Electro Rent Corporation (Nasdaq: ELRC) today reported
financial results for the fourth quarter and year ended May 31,
2014.
“Electro Rent’s fiscal 2014 results reflected both the
achievements and difficulties of the past year,” said Daniel
Greenberg, Chairman and CEO of Electro Rent. “We attained some real
success in several markets, with substantial increases in our
telecommunications business, continued growth in the industrial
arena, rising sales of used equipment, and continued improvements
in Europe and in Asia. While our rental and lease business grew
modestly, we encountered challenges in the aerospace, defense and
semiconductor sectors, tempering results in our North American
operations, as competition in the marketplace and price pressure
from many of our customers made operating life more difficult.”
“We have done a solid job maintaining our current market share,
and believe there is a clear new mandate going forward for
Department of Defense ('DOD') contractors to find ways to
manufacture critical systems necessary for our defense at lower
costs,” Greenberg said. “Ongoing pricing and cost pressures from
the DOD proved to be far more complicated and longer lasting than
we had hoped, with sequestration representing only one of a
complicated set of impacts. In our judgment, rentals will become a
more critical focus in the decision making process, as the best,
strongest and most productive companies will need to turn to
rentals as one of their equipment procurement choices to avoid
large upfront capital costs.”
Total revenues for the fourth quarter of fiscal 2014 rose to
$61.1 million from $60.4 million last year. Rental and lease
revenues amounted to $34.1 million for the 2014 fourth fiscal
quarter, versus $35.5 million a year ago. Sales of equipment and
other revenues advanced to $27.0 million for the fourth quarter of
fiscal 2014 from $24.9 million for the prior-year fourth
quarter.
Selling, general and administrative expenses totaled $15.6
million, or 25.6% of total revenues, for the fiscal 2014 fourth
quarter, compared with $14.9 million, or 24.7% of total revenues,
for the same quarter last year. The increase reflected continued
investment in the company’s overseas operations, the strengthening
of its IT and financial infrastructure, and expansion of its sales
and marketing organization in support of future opportunities.
Total operating expenses were $53.8 million for the fiscal 2014
fourth quarter, compared with $50.6 million a year ago. The
increase was associated, in part, with increased cost of sales
related to higher sales of new and used equipment.
Operating profit for the fourth quarter of fiscal 2014 was $7.3
million, or 11.9% of total revenues, compared with $9.8 million, or
16.2% of total revenues, for the fourth quarter of fiscal 2013. The
decline primarily reflected an increase in lower margin sales,
which was more than offset by decreases in higher margin rentals
and other revenues, as well as increased SG&A expenses.
Net income was $4.6 million, or $0.19 per diluted share, for the
fiscal 2014 fourth quarter, versus $6.4 million, or $0.26 per
diluted share, for the same quarter last year.
The company’s effective tax rate was 37.7% for the fourth
quarter of fiscal 2014, compared with 35.0% for the same quarter
last year. The 2013 rate was lower principally related to lower tax
rates on earnings from our foreign subsidiaries and lower state
taxes resulting from income apportionment revisions.
Rental equipment additions for the fiscal 2014 fourth quarter
totaled $15.5 million, compared with $16.2 million last year.
Total revenues for fiscal 2014 were $241.1 million, compared
with $248.7 million a year ago. Rental and lease revenues for
fiscal 2014 were $137.4 million, versus $136.6 million for fiscal
2013. Equipment sales and other revenues were $103.7 million for
fiscal 2014, compared with $112.1 million last year.
SG&A expenses totaled $58.9 million, or 24.4% of total
revenues, for fiscal 2014, versus $56.5 million, or 22.7% of total
revenues, a year ago. Total operating expenses for fiscal 2014 were
$209.0 million, compared with $212.0 million one year ago.
Operating profit for fiscal 2014 amounted to $32.1 million, or
13.3% of total revenue, compared with $36.7 million, or 14.8% of
total revenue, in the prior year.
For the full 2014 fiscal year, net income was $20.4 million, or
$0.84 per diluted share, versus $22.8 million, or $0.94 per diluted
share, for fiscal 2013.
The company’s effective tax rate was 37.3% for fiscal 2014,
compared with 38.7% last year. The decrease related to more income
being apportioned to states with lower tax rates, resulting in a
lower effective state rate for fiscal 2014, as well as tax credits
in certain foreign jurisdictions.
Rental equipment purchases for fiscal 2014 were $58.2 million,
versus $63.5 million last year.
The net book value of Electro Rent's equipment was $221.9
million at May 31, 2014, compared with $234.9 million at May 31,
2013.
Electro Rent had a sales order backlog for test and measurement
equipment relating to its Keysight Technologies (formerly Agilent)
resale agreement of $10.7 million at May 31, 2014, versus $7.6
million last year. The majority of the backlog is expected to be
delivered to customers within the next six months.
Electro Rent paid dividends of $4.9 million for the fourth
quarter of fiscal 2014 and $19.7 million for the full fiscal year.
On an annualized basis, Electro Rent’s current quarterly dividend
of $0.20 per common share represents an 5.2% yield on the August 8,
2014 closing share price of $15.44.
Total shareholders' equity at May 31, 2014 rose to $231.0
million, or $9.62 per share, from $228.5 million, or $9.52 per
share, at May 31, 2013.
