Q3 2021 McGrath RentCorp Earnings Call

October 28, 2021

Ladies and gentlemen, thank you for standing by and welcome to the Mcgrath ranked Corp's third quarter 2021 conference call. At this time all conference participants are in a listen only mode. Later, we will conduct a question and answer session at that time. If you have a question you will need to press it.

Starkey followed by the one key on your telephone this conference call is being recorded today Thursday October 28 2021.

Before we begin note that the matters the company management will be discussing today that are not statements of historical facts are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements regarding our full year 2021 financial outlook as well.

Statements relating to the company's expectations strategies prospects or targets.

These forward looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected in addition to risks associated with the ongoing COVID-19, pandemic and related economic dynamics important factors that could.

Cause actual results to differ materially from the Companys expectations are disclosed under risk factors in the company's Form 10-Q, and other S E SEC filings forward looking.

These statements are made only as of the date hereof, except as otherwise required by law, we assume no obligation to update any forward looking statement. In addition to the press release issued today. The company also filed with the S. E C. The earnings release on form 8-K, and its Form 10-Q for the quarter.

Ended September 30th 2021.

Speaking today will be Joe Hanna Chief Executive Officer, and Keith Pratt Chief Financial Officer, I will now turn the call over to Mr. Hanna go ahead Sir.

Thank you Gigi good afternoon, and thank you everyone for joining us on today's call I will start the call with some comments on our third quarter 2021 performance as well as our look ahead, Keith will provide additional detail in his financial review and outlook comments.

So let's get started.

First I would like to highlight the performance of our rental engines across the enterprise in the third quarter.

Each of our business units delivered healthy rental revenue growth on a year over year basis.

Mobile modular segment grew 26% Trs rent telco, 6% and Adler, 11%.

The rental growth we are seeing is due to the combined positive impact of the acquisitions. We closed earlier this year.

Coupled with improving market conditions, and we are encouraged by the activity we are seeing from customers across our market segments.

New equipment sales were less than expected for the quarter as we experienced some delays that affected customer projects due to supply chain issues price escalations in labor shortages at customer sites.

These delays can cause projects to shift into future quarters for completion.

Our pipelines are very healthy so we view these occurrences as adjustments to our fluid supply chain situation and not an overall change in demand or customer outlook.

In fact activity levels are quite high and we have a nice backlog of projects that we're working on.

Mobile modular is exhibiting a noteworthy trend and that our mix is changing favorably with the acquisitions of design space in kitchens to go.

In the third quarter, our commercial rentals are now 67% of the total and education rentals are 33% as compared to 58% and 42% respectively in 2020.

While our education business remains very attractive commercial opportunities are also and we are well positioned to continue to accelerate our commercial growth.

In the third quarter rental bookings for commercial orders were strong.

We now have operating locations in eight more states, which increases our commercial reach significantly.

The two acquisitions, we completed this year, we're done so with dual strategic purpose to expand our geographic footprint and diversify our end markets we serve.

We are in the early innings of realizing the benefits of these two acquisitions and our long term strategic and operating plans.

In our education business, we have held the line in a very unusual set of circumstances over the past 18 months.

The shutdown of public schools on a national level was virtually unprecedented.

Despite that disruption our education business has remained resilient and we continue to see significant future opportunities.

Third quarter education rental bookings were also up year over year and project activity is improving as educators turn their attention back to facilities now lets students are physically in classrooms.

Funding is available and the needs are substantial and ongoing and so we remain very optimistic about the long term prospects for this part of the business.

On the pricing side of things our ability to increase rates has continued.

This has been a priority considering we are seeing more inflationary cost pressures in the business, which we recognize is a common theme for many companies currently.

On a year over year basis average rates per units on rent increased by 7%.

We have sophisticated dynamic and automated tools that are deployed right to the sales representative when they are quoting customers. So we have the ability to make adjustments in the business for each quote made.

We're encouraged by the overall industry pricing environment, and I am confident that our discipline in this area will continue.

The integration efforts with our two acquisitions are progressing nicely. We are on schedule and have completed the most important systems migrations and training to get new employees up to speed on our processes.

We have had very little turnover through this process and are pleased with the capabilities and quality of the team members. We now have as part of the family.

