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Mac-Gray Corporation (TUC)
Q1 2010 Earnings Call Transcript
May 6, 2010 10:00 am ET
Michael Shea – EVP, CFO and Treasurer
Stewart MacDonald – CEO
Jeff Martin – ROTH Capital Partners
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At this time I would like to turn the call over to Mr. Shea. Thank you. You may now begin.
Thank you, Kirsten. Good morning, everyone. Thanks for joining us on today's call. Before we begin, please note that the various remarks we may make on this conference call about the company's future expectations, plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by these forward-looking statements. As a result of various factors, including those discussed in our annual and quarterly reports on file with the Securities and Exchange Commission. I would also like to remind you that during our call today, we will be discussing non-GAAP financial measures, income from continuing operations as adjusted, earnings per share from continuing operations as adjusted, EBITDA from continuing operations and EBITDA from continuing operations as adjusted.
Please see the tables that follow our consolidated statements of operations in today's press release for a reconciliation of net income to adjusted net income, EBITDA from continuing operations and adjusted EBITDA from continuing operations. A copy of the press release has also been submitted as an exhibit to an 8-K we filed with the SEC.
With that, let me turn the call over to Stewart.
Thanks, Mike, and thank you everyone for joining us this morning. The first quarter continued in the challenging environment we have seen in our industry and for Mac-Gray starting in late 2006. We have spoken on our past conference calls about the effects that record level apartment vacancy rates are having on our business. These include lowering the usage of our equipment, reducing our ability to institute then price increases, and negatively influencing the renegotiation process with property owners and managers. In Q1, we experienced more of the same, although we did see some positive signs in individual markets.
As we stated in today's press release, it appears that apartment vacancy rates in some markets may, and I stress the conditional “may”, have begin to peak. According to the independent REIS industry data, the first quarter US apartment vacancy rates were unchanged from Q4 at 8%.
While this still represents the highest level of vacancies in 25 years, it was the first time in several years that the nationalized vacancy rate did not increase over the prior quarter. The reason for this is that a number of markets have begun to stabilize and some markets have actually begun to see some improvement compared with last year. Another leading industry metric, that being rent rates, also showed positive signs in some markets.
However, the most important driver of apartment vacancy rates is the local unemployment rate, and the apartment industry believes that until the employment picture substantially improves we will likely see only incremental improvements in vacancy rates and their effects on us. So that's the environment that we're continuing to deal with and that serves as background to our first quarter results.
Given those continuing conditions in the multifamily housing environment, we are relatively pleased with the solid performance we delivered in Q1. Revenue from continuing operations declined 4.4% with our core, excuse me, – laundry facilities management business revenue down 2.9%. Our same location revenue in Q1 was down 2.2% year-over-year, which is a slower rate of decline than we had seen recently.
From a regional perspective, the northeast continues to be our strongest performing region, while the southwest continues to be our weakest. This was primarily due to the Arizona market, which declined 13% compared with a year ago. Unfortunately, our guess, and that is the industry experts, is that the housing environment there will remain somewhat uncertain during the current furor over the recently passed law that deals with illegal immigrants.
Overall, we are seeing more locations that are used in this analysis begin to stabilize and we are seeing pockets of same location growth in certain markets, among them, New York and Atlanta.
Within our commercial laundry equipment business, sales were 26% lower over the same period in 2009. As customers continue to extend the life of equipment while the economy and the credit environment are curtailing the opening of new Laundromats.
Looking at our bottom line, our adjusted income from continuing operations before taxes was essentially flat with last year. Based on the steady pay down of our debt balance and the 100 million swap agreements that Mike detailed on our Q4 call, we reduced our interest expense by $1.2 million or 22% from Q1 of a year ago.
We've also done an effective job at controlling and reducing our costs wherever possible. SG&A costs were down year-over-year. Capital expenditures, which I'll talk more about in a minute, were also down significantly totaling 3.2 million in the quarter versus 8.2 million a year ago. Taken together, the reduction in operating costs and lower capital spending resulted in very strong cash flow during the quarter.