On Strength of Acquisitions, Revenue Grows 34% Company Reiterates Outlook for 2008
WALTHAM, Mass., Aug. 7 /PRNewswire-FirstCall/ -- Mac-Gray Corporation
(NYSE: TUC), the nation's premier provider of laundry facilities management
services to multi-unit housing locations, today announced its financial
results for the second quarter ended June 30, 2008.
Mac-Gray reported record second-quarter revenue of $92.9 million, an
increase of 34% from 2007 second-quarter revenue of $69.2 million. Net income
for the second quarter was $210,000, or $0.02 per diluted share, compared with
net income of $768,000, or $0.06 per diluted share, for the second quarter of
2007. Second-quarter 2008 net income included a pre-tax gain of $1.2 million
on the change in value of derivative instruments and a $207,000 charge for the
early extinguishment of debt related to the financing of the acquisition of
Automatic Laundry Company (ALC). Results for 2008 also reflect significantly
higher interest expense related to the debt incurred to fund the Company's
acquisitions completed during the past twelve months. Second-quarter 2007 net
income included a pre-tax gain on the change in value of derivative
instruments of $516,000. Excluding the gain on derivatives from both periods,
and the charge for the early extinguishment of debt, adjusted net loss for the
second quarter of 2008 was $374,000, or ($0.03) per share, compared with
adjusted net income of $465,000, or $0.03 per diluted share, for the second
quarter of 2007.
Please refer to Table 1, included at the end of this news release, for a
reconciliation of net income (loss), as reported, to net income (loss), as
adjusted.
For the second quarter of 2008, Mac-Gray's earnings before interest
expense, provision for income taxes, depreciation and amortization expense
(EBITDA) increased to $18.8 million, compared with $13.9 million in the year-
earlier quarter. EBITDA, as adjusted for the items described above, increased
33% to $17.8 million for the second quarter of 2008, compared with $13.4
million in the year-earlier quarter.
Please refer to Table 2, included at the end of this news release, for a
reconciliation of net income to EBITDA and EBITDA, as adjusted.
Comments on the Second Quarter
"Our revenue growth in the second quarter was primarily driven by the
acquisitions we completed in the past twelve months, specifically the addition
of ALC this April 1st, as well as Hof last August," said Stewart G. MacDonald,
Mac-Gray's chairman and chief executive officer. "The acquired assets
performed on plan as we grew our laundry facilities management business
revenue by 41% year-over-year. Our Product Sales division was led by a strong
contribution from our MicroFridge business, which generated year-over-year
revenue growth of 29% in the quarter, and is on track for another record year
as it achieved increases across all of its segments.
"In terms of organic growth within our core laundry facilities business,
the second quarter again demonstrated the stability that comes from our
geographic diversity. In light of some significant vacancy rate issues as
well as current economic conditions, we were pleased to keep our total "same
location" revenue essentially flat with the second quarter of 2007. Continued
strength in many of our Northeastern markets, such as New England and New
York, offset the slowdown we experienced in certain markets in our
Southeastern and Southwestern regions, specifically Arizona, Florida and
Georgia.
"Additionally, the integration of the ALC acquisition is proceeding well,
as we began to rationalize facilities and employees in certain markets and
initiated the process of transitioning its systems onto our platforms. We
continue to target $4 million in annual expense synergy, and took some
important initial steps in the quarter related to that goal. We closed
facilities in four cities where our operations overlapped with ALC, disposed
of excess vehicles and equipment, and lowered our total payroll by
approximately 40 people by eliminating redundant positions. In the quarter we
incurred approximately $580,000 of non-recurring expenses in connection with
the integration of ALC.
"From an expense perspective, higher costs for fuel and equipment parts
continued to weigh on margins. For the quarter, our gross margins declined to
16.5%, from 18.1% in the second quarter of 2007. We are taking aggressive
steps to incrementally lower our costs, including implementing more
intelligent routing of our vehicle fleet, incentivizing our drivers to
increase their fuel efficiency, and ordering hybrid vehicles. Within SG&A, we
benefited from economies of scale as we lowered those costs, as a percentage
of revenue, by 1.4%."