Design space locations open up new geographies, and we are investing in new fleet.

Overall utilization is high and the demand picture healthy.

We also have opportunities to deploy mobile modular fleet in California for design space customers to improve utilization in the quarters ahead.

We are very excited about the breadth of future synergy opportunities that we have just begun to realize.

I will give two examples of where we are already realizing revenue synergies. We are now quoting and have closed orders for education customers and our new design space locations in the Pacific Northwest, which is a new revenue stream for us.

We are also leveraging our school relationships to bring kitchens to go into school cafeteria, and kitchen modernization projects.

Our other rental divisions also contributed positively to our third quarter results at Trs, we experienced continuing needs for general purpose equipment that serves in aerospace and defense semiconductor and <unk> applications.

Trs is 6% rental revenue growth represented continued investment in technology across the business as more companies were working on R&D projects to meet customer demand.

At Adler, we have realized rental revenue growth sequentially for the last two quarters and 11% year over year.

Project momentum has been improving and we realized growth in all of our regions with particular strength in the environmental services and industrial segments of the business during the third quarter.

Our outlook has been gradually improving for this business and we are optimistic for continued growth into 2022.

I'm going to shift now from talking about our third quarter results to looking ahead.

I will highlight some market opportunities and internal initiatives, we are working on to grow our mobile modular business, we see much potential and as a result, we have increased our focus in numerous ways, especially with regards to our strategic mix shift and geographic expansion of our.

<unk> business.

Our ideal projects are larger modular office or classroom projects that will be used to house employees or students for a long period of time.

These customers tend to value product quality and service over price and unit stay out on rent longer.

Often these units contained customer specified modifications that are hard for competitors to duplicate.

Our production facilities are unique in the industry and allow us to extensively and rapidly customized units to customer specifications.

Many long term customers returned to us again, and again, because they can rely on our distinctive capabilities.

With respect to the education segment germane to our classroom rentals and the geographies. We operate in today student population growth is expected to increase by over $1 million in the next seven years at.

25 students per classroom that equates to 40000 more classrooms that districts may need during that timeframe.

That does not include additional needs for pre kindergarten facilities that are being planned for in some states.

History has shown that school districts will not be able to construct additional school building capacity fast enough to keep up with that demand and rental units will likely help to fill the gap.

In addition over the last year facilities have aged and modernization projects have not kept pace with the needs and the significant pent up demand to bring the average 40 year old classroom up to current standards.

We have the product and the expertise in the industry to enable districts to complete their expansion and upgrade needs.

We are working on many active projects and have a healthy backlog delivering in the fourth quarter and into 2022.

As part of our modular solutions offering we offer value to customers and increase our share of wallet in two ways. The.

First revenue stream is to supply the products and services that the customer needs to support their use of the building.

These could be anything from furniture packages to wastewater holding tanks to HVAC filter replacement services.

We call it mobile modular plus the.

The second revenue stream and one that we believe is substantial is what can be done outside the building.

By providing our customer with services, such as electrical and plumbing connections walkways overhead covers ramps and stairs and other exterior enhancements, we provide a valuable package that encompasses all aspects of the rental or sale.

We believe this is an underserved part of the market one that our customers are very interested in pursuing with us.

A typical contract for site related services could be several hundred thousand dollars there.

There is no additional capital investment required. So the profit generated is an improvement to our return on capital.

In the third quarter, our site related services revenue increased 36% year over year to $7 5 million and we anticipate healthy growth in the coming years as we market this capability to our customer base.

On past earnings calls, we will also discuss the custom modular solutions opportunity, which we offer as a service to those customers looking for a more permanent or highly customized modular solution.

We have established a capable team to pursue these opportunities across the country and are in the very early stages of seeing exciting growth in this part of the business.

In 2020 permanent modular construction projects accounted for just four 4% of the overall construction market, but represented a value of $8 billion.

Not only has the modular construction market been expanding over the past five years, we believe that the modular construction mix and the market is early any period of long term secular growth.

Combination of secular growth and fewer competitors with the capabilities to execute this business well make it an attractive focus area for us.

<unk>, we have is busy working to capture market share and I am optimistic about our future prospects.

