Mac-Gray Announces Second-Quarter Financial Results Company Increases Revenue and Net Income; Affirms 2013 Guidance

WALTHAM, Mass., Aug. 1, 2013 /PRNewswire/ -- Mac-Gray Corporation (NYSE: TUC), the nation's premier provider of laundry facilities management services to multi-family housing, today announced its financial results for the quarter ended June 30, 2013.

Mac-Gray reported that second quarter of 2013 revenue increased to $79.2 million, compared with $77.8 million in the second quarter of 2012.  Net income for the second quarter of 2013 increased to $1.2 million, or $0.08 per diluted share, compared with net income of $1.1 million, or $0.07 per diluted share, for the same period in 2012.  Second-quarter 2013 net income includes a non-cash pre-tax unrealized gain of $15,000 related to interest rate derivative instruments, a pre-tax unrealized loss of $62,000 related to fuel commodity derivatives, a $54,000 loss related to early extinguishment of debt, and $713,000 in incremental proxy-related costs. Second-quarter 2012 net income includes a non-cash pre-tax unrealized gain of $146,000 related to interest rate derivative instruments, a pre-tax non-cash unrealized loss of $274,000 related to fuel commodity derivatives and $294,000 in incremental proxy-related costs. Excluding these items from both periods, adjusted net income for the second quarter of 2013 increased to $1.7 million, or $0.11 per diluted share, compared with adjusted net income for the second quarter of 2012 of $1.4 million, or $0.10 per diluted share.

Please refer to Table 1, included at the end of this news release, for a reconciliation of net income, as reported, to net income, as adjusted.

For the second quarter of 2013, Mac-Gray's earnings before interest expense, income tax expense, depreciation and amortization expense (EBITDA) was $14.2 million, compared with $14.5 million in the year-earlier quarter.  Excluding unrealized gains / losses related to interest rate and fuel commodity derivative instruments, loss on extinguishment of debt and incremental proxy-related costs from both periods, EBITDA was $15.1 million for the second quarter of 2013, compared with $14.9 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
"Mac-Gray delivered solid second-quarter results, generating both revenue growth and our fifth consecutive quarter of increased profitability," said Chief Executive Officer Stewart G. MacDonald. "Same-location multi-housing revenue grew 1.5% in the second quarter compared with the second quarter of 2012. The increase was driven primarily by our vend management capabilities, higher equipment usage year-over-year, the expansion of our proprietary technologies, which are designed to increase equipment usage and efficiency, and an increase in the number of accounts.

"Mac-Gray has always been focused on introducing sophisticated technology into the laundry facilities management industry, and that commitment to innovation remains a key differentiator for the Company as we focus on growing our portfolio. More than 70% of our new installations involve one of our various card platforms, and these now run nearly 50% of our total equipment portfolio, up from 42% at year-end. Today, technologies such as Change Point®, our advanced payment and monitoring system now in its second version, are increasing revenue and creating resident loyalty, as well as enhancing collection efficiency and reporting transparency. Two years after being introduced, Change Point® has increased average monthly revenue in previously coin-only laundry rooms by over 10%. 

"In commercial equipment, sales increased $400,000 in the second quarter of 2013 over the same period a year ago, to $3.6 million. We are seeing strength in this sector, even though we have reduced its scope to only the New England area."

Outlook
"Through the first six months of 2013 same-location revenue is up 1.5% over the comparable period of 2012, and this is the third straight quarter we have seen this indicator of usage increase, despite macroeconomic headwinds of unemployment, underemployment and rents that are rising substantially faster than wage growth," MacDonald said. "These collective pressures are affecting many of the residents who are our customers. We believe our results speak to the success we are achieving in increasing the number of accounts in our portfolio, managing costs, enhancing efficiency and increasing profitability.  

"Looking ahead, our strategic priorities are to continue to add accounts, further refine our vend management program, continue to convert our portfolio from coin-to card-operated equipment and make accretive, tuck-in acquisitions in selected regions that would enable us to increase market density, which is another key to higher profitability."    

Based on its performance for the first half of 2013 and current market conditions, the Company reiterated its 2013 financial guidance:

  • Revenue in the range of $328 million to $332 million;
  • Capital expenditures in the range of $36 million to $39 million, including contract incentives;
  • Reduction of total funded debt in the range of $13 million to $16 million;
  • Net income, as adjusted, in the range of $0.70 to $0.80 per diluted share; and 
  • EBITDA, as adjusted, in the range of $68 million to $71 million.