Six-Month Results
For the six months ended June 30, 2008, Mac-Gray reported revenue of
$170.5 million, an increase of 21% from revenue of $140.7 million for the
first six months of 2007. Net income for the first half of 2008 was $972,000,
or $0.07 per diluted share, compared with $2.0 million, or $0.15 per diluted
share, for the first half of 2007. Excluding a pre-tax loss related to
derivative instruments of $37,000 in the first six months of 2008 as well as
the $207,000 loss on the early extinguishment of debt, and a pre-tax gain of
$252,000 related to derivative instruments in the first six months of 2007,
adjusted net income for the six months ended June 30, 2008 was $1.1 million,
or $0.08 per diluted share, compared with $1.9 million, or $0.14 per diluted
share, for the comparable period in 2007.
For the first six months of 2008, Mac-Gray's earnings before interest
expense, provision for income taxes, depreciation and amortization expense
(EBITDA) increased to $33.7 million, compared with $28.6 million in the year-
earlier period. EBITDA, as adjusted for items previously mentioned, was $34.0
million for the first six months of 2008, up 20% compared with $28.3 million
for the first six months of 2007.
Please refer to Tables 1 and 2, included at the end of this news release,
for a reconciliation of reported net income to net income, as adjusted, EBITDA
and EBITDA, as adjusted.
"Our balance sheet has taken on a new look with the assets and
corresponding debt from the April 1st ALC acquisition. Total assets have
increased by more than $120 million to $508 million, and our funded debt has
increased to $321 million. Since acquiring ALC, we have reduced our funded
debt by $10.8 million, while maintaining our typical level of capital
expenditures.
Business and Financial Outlook
"Despite the general economic slowdown, and continued turbulence in the
housing sector, our core laundry facilities business remains sound and we are
encouraged about our long-term prospects, particularly as tenant occupancy
rates in some markets normalize and we begin to capitalize on our recent
acquisitions. We have a stable customer base that does business with us under
long-term contracts. The diversity of our 43-state footprint continues to
somewhat insulate us from any particular region's volatility. We have
completed two major acquisitions in the past year that have greatly increased
our density in a number of key markets. We continue to pursue organic growth
opportunities, such as vend price increases, the addition of new accounts, and
conversion to card-operated equipment. Our well-established business model
continues to generate significant cash flow, sufficient to simultaneously
provide our capital requirements as well as reduce our debt balance.
"Our focus in the coming quarters will be on executing the successful
first phase of the integration of ALC and fully realizing the planned cost
synergy. While apartment vacancy rates in parts of the country and their
effects on our equipment usage are beyond our control, we will continue to
constrain the corresponding operating expenses whenever possible. We will
continue to address the challenges presented by higher fuel and parts costs
through our ongoing cost control and reduction programs. We also will
continue to apply our excess cash flow toward reducing our funded debt,"
MacDonald concluded.
Based on second-quarter results and current market conditions, the Company
is reiterating its outlook for 2008:
-- laundry facilities management revenue in the range of $305 million to
$315 million;
-- product sales revenue in the range of $50 million to $55 million; and
-- capital expenditures, including laundry facilities management contract
incentives, in the range of $33 million to $37 million.
The foregoing estimates reflect management's view of current and future
market conditions, including assumptions with respect to multi-housing
occupancy rates. These estimates may be subject to fluctuations as a result
of a number of factors and there can be no assurance that Mac-Gray's actual
results will not differ materially from the estimates set forth above.
Conference Call Information
The Company will host a conference call at 10:00 a.m. ET today during
which Stewart MacDonald, Mac-Gray's chairman and chief executive officer, and
Michael Shea, executive vice president and chief financial officer, will
summarize the Company's financial results, review business and operating
highlights from the quarter, and provide a business and financial outlook. To
hear a live broadcast of the call, log onto www.macgray.com or dial (877) 407-
5790 or (201) 689-8328.
You can also access a replay of the conference call in the Investor
Relations section of Mac-Gray's website at www.macgray.com.
