Mac-Gray Corporation Announces First-Quarter 2011 Financial Results

WALTHAM, Mass., May 4, 2011 /PRNewswire/ -- 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 quarter ended March 31, 2011.

Mac-Gray reported first-quarter revenue from continuing operations of $82.3 million, compared with $81.5 million in the first quarter of 2010.  Net income from continuing operations for the first quarter of 2011 was $2.1 million, or $0.14 per diluted share, compared with net income from continuing operations of $1.5 million, or $0.11 per diluted share, for the first quarter of 2010.  First-quarter 2011 net income from continuing operations includes a loss of $365,000 related to interest rate derivative instruments and $25,000 in incremental proxy-related costs.  First-quarter 2010 net income from continuing operations includes a loss of $242,000 related to interest rate derivative instruments and $97,000 in incremental proxy-related costs.  Excluding these items from both periods, adjusted net income from continuing operations for the first quarter of 2011 was $2.3 million, or $0.16 per diluted share, compared with adjusted net income from continuing operations of $1.7 million, or $0.12 per diluted share, for the same period of 2010.

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

For the first quarter of 2011, Mac-Gray's earnings before interest expense, provision for income taxes, depreciation and amortization expense (EBITDA) from continuing operations was $18.1 million, compared with $18.3 million in the year-earlier quarter.  EBITDA from continuing operations, excluding losses relating to interest rate derivative instruments and incremental proxy-related costs, was $18.5 million for the first quarter of 2011, compared with $18.6 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 from continuing operations to EBITDA from continuing operations and EBITDA from continuing operations, as adjusted.

Comments on the First Quarter  

"We achieved year-over-year growth for the second consecutive quarter, following six quarters of recession-related decline," said Stewart G. MacDonald, Mac-Gray's chief executive officer.  "Our financial performance validates our strategy of allocating more capital resources toward generating profitable growth.  During the past two quarters, we made the decision to increase our investments in sales and marketing and capital spending due to the multi-housing recovery underway in several markets. The national apartment vacancy rate improved in the first quarter from 6.6% to 6.2%, according to REIS (Real Estate Information Services) data.  It was the largest first-quarter improvement in apartment vacancies in more than a decade."

"For the quarter, revenue in our core laundry facilities management business increased 1% overall and 2% on a 'same location' basis. This increase in same location revenue resulted from a combination of higher equipment usage and vend price management. As a result of the improving apartment occupancy picture, we are reinvesting in our core business with renewed confidence.  Our capital expenditures in the quarter mirrored the fourth quarter as we more than doubled our year-over-year spending – investing $8.3 million compared with $3.2 million in the first quarter of 2010.  As usual, the bulk of this spending was targeted at contract renewals, primarily in regions that are the most attractive or where the market dynamics have demonstrated the greatest levels of improvement."

"Our business model continues to generate strong cash flow.  In the first quarter, our net cash flow provided by operating activities was $9.5 million, compared with $9.3 million in the same period a year ago.  Our steady and predictable cash flow was used in the first quarter primarily to fund the increase in capital expenditures and pay down funded debt by $1.4 million. Based on our financial outlook, the Board elected to increase the company's quarterly dividend by 10%, effective with the April 1st payment."  

Outlook

"For the remainder of 2011, we will continue to balance the application of the Company's capital between opportunities for growth and debt reduction.  While certain individual markets are still facing challenges, the overall recovery in the multi-housing market appears to have taken hold.  REIS is predicting that national average vacancy rates will continue to decline throughout the remainder of 2011.  As a result, we will continue to place a greater emphasis on organic growth opportunities."  

"Our competitive advantage in the marketplace has been further enhanced by the recent launch of Change Point® – our newest payment and monitoring system, which is unmatched in the industry.  The early response to the product has been very encouraging, and we continue to expect Change Point® to be a positive contributor for us in the second half of the year," MacDonald concluded.  

Based on current market conditions, the Company reiterated its outlook for 2011 including: revenue in the range of $324 million to $328 million; and capital expenditures in the range of $33 million to $36 million, including laundry facilities management contract incentives.

The foregoing estimates reflect management's view of current and future market conditions, including assumptions with respect to apartment 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 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, visit the "Investor Relations" section of the Company's website at www.macgray.com or dial (877) 407-5790 or (201) 689-8328.  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 approximately 86,000 laundry rooms located in 43 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 expectations for 2011, including statements regarding its revenue, capital expenditures and Change Point® technology.  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, 2010 under "Risk Factors" and in other reports subsequently filed with the Securities and Exchange Commission.

Important Information

In connection with the solicitation of proxies, on April 21, 2011, Mac-Gray Corporation filed a definitive proxy statement with the Securities and Exchange Commission (the "SEC") in connection with the Company's 2011 Annual Meeting. MAC-GRAY'S STOCKHOLDERS ARE STRONGLY ADVISED TO READ THE DEFINITIVE PROXY MATERIALS AND ANY OTHER RELEVANT SOLICITATION MATERIALS FILED BY MAC-GRAY WITH THE SEC BEFORE MAKING ANY VOTING OR INVESTMENT DECISION BECAUSE THESE DOCUMENTS CONTAIN IMPORTANT INFORMATION. The Company's proxy statement and any other materials filed by the Company with the SEC can be obtained free of charge at the SEC's web site at www.sec.gov. The Company's definitive proxy materials are also available for free from Mac-Gray Corporation at http://www.macgray.com/proxy, by writing to Mac-Gray Corporation, 404 Wyman Street, Suite 400, Waltham, MA 02451, Attention: Secretary, Linda A. Serafini, or by contacting MacKenzie Partners, Inc., by toll-free telephone at 800-322-2885 or by e-mail at [email protected]. The contents of the websites referenced above are not deemed to be incorporated by reference into the proxy statement.

Mac-Gray Corporation and its directors, nominees and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Mac-Gray in connection with the Company's 2011 Annual Meeting of Stockholders.  Information concerning the interests of participants in the solicitation of proxies is included in the definitive proxy statement filed by Mac-Gray with the SEC on April 21, 2011 in connection with its 2011 Annual Meeting of Stockholders.

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 "Income from continuing operations as adjusted" is useful to investors to enhance an overall understanding of our historical financial performance and future prospects.  Adjusted net income from continuing operations, which is adjusted to exclude certain gains and losses from the comparable GAAP net income from continuing operations 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 from continuing operations is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. Adjusted EBITDA from continuing operations is EBITDA from continuing operations 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 from continuing operations and Adjusted EBITDA from continuing operations 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 from continuing operations and Adjusted EBITDA from continuing operations are useful to investors because they help enable investors to evaluate our business in the same manner as our management.  Management uses EBITDA from continuing operations and Adjusted EBITDA from continuing operations 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 from continuing operations and Adjusted EBITDA from continuing operations 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 from continuing operations and Adjusted EBITDA from continuing operations 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 from continuing operations and Adjusted EBITDA from continuing operations 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]

Jim Buckley
Executive Vice President
Sharon Merrill Associates, Inc.
617-542-5300
Email: [email protected]

SOURCE Mac-Gray Corporation