We will have more to report in future periods as we grow our capabilities and establish ourselves in this market segment.

Finally, we are seeing more opportunities to deploy capital for organic fleet growth and we remain optimistic about the activity. We are seeing in our markets. We continue to make prudent decisions to support growth, while managing for solid financial returns on our investments.

I would like to sincerely. Thank all of our team members suppliers and partners in helping us navigate successfully through unusual market conditions and the simultaneous integration of two acquisitions, which has been a big effort.

I'd like to repeat that we are enthusiastic about our rental revenue growth across all of our business segments.

We remain steadfast in the strategic management of all of our businesses with clear purpose toward enhancing our total company performance and future returns for our shareholders.

Now, let me turn the call over to Keith.

Thank you Joe.

As Joe described we had solid performance from our core rental businesses in the quarter compared to the third quarter of 2020.

We were encouraged by continued improving business demand trends over the course of the quarter.

In my financial review today, I will provide highlights from our third quarter results and our current outlook for full year performance.

As a reminder, our third quarter results include two recent acquisitions kitchens to go which closed on April one.

And design space, which closed on May 17.

Together these acquisitions contributed approximately $16 7 million to total revenue.

$3 7 million to adjusted EBITDA and <unk>.

Sure earnings per diluted share for the quarter.

Looking at the overall corporate results for the third quarter total revenues increased 11% to $173 3 million.

The majority of the revenue increase was from improved rental operations.

Each of our rental segments grew rental revenues year over year and sequentially.

Collecting generally improved business conditions.

Third quarter, adjusted EBITDA increased 5% to $66 million.

Consolidated adjusted EBITDA margin was 38% compared to 40% a year ago.

Breaking the results down by rental division operating performance compared to the third quarter of 2020.

Mobile modular total revenues increased $15 million or 16% to $110 4 million.

The primary driver was $12 1 million higher rental revenues with approximately three quarters of the increase attributed to rental revenues from design space in kitchens to go.

The average monthly rental rate for the quarter was $2, six 5%, which was 7% higher than a year ago, reflecting stable and improving pricing conditions as well as some mix impact from the acquisitions.

Average fleet utilization for the third quarter increased to 76, 5% from 76, 3%.

At quarter end utilization was 76, 7%.

Reflecting generally improved market conditions in recent months.

Higher rental revenues were partly offset by 40% higher inventory center costs, and 31% higher depreciation expense, resulting.

Resulting in rental margins of 59% compared to 63% a year ago.

The higher inventory center costs.

Reflect the addition of the acquired businesses.

Higher business activity levels, and inflation pressures for materials and labor costs.

Sales revenues decreased $2 9 million to.

$26 4 million.

Primarily due to lower new equipment sales.

We continue to see supply chain disruptions, causing delays for completion of some new equipment sales projects.

At Trs rent telco total revenues decreased $8 million or 2% to $35 1 million.

Rental revenues for the quarter increased 6% we.

We saw continued strength in general purpose test equipment rentals, which grew 8%.

Communications equipment rentals were flat compared to a year ago.

The average monthly rental rate for the quarter was 4.0% to 2%.

Doug, 1% compared to a year ago.

The slightly lower average rental rate reflects the continued mix shift towards more general purpose equipment rentals that tend to have longer term transactions and longer asset lives.

Communications.

Overall market pricing conditions remained stable.

Average utilization for the third quarter was 66, 9% compared to 67, 1% a year ago and.

Rental margins were unchanged at 41%.

Sales revenues declined 31% year over year to $4 8 million with gross profit decreasing 1% to $3 million.

Gross margins were 63% compared to 44% a year ago.

These sales and related gross margins can fluctuate depending on customer requirements related mix of equipment, so equipment availability and funding.

At Adler tank rentals, total revenues increased $3 million or 16% to $22 3 million on higher rental rental related services and sales revenues.

Rental revenues for the quarter increased 11%.

Demand improvement was broad based with growth in all five of our geographic regions.

The average monthly rental rate for the quarter was three 3%.

Up 3% compared to a year ago, primarily due to improved pricing for both tanks and boxes during the quarter.

Average utilization for the third quarter increased to 48, 1% from 44, 1%.