Net income, as adjusted, and EBITDA, as adjusted, exclude unrealized gains/losses related to interest rate derivative instruments and fuel commodity derivatives, and any one-time charges to income.

The foregoing estimates reflect management's view of current and future market conditions, including assumptions with respect to apartment occupancy rates, and exclude the impact of any potential acquisitions. 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 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 management 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, visit the "Investor Relations" section of the Company's website at www.macgray.com or dial (877) 709-8155 or (201) 689-8881.  If you are unable to listen to the live call, you can access a replay at www.macgray.com.

About Mac-Gray Corporation
Founded in 1927, Mac-Gray derives its revenue principally through the contracting of debit-card- and coin-operated laundry facilities in multi-unit housing facilities such as apartment buildings, college and university residence halls, condominiums and public housing complexes. Mac-Gray manages laundry rooms located in 44 states and the District of Columbia. Mac-Gray also sells and services commercial laundry equipment to retail laundromats and other customers through its product sales division. To learn more about Mac-Gray, visit the Company's website at www.macgray.com.

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 Company's plans for future growth, vend price increases, increased use of card-based platforms, potential acquisitions,  increasing the size of the equipment portfolio, managing costs, enhancing efficiency and increasing profitability, as well as estimates of the Company's 2013 revenue, net income, as adjusted, EBITDA, as adjusted, capital expenditures and debt reduction.  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," "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, general economic conditions, changes in multi-housing vacancy rates, the Company's ability to renew long-term customer contracts, and those risks set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 under "Risk Factors" and in other reports subsequently filed with the SEC. Mac-Gray undertakes no obligation to update any forward-looking statements, which speak only as of the date of this news release.


MAC-GRAY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 

(In thousands, except per share amounts)










Three months ended


Six months ended


June 30,


June 30,


2012


2013


2012


2013









Revenue 

$ 77,827


$ 79,221


$ 162,063


$ 160,814

Cost of revenue:








     Cost of facilities management revenue

53,274


53,678


108,240


107,734

     Depreciation and amortization

10,393


10,729


20,830


21,352

     Cost of products sold

2,651


2,933


5,848


5,267

          Total cost of revenue

66,318


67,340


134,918


134,353









Gross margin

11,509


11,881


27,145


26,461









Operating expenses:








     Selling, general and administration expenses

7,505


7,924


17,276


15,956

     Loss (gain) on sale or disposal of assets, net

(54)


(121)


(40)


(155)

     Incremental costs of proxy contests

294


713


377


770

          Total operating expenses

7,745


8,516


17,613


16,571









Income from operations

3,764


3,365


9,532


9,890









Interest expense, including change in fair value 








   of non-hedged interest rate derivative
   instruments and 
amortization of deferred
   financing costs








1,962


1,288


5,304


2,953

Loss on early extinguishment of debt

-


54


3,762


54

Income before income tax expense

1,802


2,023


466


6,883

Income tax expense

750


811


181


2,753

Net income

$   1,052


$   1,212


$       285


$     4,130

Other comprehensive gain, net of tax:








   Unrealized gain on derivative instruments

182


1


320


130

Comprehensive income

$   1,234


$   1,213


$       605


$     4,260

Net income per share – basic

$     0.07


$     0.08


$      0.02


$       0.28

Net income per  share – diluted

$     0.07


$     0.08


$      0.02


$       0.27

Weighted average common shares
   outstanding - basic

14,365


14,643


14,370


14,593

Weighted average common shares
   outstanding – diluted

15,055


15,251


15,050


15,149









 

 

MAC-GRAY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)
















December 31,


June 30,




2012


2013

Assets




Current assets:





Cash and cash equivalents

$           14,328


$           13,626


Trade receivables, net of allowance for doubtful accounts

5,835


3,457


Inventory of finished goods, net

1,284


2,707


Prepaid expenses, facilities management rent and 






other current assets

10,624


12,495



Total current assets

32,071


32,285

Property, plant and equipment, net

129,947


139,049

Goodwill

57,737


58,087

Intangible assets, net

169,640


166,816

Prepaid expenses, facilities management rent and other assets

12,014


13,169



Total assets

$         401,409


$         409,406







Liabilities and Stockholders' Equity




Current liabilities:





Current portion of long-term debt and capital lease obligations

$             1,201


$             1,557


Trade accounts payable and accrued expenses

22,866


27,641


Accrued facilities management rent

20,930


19,941



Total current liabilities

44,997


49,139

Long-term debt and capital lease obligations

190,969


191,982

Deferred income taxes

46,770


45,657

Other liabilities

1,386


1,384



Total liabilities

284,122


288,162

Commitments and contingencies 

-


-

Stockholders' equity:





