements in the economy it seems to be going in the right direction, but again we need to see it in the numbers.
David Gold
Sure, sure, okay. And then just one last one, certainly interested and intrigued by the growth that you are seeing on the storage side and I was curious there - well a couple of things.
One, we don’t have the basis for those numbers. So, I have to believe based on what we know but it’s more, for lack of a better term, market share gains and then if you will – growing off a smaller base.
And so I was curious on that and then two on the G&A side, where you are investing, is it pure hiring, are we building out a sales force, what’s - where is that money going to work?
Dennis Kakures
Yes. Most of the money that we’re putting into the portable storage businesses for additional sales people, sales management.
We have some outlined facility yards where we’re paying rent, etcetera or buying property. But for the most part it’s building that professional team of individuals that can book business etcetera.
So, and if - yes, it’s small base but growing nicely. And the interesting thing is, we didn’t - we only expanded into one new market in 2012, although we have a few of them, very favorable ones planned for 2013.
So, in 2012 we in effect focused on our existing markets, worked on critical mass in spite of the economy still struggling and we accomplished what we set out to. We met our profitability goals and our rental revenue goals.
And so we are very pleased with that and we have a bigger base now and we plan to expand the footprint, so.
David Gold
Perfect. That’s all I have.
Thank you, both.
Operator
Our next question comes from the line of Scott Schneeberger.
Daniel Hultberg
This is Daniel Hultberg filling in for Scott. I am kind of following up on a previous question, I understand, Dennis, your commentary about the competitive reasons there.
Is there any way you can give any color on the verticals driving Adler in the quarter. I know you saw a nice sequential improvement in utilization, any color there would be helpful?
Dennis Kakures
Well, when you look at it - the oil and gas industry as a whole, other than E&P as an area, in which refineries and the petrochemical industry are all areas in which we want to do more business in and is a sweet spot for us. So I would say that those are certainly been quite favorable.
And the heavy construction market also has been more favorable. So those are probably some of the prime drivers in the vertical.
Daniel Hultberg
Okay.
Keith Pratt
The contribution from frac-ing dropped to 15% in the fourth quarter of 2012 and that compares with a number in the mid-30s percentage range throughout 2011. So, that part of the business went down, and as Dennis said, the other traditional segments for tank rentals, we saw a good growth.
Daniel Hultberg
Okay. Thank you.
And as far as the frac-ing mix going forward, should we think about this in terms of its current mix in 2013 or is that expected to increase a bit?
Dennis Kakures
That’s the $64 question, and we like the frac-ing business and it’s a question of concentration, customer concentration as well as geographic concentration. And there are a number of dynamics that play out related to U.S.
Energy Policy. And if we are going to be drilling for decades to come in the Marcellus and the Bakken, in other oil and gas shale plays well then -- we will have to respond appropriately.
But again we need to keep an appropriate mix and balance that’s very healthy, because as anybody who has ever tracked oil and gas knows that it is a -- it can be a volatile industry. Although I would say based upon how the U.S.
Energy Policy gets defined going forward, it may not be as volatile domestically as perhaps it has been historically in most markets. We will see.
Daniel Hultberg
Okay, understood. Shifting to TRS, the utilization in the quarter was down year-over-year, what’s the specific dynamic there?
Any color that would be helpful? Thanks.
Dennis Kakures
There is nothing really anything specific there and you can have fluctuations in numbers at the end of a quarter. You got a certain amount of equipment back and we take an inventory on December 31st.
Those are the numbers, but there is nothing of a material nature there, in fact we are holding a very nicely this year with our rental rate throughout the year thus far in the first six to seven weeks. In spite of an unknown sequester or there is other dynamics going out with the economy that nobody can quite figure out right now, but there is nothing to read into that.
Keith Pratt
Yes. And I would say, Daniel, seasonally for TRS it’s pretty typical to see some drop off in utilization over the course of the fourth quarter.
We typically expect to see that anytime from middle of November onwards.
Daniel Hultberg
Okay. And a final question on Portable Storage, how should we think about that in 2013 in terms of that as a contributor to operating income?
Do you have any color to provide please?
Dennis Kakures
Very small, but growing and at some point here we’ll be able to share more information, it’s essential for our growth plans that we probably are just very careful with what we share, because it could impede us in terms of growing as fast as we’d like to and as profitably as we’d like to. So - but, we will have more information to share on Portable Storage as we go forward, and it will become a more meaningful business over time.
