Electro Rent Reports Improved Fiscal 2012 Second Quarter Revenues

VAN NUYS, Calif.--(BUSINESS WIRE)--

Electro Rent Corporation ELRC today reported financial results for the second quarter and the six months ended November 30, 2011, including a nearly 16.0% improvement in total revenues for the quarter and six-month period. Profits totaled $6.0 million for the second fiscal quarter and $14.5 million for the six-month period, including a one-time gain of $3.4 million.

“Electro Rent generated strong revenue growth due to an increase in new equipment sales, our recent acquisition of EMT, and high demand for rentals, while equipment purchases continued at a higher level. At the same time, gross margin percentages as compared to the prior year period decreased for equipment rentals and sales, reflecting lower equipment utilization rates, a decline in used equipment sales, and increased ATP sales, which generally carry substantially lower margins than used equipment sales,” said Daniel Greenberg, Chairman and CEO of Electro Rent. “We also are continuing to invest in the future by implementing a number of strategic initiatives as we prepare for increased growth. These initiatives required us to build a larger sales organization and associated infrastructure, and integrate all of our resources under one umbrella, which resulted in higher expenses this quarter when compared with last year. Personnel-related costs represented more than half of the increase in selling, general and administrative expenses for the second quarter. Although the 16.2% increase in SG&A expenses for the second quarter was only slightly higher than our increase in revenues, the changes in revenue mix contributed to operating profit approximating that of last year.

“The expansion of our sales force has already garnered early success, the first evidence of which was being named the exclusive reseller for certain Communication Components Inc. products throughout the U.S. and Canada, complementing and extending the products sold through our Agilent sales channel,” continued Greenberg. “With the best equipment inventory and a highly experienced and talented sales team, we are successfully positioning Electro Rent for future growth.”

Total revenues for the second quarter of fiscal 2012 increased to $61.6 million from $53.3 million for the second quarter of fiscal 2011. Sales of equipment and other revenues rose 21.7% to $28.7 million for the fiscal 2012 second quarter from $23.6 million for the same quarter last year. The increase primarily reflects sales of new equipment through Electro Rent's resale agreement with Agilent and higher finance lease activity, partially offset by a decline in used equipment sales. Rental and lease revenues grew 10.9% to $32.9 million from $29.7 million for the fiscal 2011 second quarter, primarily due to increased test and measurement rental activity and rates in North America and Europe, partially offset by a decline in leasing demand, principally in the company's data products business.

Net income for the second quarter of fiscal 2012 was $6.0 million, or $0.25 per diluted share, compared with $7.1 million, or $0.30 per diluted share, for last year's second fiscal quarter. The decrease in net income was primarily related to a higher tax rate in the fiscal 2012 second quarter than in the prior year period, resulting from the settlement of uncertain tax positions that benefited the fiscal 2011 second quarter.

SG&A expenses totaled $15.9 million for the second quarter of fiscal 2012, compared with $13.7 million for last year's second quarter, primarily reflecting the addition of 50 people over the last 18 months in connection with the company's Agilent resale agreement and higher rental demand, and in support of future growth opportunities. SG&A as a percentage of total revenues was 25.8% for the fiscal 2012 second quarter, roughly equal to 25.7% in last year's fiscal second quarter. However, gross margin as a percentage of total revenues declined in the current quarter primarily due to an increase in lower margin new equipment sales and a decrease in higher margin used equipment sales. Total operating expenses amounted to $52.2 million for the second quarter of fiscal 2012, compared with $43.7 million in last year's fiscal second quarter.

Operating profit was $9.4 million, or 15.3% of total revenues, for the fiscal 2012 second quarter, versus $9.6 million, or 17.9% of total revenues, last year, reflecting the company's significant investment in broadening and strengthening its sales organization to better focus on future growth prospects.

Total revenues for the first six months of fiscal 2012 grew 15.6% to $120.3 million from $104.1 million for the comparable period last year. Equipment sales and other revenues rose 22.9% to $56.1 million for the six months ended November 30, 2011 from $45.6 million for the first half of fiscal 2011. Rental and lease revenues for the fiscal 2012 year-to-date period increased 9.9% to $64.2 million from $58.5 million last year.

Net income for the first half of fiscal 2012 improved to $14.5 million, or $0.60 per diluted share, from $12.3 million, or $0.51 per diluted share, in the fiscal 2011 period. Net income for the first six months of fiscal 2012 included a one-time gain associated with an acquisition of $3.4 million, or $0.14 per diluted share, and $202,000, or $0.01 per diluted share, in the first six months of fiscal 2011.

SG&A expenses were $31.8 million, or 26.5% of total revenues, for the first six months of fiscal 2012, versus $27.3 million, or 26.2% of total revenues, for the same period last year. Total operating expenses for the fiscal 2012 six-month period were $102.2 million, compared with $86.2 million for the fiscal 2011 six-month period.

