Mac-Gray Announces Second-Quarter Financial Results

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.

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.

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: [email protected]

Scott Solomon
Vice President
Sharon Merrill
617-542-5300
Email: [email protected]

SOURCE Mac-Gray Corporation