Preferred stock ($.01 par value, 5 million shares authorized






no shares issued or outstanding)

-


-


Common stock ($.01 par value, 30 million shares authorized,






14,516,074 issued and outstanding at December 31, 2012,






and 14,658,485 issued and outstanding at June 30, 2013)

145


147


Additional paid in capital

89,706


92,012


Accumulated other comprehensive loss

(130)


-


Retained earnings

27,566


29,085



Total stockholders' equity

117,287


121,244

Total liabilities and stockholders' equity

$         401,409


$         409,406







 

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, 


2012


2013


2012


2013









Net income, as reported

$ 1,052


$ 1,212


$  285


$ 4,132









Income before income tax expense, as reported

$ 1,802


$ 2,023


$  466


$ 6,884

Unrealized gain related to change in fair value of non-
  hedged interest rate derivative instruments (1)

(146)


(15)


(235)


(196)

Unrealized loss related to change in fair value of fuel
  commodity derivative instruments (2)

274


62


24


9

Loss on early extinguishment of debt (3)

-


54


3,762


54

Incremental costs of proxy contests (4)

294


713


377


770

Income before income tax expense, as adjusted

2,224


2,837


4,394


7,521

Income tax expense, as adjusted

782


1,135


1,705


3,006









Net income, as adjusted

1,442


1,702


2,689


4,515









Diluted earnings per share, as adjusted

$   0.10


$   0.11


$ 0.18


$   0.30









(1)

Represents the unrealized gain on change in fair value of interest rate protection contracts, which do not qualify for hedge accounting treatment.

(2)

Represents the unrealized loss on change in fair value of fuel commodity derivatives which do not qualify for hedge accounting treatment.

(3)

Represents the premium paid to redeem $100,000 of senior notes as well as a writeoff of deferred financing costs associated with our senior notes and a partial writeoff of deferred financing costs associated with our 2008 Credit Facility.

(4)

Represents additional costs incurred for legal advice and proxy solicitation in response to proxy contests relating to the Company's 2012 and 2013 annual meetings.

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 that the presentation of "Net income, as adjusted" is useful to investors to enhance an overall understanding of our historical financial performance and future prospects.  Net income, as 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.  Management establishes performance targets, annual budgets and makes critical operating decisions based upon these metrics. Accordingly, disclosure of these non-GAAP measures provides investors with the same information that management uses to understand the Company's true economic performance year over year.  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, 


2012


2013


2012


2013









Net income

$   1,052


$   1,212


$      285


$   4,130









Interest expense

2,018


1,215


5,273


2,971

Income tax expense

750


811


181


2,753

Depreciation and amortization

10,602


10,914


21,240


21,732

Amortization of deferred financing costs

90


88


266


178









EBITDA 

14,512


14,240


27,245


31,764









Unrealized gain related to change in fair value of
  non-hedged interest rate derivative instruments (1)

(146)


(15)


(235)


(196)

Unrealized loss related to change in fair value of
  fuel commodity derivative instruments (2)

274


62


24


9

Loss on early extinguishment of debt (3)

-


54


3,762


54

Incremental costs of proxy contests (4)

294


713


377


770









EBITDA, as adjusted

$ 14,934


$ 15,054


$ 31,173


$ 32,401









(1)

Represents the unrealized gain on change in fair value of interest rate protection contracts which do not qualify for hedge accounting treatment.

(2)

Represents the unrealized loss on change in fair value of fuel commodity derivatives which do not qualify for hedge accounting treatment.

(3)

Represents the partial writeoff of deferred financing costs associated with our 2008 Credit Facility.

(4)

Represents additional costs incurred for legal advice and proxy solicitation in response to proxy contests relating to the Company's 2012 and 2013 annual meetings.

EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. EBITDA, as adjusted, 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 EBITDA, as adjusted, 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 EBITDA, as adjusted, are useful to investors because they help enable investors to evaluate our business in the same manner as our management.  Management uses EBITDA and EBITDA, as adjusted, 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 EBITDA, as adjusted, 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 EBITDA, as adjusted, are different from those used in the covenants contained in our senior credit facilities.  Management compensates for these limitations by relying primarily on our GAAP results and by using EBITDA and EBITDA, as adjusted, 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. 

Contacts:

Michael J. Shea
Chief Financial Officer
Mac-Gray Corporation
781-487-7610
Email: mshea@macgray.com

Scott Solomon
Vice President
Sharon Merrill
617-542-5300
Email: tuc@investorrelations.com

SOURCE Mac-Gray Corporation



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