Daniel Hultberg
Okay. Thanks guys.
Operator
(Operator Instructions) And our next question comes from the line of Joe Box with KeyBanc.
Joe Box
Keith, you gave us a good target earlier for just total company SG&A. Can you maybe give us a sense for run rate by segment?
Keith Pratt
I would say, I would just look at the run rate you have today in the business. Alder is probably where we’re going invest a little bit more, as Dennis mentioned earlier, with a goal of serving more markets and having people in place to do that.
TRS, I wouldn’t expect an unusual increase there. Modular’s includes portable storage, so there’ll be a little bit more investment there, but no, nothing dramatic in any of those segments.
Part of the costs here is just the normal employee related costs, benefit costs. We’ll see a little bit of an uplift there and we are operating with a bigger team today than we had in February of 2012.
Joe Box
Okay. That’s helpful.
Can you give us an update on the percentage of your TRS fleet that is currently communication equipment? I think it used to be one-third communication equipment, and maybe just how do you see that trending next year or this year, I should say?
Dennis Kakures
Yes. It’s probably in the same neighborhood, but growing more quickly than the GP side, so it’s moving higher a bit, I wouldn’t say it’s materially higher.
Joe Box
Is it fair to say then that there should be more upside to the yield just as you get more favorable mix?
Keith Pratt
It’s possible. The yield right now is pretty good.
I mean, as Dennis mentioned in the prepared remarks that the high yield we saw in the Q4, it’s largely a mix issue. I would say that’s a pretty high number.
Joe Box
Alright. I’m just trying to understand I mean if you’re going to continue to grow your communication equipment, will you have a positive mix shift throughout the year?
Dennis Kakures
It’s - I think, we’ve answered as best we can at this juncture. It should be - it should be ticking upward and then we’ll have to see what happens on the general purpose side, in difference of the activity because that’s a big question, Mark now with aerospace and defense spending, potentially week from today or week from tomorrow, being cut to this sequester dynamics.
So, there is a number of things up in the air.
Joe Box
Okay. I appreciate the color there.
Dennis, can you maybe just put a little bit more color around the 45% booking increased that you talked about at Adler?
Dennis Kakures
Well, I think that’s representative of the fact that Adler is becoming just a much more well-known name in the industry. They have the youngest fleet in the industry.
They have got an exceptionally good sales force. We are focused on just doing tanks and boxes, we don’t do filters and pumps and other things.
So, I think what you are seeing is just the natural progression of us building out branches and staff getting more tenured and qualified. And that’s been able to now fully support with equipment that people were so starved for a year ago.
So, I think you put all that together, that’s why you are seeing those types of numbers.
Joe Box
Got you. I think you said earlier that there is more outbound activity in California than there has been in the past.
And one of the issues that you are seeing there is it tends to be more on the rate side. I guess based on the activity levels that you are seeing now, where do you think you need to see utilization at before you reach rate parity or even maybe asked a different way, how long do you think it might take before we get to rate parity?
Dennis Kakures
That is a great question. And we have been trying to answer that for some time now.
I would say personally once you start seeing movement continually on utilization going up in consecutive quarters you are likely to start seeing some of that. And what will happen is it won’t be across the board on all sizes and types of equipment, it will be like today, for example, there are certain pieces of inventory like larger complex floors that are very scarce.
They are in high demand and so rates on that product, for example, has actually gone up very favorably over the past few quarters. So, those are the types of things.
You will start seeing it in pockets of certain types of equipment, but again it will take consecutive quarters of utilization uptick, and then you will start seeing likely some form of progression there. When you actually get to that across the board in the entire fleet that in the early 70 - the low 70% range, it very well might be.
That probably wouldn’t be an unreasonable area so…
Joe Box
Great, that’s good color. And that’s all I have.
Thank you.
Operator
There are no further questions. At this time, I would like to turn the call over to management for closing remarks.
Dennis Kakures
We would like to thank everybody for their participation on today’s call. We greatly appreciate the support and we’ll look forward to chatting with everybody again on our Q1 2013 call in early May.
Thank you so much.
Operator
Ladies and gentlemen, this does conclude the McGrath RentCorp fourth quarter 2012 financial results conference call. Thank you for your participation.
You may now disconnect.