Electro Rent’s cash and cash equivalents balance was $5.9
million at the end of fiscal 2014, compared with $10.4 million at
the end of fiscal 2013. The decline related principally to the
repayment of debt. The company had no bank borrowings at May 31,
2014, compared with $10.0 million at May 31, 2013 and a high of
$23.0 million in December 2012, when the company paid its special
dividend.
“We are moving closer to achieving our long-term goals of
expanding our customer and product base, while finding new ways to
provide additional services and benefits to existing customers and
focusing on areas of opportunity in the telecommunications and
industrial sectors that we believe hold great promise,” said
Greenberg. “We enter the new fiscal year with much enthusiasm, but
also with realistic expectations given current market forces.
Economic uncertainty and other pressures on our business continue
to delay the fundamental changes we think are essential to the
future of the sectors we serve, but with these pressures building,
the solutions we have envisioned and presented to key customers
have more strength and relevance today than at any time in the
past. Although we cannot control the outside factors that are
impacting our customers’ businesses, our considerable industry
know-how and financial flexibility should allow us to keep pace
with the continually changing environment.”
About Electro Rent
Electro Rent Corporation (www.ElectroRent.com) is one of the
largest global organizations devoted to the rental, leasing and
sales of general purpose electronic test equipment, personal
computers and servers.
“Safe Harbor” Statement:
Except for the historical statements and discussions in this
press release, the company’s statements above constitute
forward-looking statements within the meaning of section 21E of the
Securities Exchange Act of 1934. These forward-looking statements
reflect Electro Rent’s management's current views with respect to
future events and financial performance; however, you should not
put undue reliance on these statements. When used, the words
"expect" and "will" and other similar expressions identify
forward-looking statements. These forward-looking statements are
subject to certain risks and uncertainties. The company believes
its assumptions are reasonable; nonetheless, it is likely that at
least some of these assumptions will not come true. Accordingly,
Electro Rent’s actual results will probably differ from the
outcomes contained in any forward-looking statement, and those
differences could be material. Factors that could cause or
contribute to these differences include, among others, those risks
and uncertainties discussed in the company’s periodic reports on
Form 10-K and 10-Q and in its other filings with the Securities and
Exchange Commission. Should one or more of the risks discussed, or
any other risks, materialize, or should one or more of our
underlying assumptions prove incorrect, the company’s actual
results may vary materially from those anticipated, estimated,
expected or projected. In light of the risks and uncertainties,
there can be no assurance that any forward-looking statement will
in fact prove to be correct. Electro Rent undertakes no obligation
to update or revise any forward-looking statements.
(Financial tables follow)
ELECTRO RENT CORPORATION CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except
per share data) Three Months Ended
May 31, Twelve Months Ended May 31, 2014
2013 2014 2013 Revenues: Rentals
and leases $ 34,070 $ 35,514 $ 137,417 $ 136,591 Sales of equipment
and other revenues 27,007 24,852 103,720
112,140 Total revenues 61,077 60,366
241,137 248,731 Operating expenses: Depreciation of rental
and lease equipment 14,059 14,335 57,034 56,795 Costs of rentals
and leases, excluding depreciation 4,189 4,137 18,292 17,788 Costs
of sales of equipment and other revenues 19,952 17,210 74,752
80,894 Selling, general and administrative expenses 15,621
14,914 58,920 56,543 Total operating expenses
53,821 50,596 208,998 212,020 Operating
profit 7,256 9,770 32,139 36,711 Interest income, net 112
58 387 402 Income before income taxes 7,368
9,828 32,526 37,113 Income tax provision 2,775 3,436
12,118 14,359 Net income $ 4,593 $ 6,392 $ 20,408 $
22,754 Earnings per share: Basic $ 0.19 $ 0.26 $ 0.84 $ 0.94
Diluted $ 0.19 $ 0.26 $ 0.84 $ 0.94 Shares used in per share
calculation: Basic 24,336 24,240 24,325
24,266 Diluted 24,382 24,306 24,357
24,269
ELECTRO RENT CORPORATION CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands,
except share numbers) May 31, 2014
May 31, 2013 ASSETS Cash and cash equivalents $ 5,946 $
10,402 Accounts receivable, net of allowance for doubtful accounts
of $555 and $457 34,970 34,350 Rental and lease equipment, net of
accumulated depreciation of $237,150 and $224,397 221,888 234,856
Other property, net of accumulated depreciation and amortization of
$18,983 and $18,873 13,122 13,826 Goodwill 3,109 3,109 Intangibles,
net of accumulated amortization of $1,632 and $1,468 873 1,037
Other assets 22,150 21,346 $ 302,058 $ 318,926
LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Bank Borrowings $
— $ 10,000 Accounts payable 7,279 7,479 Accrued expenses 14,472
15,866 Deferred revenue 7,537 7,292 Deferred tax liability
41,812 49,740 Total liabilities 71,100 90,377
Commitments and contingencies
Shareholders’ equity: Preferred stock, $1 par - shares authorized
1,000,000, none issued — — Common stock, no par - shares authorized
40,000,000; issued and outstanding May 31, 2014 - 24,007,709; May
31, 2013 - 23,995,626 39,252 37,724 Retained earnings
191,706 190,825 Total shareholders’ equity 230,958
228,549 $ 302,058 $ 318,926
Electro Rent CorporationDaniel Greenberg, Chairman and
CEO818-786-2525orPondelWilkinson Inc.Roger Pondel/Laurie
Berman310-279-5980pwinvestor@pondel.com
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