Use of Non-GAAP Measures
In this release we use non-GAAP financial measures including adjusted net
income, EBITDA and adjusted EBITDA. We define EBITDA as net income before
interest expense, provision for income taxes, and depreciation and
amortization expense. Adjusted net income, EBITDA and adjusted EBITDA are not
measures of our liquidity or financial performance under generally accepted
accounting principles (GAAP) and should not be considered as alternatives to
net income or any other performance measure derived in accordance with GAAP,
or as an alternative to cash flows from operating activities as a measure of
our liquidity. Our management believes adjusted net income, EBITDA, and
adjusted EBITDA are useful to investors because they help enable investors to
evaluate our business in the same manner as our management. Management uses
adjusted net income, EBITDA and adjusted EBITDA to evaluate the Company's
historical and prospective financial performance, to set internal revenue
targets and spending budgets, to measure operational profitability and the
accuracy of forecasting, and as an important factor in determining variable
compensation for management. In addition, these measures are frequently used
by securities analysts, investors and other interested parties in the
evaluation of companies with substantial financial leverage. Moreover,
investors have historically requested, and the Company has historically
reported, these non-GAAP financial measures as a means of providing consistent
and comparable information with past reports of financial results.
While management believes that these non-GAAP financial measures provide
useful supplemental information to investors, there are limitations associated
with the use of these non-GAAP financial measures. These measures are not
prepared in accordance with GAAP and may not be directly comparable to
similarly titled measures of other companies due to potential differences in
the exact method of calculation. Further, EBITDA and adjusted EBITDA exclude
interest expense and depreciation and amortization expense, which represent
significant and unavoidable operating costs of the Company given the level of
indebtedness and the capital expenditures needed to maintain its business. In
addition, our measures of EBITDA and adjusted EBITDA are different from those
used in the covenants contained in our senior credit facilities and the
indenture governing our senior notes. Management compensates for these
limitations by relying primarily on its GAAP results and by using EBITDA and
adjusted EBITDA supplementally and by reviewing the reconciliations of the
non-GAAP financial measures to their most comparable GAAP financial measures.
Non-GAAP financial measures are not in accordance with, or an alternative
for generally accepted accounting principles in the United States. The
Company's non-GAAP financial measures are not meant to be considered in
isolation or as a substitute for comparable GAAP financial measures, and
should be read only in conjunction with the Company's consolidated financial
statements prepared in accordance with GAAP.
About Mac-Gray Corporation
Founded in 1927, Mac-Gray derives its revenue principally through the
management of card- and coin-operated laundry facilities in multiple housing
facilities such as apartment buildings, college and university residence
halls, condominiums and public housing complexes. Mac-Gray contracts its
laundry facilities under long-term leases. These leases typically grant Mac-
Gray the exclusive contract rights to laundry facilities on the lessor's
premises for a fixed term, which is generally 7 to 10 years, in exchange for a
negotiated portion of the revenue collected. Mac-Gray serves approximately
80,000 multi-housing laundry facilities located in 43 states and the District
of Columbia.
Mac-Gray also sells, services and leases commercial laundry equipment to
commercial laundromats and institutions through its product sales division.
This division also includes the Company's MicroFridge(R) business, where Mac-
Gray sells its proprietary MicroFridge(R) line of products, which are
combination refrigerators/freezers/microwave ovens utilizing patented Safe
Plug(R) circuitry. The products are marketed throughout the United States to
colleges, the federal government for military housing, hotels and motels, and
assisted living facilities. MicroFridge(R) also markets Whirlpool's Magic
Chef(R), Amana(R) and Maytag(R) lines of home appliances under its
MaytagDirect(TM) program throughout the United States. MicroFridge(R) and
Maytag(R) products bear the ENERGY STAR(R) designation. To learn more about
Mac-Gray, visit the Company's website at www.macgray.com.
Intelligent Laundry(TM) Solutions, Intelligent Laundry(TM) Systems,
PrecisionWash(TM) and MaytagDirect(TM) are trademarks of Mac-Gray Corporation.
LaundryView(R) and MicroFridge(R) are registered trademarks of Mac-Gray
Corporation. All other product names, service marks and trademarks mentioned
herein are trademarks of their respective owners.
Safe Harbor Statement
This news release contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, including statements
regarding the expected synergies and cost savings from the ALC acquisition,
the Company's growth prospects and the Company's estimates of laundry
facilities management revenue, product sales revenue and capital expenditures
for the full year 2008. The Company intends such forward-looking statements
to be covered by the Safe Harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, and is
including this statement for purposes of complying with these Safe Harbor
provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, may be identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. Investors should
not rely on forward-looking statements because they are subject to a variety
of risks, uncertainties and other factors that could cause actual results to
differ materially from such forward-looking statements. Certain factors which
could cause actual results to differ materially from the forward-looking
statements include, but are not limited to, changes in multi-housing vacancy
rates, the Company's ability to identify and successfully acquire laundry
facility business, successfully integrate acquired assets and operations, and
service the increased debt incurred to finance acquisitions, as well as the
risks that the Company will incur unanticipated costs related to the acquired
operations or not realize expected revenues, synergies and cost savings, and
those risks set forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 2007 under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in other reports
subsequently filed with the Securities and Exchange Commission.