Operating profit for the first six months of fiscal 2012 rose to $18.1 million, or 15.0% of total revenue, from $17.9 million, or 17.2% of total revenue, in the prior-year period.

On August 24, 2011, Electro Rent acquired the assets and assumed certain liabilities of Equipment Management Technology, Inc. (EMT). For the fiscal 2012 six-month period, the company recorded a bargain purchase gain of $3.4 million, net of deferred taxes of $2.2 million, because the acquisition price of EMT was less than the net fair value of the assets acquired and liabilities assumed.

The company's effective tax rate for the fiscal 2012 second quarter was 38.2%, an increase from 26.7% in the prior year period which benefited from the effective settlement of uncertain tax positions.

Rental equipment purchases for the fiscal 2012 second quarter and six-month period were $29.6 million and $54.2 million, respectively, compared with $23.4 million and $48.3 million, respectively, for the same periods last year. The book value of Electro Rent's equipment increased substantially to $233.6 million at November 30, 2011, from $195.6 million at May 31, 2011.

As of November 30, 2011, Electro Rent had a sales order backlog of $16.2 million, versus $16.7 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 $4.8 million for the fiscal 2012 second quarter. On an annualized basis, the company's current quarterly dividend of $0.20 per common share represents a 5.0% yield on the December 19, 2011 closing price of $15.94.

Total shareholders' equity at November 30, 2011 grew to $245.9 million, or $10.26 per share, from $240.4 million, or $10.02 per share, at May 31, 2011.

Electro Rent had $12.5 million in cash and cash equivalents at November 30, 2011, compared with $41.4 million at the end of fiscal 2011. The decrease related primarily to the company's acquisition of EMT, equipment purchases and dividend payments. The company also has a $10.0 million unused bank line of credit. Electro Rent's balance sheet remains debt free. Since the beginning of fiscal 2009, the company has returned $76.6 million in cash to shareholders and has invested $35.4 million in cash for the successful acquisitions of Telogy LLC and EMT.

“With ongoing economic uncertainty still reigning and reduced access to capital still the norm, Electro Rent's ability to provide customers with a flexible, robust and complete product offering, including rental, lease and sales of new and used equipment, remains a key competitive advantage,” said Greenberg.

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, which include, but are not limited to, whether Electro Rent can continue its growth and whether Electro Rent's product offerings will remain a key competitive advantage, 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," "will," "helping," and other similar expressions identify forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. The company believes its management's 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, our 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.

ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (in thousands, except per share data)
				Three Months Ended												Six Months Ended
				November 30,												November 30,
				2011						2010						2011						2010
Revenues:
Rentals and leases				$	32,912					$	29,673					$	64,221					$	58,460
Sales of equipment and other revenues					28,731						23,604						56,072						45,642
Total revenues					61,643						53,277						120,293						104,102
Operating expenses:
Depreciation of rental and lease equipment					13,374						11,919						25,901						23,575
Costs of revenues other than depreciation of rental and lease equipment					22,901						18,087						44,511						35,309
Selling, general and administrative expenses					15,929						13,714						31,822						27,282
Total operating expenses					52,204						43,720						102,234						86,166
Operating profit					9,439						9,557						18,059						17,936
Gain on bargain purchase, net of deferred taxes					188						49						3,382						202
Interest income, net					108						101						207						219
Income before income taxes					9,735						9,707						21,648						18,357
Income tax provision					3,716						2,588						7,124						6,017
Net income				$	6,019					$	7,119					$	14,524					$	12,340
Earnings per share:
Basic				$	0.25					$	0.30					$	0.61					$	0.51
Diluted				$	0.25					$	0.30					$	0.60					$	0.51
Shares used in per share calculation:
Basic					23,981						23,976						23,981						23,970
Diluted					24,149						24,075						24,139						24,049

ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (in thousands, except share numbers)
					November 30,						May 31,
					2011						2011
ASSETS
Cash and cash equivalents					$	12,530					$	41,441
Accounts receivable, net of allowance for doubtful accounts of $542 and $602						34,662						30,616
Rental and lease equipment, net of accumulated depreciation of $194,420 and $191,160						233,649						195,632
Other property, net of accumulated depreciation and amortization of $17,315 and $16,825						14,032						14,127
Goodwill						3,109						3,109
Intangibles, net of amortization of $1,221 and $1,151						1,284						1,214
Other						19,574						19,788
					$	318,840					$	305,927
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable					$	7,080					$	8,237
Accrued expenses						10,540						10,437
Deferred revenue						6,975						5,874
Deferred tax liability						48,296						41,004
Total liabilities						72,891						65,552
Commitments and contingencies (Note 12)
Shareholders' equity:
Preferred stock, $1 par - shares authorized 1,000,000, none issued or outstanding
Common stock, no par - shares authorized 40,000,000; issued and outstanding November 30, 2011 - 23,980,581;
May 31, 2011 - 23,980,581						35,445						34,742
Retained earnings						210,504						205,633
Total shareholders' equity						245,949						240,375
					$	318,840					$	305,927