MacGray Corp. Reports Operating Results (10-Q)

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Aug 10, 2009
MacGray Corp. (TUC, Financial) filed Quarterly Report for the period ended 2009-06-30.

Mac-Gray Corp. is one of the largest suppliers of card and coin-operated laundry services in multiple housing facilities such as apartment buildings colleges and universities and public housing complexes. The company is also a significant distributor for several major equipmentmanufacturers including Maytag. They also sell commercial laundry equipment to public laundromats as well as to the real estate industry. The company is also certified by the manufacturers to service the commercial laundry equipment that it sells. MacGray Corp. has a market cap of $166.89 million; its shares were traded at around $12.38 with a P/E ratio of 103.17 and P/S ratio of 0.46. MacGray Corp. had an annual average earning growth of 3.5% over the past 10 years.

Highlight of Business Operations:

Facilities management revenue. Facilities management revenue decreased by $2,796, or 4%, to $76,035 for the three months ended June 30, 2009 compared to $78,831 for the three months ended June 30, 2008. The decrease in revenue is the result of reduced usage of the Companys equipment in apartment building laundry rooms as a result of increased apartment vacancy rates in certain markets, particularly in the Southeast and the Southwest, partially offset by the Companys vend increase program. Facilities management revenue increased by $11,322, or 8%, to $157,206 for the six months ended June 30, 2009 compared to $145,884 for the six months ended June 30, 2008. The increase in revenue is the net of an increase of $13,709 attributable to the laundry facilities management businesses acquired in 2008, offset by a decline of $2,387 resulting from increased apartment vacancy rates. We expect increased vacancy rates to continue to have a negative impact on our facilities management business in the near term. We track the change in revenue quarter over quarter for certain core accounts to better understand the revenue trend in multi-family housing. This analysis does not include all revenue and is not adjusted for variances such as number of collection days in one quarter vs. another. This analysis which we refer to as same location sales is used to enable us to respond to changing trends in different geographic markets and to enable us to better allocate capital spending.

Cost of facilities management revenue. Cost of facilities management revenue includes rent paid to customers as well as those costs associated with installing and servicing equipment and costs of collecting, counting, and depositing facilities management revenue. Cost of facilities management revenue decreased by $1,272, or 2%, to $52,936 for the three months ended June 30, 2009 as compared to $54,208 for the three months ended June 30, 2008. The decrease in cost is primarily the result of a decrease of $915 in facilities management rent which is directly attributable to the decline in facility management revenue. The remainder of the decrease is the result of cost control measures implemented by the Company. Cost of facilities management revenue increased by $7,489, or 8%, to $105,923 for the six months ended June 30, 2009 as compared to $98,434 for the six months ended June 30, 2008. The increase is due primarily to the $6,017 increased rent associated with the increase in facility management revenue resulting from the business we acquired on April 1, 2008. Additional operating expenses related to the acquisition accounted for the remaining increase of $1,472. As a percentage of facilities management revenue, cost of facilities management revenue was 70% and 69%, respectively, for the three months ended June 30, 2009 and 2008 and 67% for both the six months ended June 30, 2009 and 2008. Facilities management rent as a percentage of facilities management revenue was 50% and 49% for the three months ended June 30, 2009 and 2008, respectively. Facilities management rent was 49% for the six months ended June 30, 2009 as compared to 48% for the six months ended June 30, 2008. Facilities management rent can be affected by new and renewed laundry leases, lease portfolios acquired and by other factors such as the amount of incentive payments and laundry room betterments invested in new or renewed laundry leases. As we vary the amount invested in a facility, the facilities management rent as a function of facilities management revenue can vary. Incentive payments and betterments are amortized over the life of the related lease.

Depreciation and amortization related to operations. Depreciation and amortization related to operations decreased by $6, or less than 1%, to $12,289 for the three months ended June 30, 2009 as compared to $12,295 for the three months ended June 30, 2008. Depreciation and amortization related to operations increased by $2,481, or 11%, to $24,567 for the six months ended June 30, 2009 as compared to $22,086 for the six months ended June 30, 2008. The increase in depreciation and amortization for the six months ended June 30, 2009 as compared to the same period in 2008 is primarily attributable to the depreciation and amortization associated with the contract rights and equipment we acquired as part of our acquisition on April 1, 2008. Because the acquisition took place on April 1, 2008, the six months ended June 30, 2008 contains only three months of depreciation and amortization expense related to the acquisition compared to six months of depreciation and amortization expense related to the acquisition in the six months ended June 30, 2009.

General, administration, sales and marketing, and related depreciation and amortization expense. General, administration, sales and marketing, and related depreciation and amortization expense increased by $322, or 3%, to $10,529 for the three months ended June 30, 2009 as compared to $10,207 for the three months ended June 30, 2008. General, administration, sales and marketing, and related depreciation and amortization expense increased by $812, or 4%, to $20,623 for the six months ended June 30, 2009 as compared to $19,811 for the six months ended June 30, 2008. As a percentage of total revenue, general, administration, sales and marketing and related depreciation expenses were 12% and 11% for the three months ended June 30, 2009 and 2008, respectively, and 11% and 12% or the six months ended June 30, 2009 and 2008, respectively. The increases in expenses in the three and six months ended June 30, 2009 compared to the same periods in 2008 are primarily attributable to the costs associated with the Companys recent proxy contest. Included in operating expenses for the three and six months ended June 30, 2009 is proxy contest related expenses of $593 and $971 respectively.

The provision for income taxes decreased by $583 to a benefit of $362 for the three months ended June 30, 2009 compared to an expense of $221 for the three months ended June 30, 2008. The decrease is the result of the pre-tax loss of $1,230 for the three months ended June 30, 2009 compared to the pre-tax income of $431 for the three months ended June 30, 2008. The provision for income taxes increased by $1,040 to $1,462 for the six months ended June 30, 2009 compared to $422 for the six months ended June 30, 2008. The increase is the result of an increase of $1,441 to $2,835 in income before taxes for the six months ended June 30, 2009 compared to pre-tax income of $1,394 the same period in 2008. The effective tax rate increased to 52% from 30% for the six months ended June 30, 2009, compared to the same period in 2008. The effective tax rate for the six months ended June 30, 2008 was reduced by the benefit of a reduction of the reserve for uncertain tax positions of $203. The effective tax rate for the six months ended June 30, 2008 without considering the effect of the reduction to the reserve was 45%. The increase in the effective rate from 45% to 52% is primarily a function of permanent tax differences as a percent of income before taxes.

As a result of the foregoing, net income decreased by $1,078 to a loss of $868 for the three months ended June 30, 2009 compared to net income of $210 for the same period ending June 30, 2008. Net income increased by $401, or 41%, to $1,373 for the six months ended June 30, 2009 as compared to net income of $972 for the six months ended June 30, 2008.

Read the The complete ReportTUC is in the portfolios of John Keeley of Keeley Fund Management.