Contacts:
Michael J. Shea
Chief Financial Officer
Mac-Gray Corporation
781-487-7610
Email: mshea@macgray.com
Jim Buckley
Executive Vice President
Sharon Merrill Associates, Inc.
617-542-5300
Email: jbuckley@investorrelations.com
MAC-GRAY CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
2007 2008 2007 2008
Revenue $69,215 $92,900 $140,689 $170,542
Cost of revenue:
Cost of facilities management
revenue37,862 54,20877,01798,434
Depreciation and amortization9,057 12,29518,10122,086
Cost of products sold9,786 11,09818,23819,212
Total cost of revenue 56,705 77,601 113,356 139,732
Gross margin 12,510 15,29927,33330,810
Operating expenses:
Selling, general and
administration expenses 8,609 10,20718,02419,811
(Gain) loss on sale or disposal
of assets, net(12) 7 (124) (49)
Loss on early extinguishment of
debt -207 - 207
Total operating expenses 8,597 10,42117,90019,969
Income from operations 3,9134,878 9,43310,841
Interest expense, net 3,1225,612 6,258 9,410
(Gain) loss related to derivative
instruments(516) (1,165) (252) 37
Income before provision for income
taxes 1,307 431 3,427 1,394
Provision for income taxes 539 221 1,405 422
Net income $768 $210$2,022 $972
Net income per common share - basic$0.06$0.02 $0.15 $0.07
Net income per common share - diluted $0.06$0.02 $0.15 $0.07
Weighted average common shares
outstanding - basic 13,185 13,33813,15913,319
Weighted average common shares
outstanding - diluted13,668 13,68813,62013,679
MAC-GRAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
December 31, June 30,
2007 2008
Assets
Current assets:
Cash and cash equivalents $13,325 $15,239
Trade receivables, net of allowance
for doubtful accounts 10,10611,148
Inventory of finished goods, net7,400 9,760
Prepaid expenses, facilities
management rent and
other current assets 16,10315,339
Total current assets 46,93451,486
Property, plant and equipment, net 126,321 151,211
Goodwill 42,22960,522
Intangible assets, net 153,341 228,896
Prepaid expenses, facilities
management rent and other assets14,71215,604
Total assets $383,537 $507,719
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt
and capital lease obligations $1,352$5,655
Trade accounts payable and accrued
expenses 23,94524,897
Accrued facilities management rent 18,30920,428
Deferred revenues and deposits777 188
Total current liabilities44,38351,168
Long-term debt and capital lease
obligations207,169 315,131
Deferred income taxes30,90737,878
Other liabilities 3,234 2,644
Commitments and contingencies - -
Stockholders' equity:
Preferred stock of Mac-Gray Corporation
($.01 par value, 5 million shares
authorized, no shares outstanding) - -
Common stock of Mac-Gray Corporation
($.01 par value, 30 million shares
authorized, 13,443,754 issued and
13,276,864 outstanding at December 31,
2007, and 13,443,754 issued and
13,348,908 outstanding at June 30, 2008) 134 134
Additional paid in capital 72,58673,880
Accumulated other comprehensive
income45 468
Retained earnings 26,81227,401
99,577 101,883
Less: common stock in treasury, at cost
(166,890 shares at December 31, 2007 and
94,846 shares at June 30, 2008) (1,733) (985)
Total stockholders' equity 97,844 100,898
Total liabilities and stockholders' equity $383,537 $507,719
MAC-GRAY CORPORATION
TABLE 1
Reconciliation of Reported Net Income to Adjusted Net Income
(In thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
2007 2008 2007 2008
Net income, as reported $768 $210 $2,022 $972
Income before provision for income
taxes, as reported$1,307 $431 $3,427 $1,394
(Gain) loss related to derivative
instruments (1) (516) (1,165)(252) 37
Early extinguishment of debt -207 207
Income (loss) before provision for
income taxes, as adjusted791 (527) 3,1751,638
Provision for (benefit from) income
taxes, as adjusted 326 (153) 1,302 537
Net income (loss), as adjusted $465$(374) $1,873 $1,101
Diluted earnings (loss) per share, as
adjusted $0.03 $(0.03) $0.14$0.08
(1) Represents the un-realized (gain) loss on interest rate protection
contracts, which do not qualify for hedge accounting treatment.
To supplement the Company's unaudited condensed consolidated financial
statements presented on a generally accepted accounting principles (GAAP)
basis, management has used a non-GAAP measure of net income. Management
believes presentation of this measure is appropriate to enhance an overall
understanding of our historical financial performance and future prospects.
Adjusted net income, which is adjusted to exclude certain gains and losses
from the comparable GAAP net income, is an indication of our baseline
performance before gains, losses or other charges that are considered by
management to be outside of our core operating results. These non-GAAP results
are among the primary indicators management uses as a basis for evaluating the
Company's financial performance as well as for forecasting future periods.
For these reasons, management believes these non-GAAP measures can be useful
to investors, potential investors and others. The presentation of this
additional information is not meant to be considered in isolation or as a
substitute for net income or other measures prepared in accordance with GAAP.
MAC-GRAY CORPORATION
TABLE 2
Reconciliation of Reported Net Income to Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") and EBITDA, as adjusted
(In thousands)
Three months ended Six months ended
June 30, June 30,
2007 2008 2007 2008
Net income$768 $210 $2,022 $972
Interest expense, net3,1225,6126,2589,410
Provision for income taxes 539 2211,405 422
Depreciation and amortization9,450 12,735 18,886 22,927
EBITDA 13,879 18,778 28,571 33,731
(Gain) loss related to derivative
instruments (1) (516) (1,165)(252) 37
Loss on early extinguishment of debt -207 -207
EBITDA, as adjusted$13,363 $17,820 $28,319 $33,975
(1) Represents the un-realized (gain) loss on interest rate protection
contracts, which do not qualify for hedge accounting treatment.
EBITDA is defined as net income before interest expense, provision for
income taxes, and depreciation and amortization expense. Adjusted EBITDA is
EBITDA further adjusted to exclude the items described in the table above. We
have excluded these items because we believe they are not reflective of our
ongoing operating performance. EBITDA and Adjusted EBITDA are not measures of
our liquidity or financial performance under GAAP and should not be considered
as alternatives to net income or any other performance measure derived in
accordance with GAAP, or as an alternative to cash flows from operating
activities as a measure of our liquidity.
Our management believes EBITDA and Adjusted EBITDA are useful to investors
because they help enable investors to evaluate our business in the same manner
as our management. Management uses EBITDA and Adjusted EBITDA as follows: (a)
to evaluate the Company's historical and prospective financial performance,
(b) to set internal revenue targets and spending budgets, (c) to measure
operational profitability and the accuracy of forecasting, and (d) as an
important factor in determining variable compensation for management. In
addition, these measures are frequently used by securities analysts, investors
and other interested parties in the evaluation of companies with substantial
financial leverage. Moreover, investors have historically requested and the
Company has historically reported these non-GAAP financial measures as a means
of providing consistent and comparable information with past reports of
financial results.
While management believes that these non-GAAP financial measures provide
useful supplemental information to investors, there are limitations associated
with the use of these non-GAAP financial measures. These measures are not
prepared in accordance with GAAP and may not be directly comparable to
similarly titled measures of other companies due to potential differences in
the exact method of calculation. Further, EBITDA and Adjusted EBITDA exclude
interest expense and depreciation and amortization expense, which represent
significant and unavoidable operating costs given the level of indebtedness
and the capital expenditures needed to maintain our business. In addition,
our measures of EBITDA and Adjusted EBITDA are different from those used in
the covenants contained in our senior credit facilities and the indenture
governing our 7 5/8% senior notes. Management compensates for these
limitations by relying primarily on our GAAP results and by using EBITDA and
Adjusted EBITDA only supplementally and by reviewing the reconciliations of
the non-GAAP financial measures to their most comparable GAAP financial
measures.
Non-GAAP financial measures are not in accordance with, or an alternative
for, generally accepted accounting principles in the United States. The
Company's non-GAAP financial measures are not meant to be considered in
isolation or as a substitute for comparable GAAP financial measures, and
should be read only in conjunction with the Company's consolidated financial
statements prepared in accordance with GAAP.
SOURCE Mac-Gray Corporation