At quarter end utilization was 50.

4%.

Elevated maintenance costs pressured rental margins, which were 51% compared to 55% a year ago.

Moving on the remainder of my third quarter comments will be on a total company basis.

Selling and administrative expenses increased $9 million or 29% to $39 9 million.

$6 1 million of the increase was the result of the acquisitions.

Which included $2 4 million higher amortization of intangible assets.

The remainder of the increase reflected a return to more normalized SG&A spending compared to a year ago.

Interest expense was $3 2 million, an increase of $1 2 million as the result of higher average debt levels, partly offset by lower average interest rates.

The third quarter provision for income taxes was based on an effective tax rate of 28, 7%.

Compared to 28% a year earlier.

The increased rate this year was due to increased business activity levels in higher tax rate states.

Lower excess tax benefits from stock based compensation.

For the full year, we currently expect an effective tax rate of between 26 and 27%.

Turning to our year to date cash flow highlights net cash provided by operating activities was $136 3 million an increase of $4 8 million.

We paid $285 6 million for the acquisition of substantially all of the assets of the design space and kitchens to go businesses.

Rental equipment purchases were $90 4 million compared to $65 7 million last year.

Excludes the $129 1 million estimated fair value of design space in kitchens to go rental assets acquired this year.

Yes.

Healthy cash generation allowed us to pay 31 6 million in dividends.

Total net borrowings on our bank lines of credit and private placement notes increased $236 8 million.

At quarter end, we had net borrowings of $459 5 million comprised of 160 million notes outstanding and $299 5 million under our credit facility with capacity to borrow an additional $132 5 million under our lines of credit.

The ratio of funded debt to the last 12 months actual adjusted EBITDA was $1 92 to one.

Finally, updating our financial outlook.

The recent positive demand trends across each of our business segments are encouraging.

However, we have continued to see supply chain disruptions, causing some project delays and margin pressures for new equipment sales in our modular and <unk> segments.

In addition.

Related material and labor costs have pressured modular rental margins.

Taken together at this point in the year, we are tightening our full year guidance range.

We currently expect.

Total revenue between 618620 $8 million.

Third to our previous outlook of $610 million to $640 million.

Adjusted EBITDA between 245 and $249 million.

Compared to $245 to $260 million previously.

And gross rental equipment capital expenditures between 101 hundred $18 million.

<unk> to $100 million to $120 million previously.

We are encouraged by the overall improving business activity levels, we have recently seen.

And we are focused on solid execution for the remainder of the year.

That concludes our prepared remarks.

You May now open the lines for questions.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Scott Schneeberger from Oppenheimer. Your line is now open.

Thank you good afternoon.

I'm going to go.

Hey, Joe I'm going to go in a bit of a reverse order I'm going to start with Adler could.

Could you talk about what youre seeing in each of I believe you have six major segments in track.

Could you just talk about what youre seeing in <unk> and particularly.

What youre seeing in oil and gas and what type of mix is that.

The segment or of the total company now relative to last quarter last year's quarter. Thanks.

Sure.

I'll address the last first I think the mix went up 1% I think it's in the 6% range right now so it hasnt really changed on a year over year basis.

So actually what that means is business has picked up and all of the other segments.

And Thats, a positive for us and I would characterize that by saying construction activity is strong industrial activity is good factories are busy.

Customers are really back at work and they are and they are quite busy environmental services as they pertain to <unk>.

Plant work site remediation and things like that are actually bid.

Busier now than they were last year and of course, then oil and gas we're seeing clients starting to do projects that had been put on hold and of course with the price of oil right now being up over $80 rig counts being substantially up from last year all of that is contributing.

To just a healthier business momentum across all of Adler.

So each of these segments are they are all up year over year.

Yes.

Yes, the six are up correct direction was done slightly but not really material.

Joe said really broad based strength.

Both regionally and in oil and gas and oil and gas actually went up.

<unk> a year ago. It went up from being 5% of the Adler rental mix to 6%. It's a smaller part of Adler, but it was actually up 25% year over year that part of the business. So again.

Pleased with the trends.

Great. Thanks.

Over to Trs just if you could provide an update please on the <unk> transition. Thank you.

Sure.

Not significant change from what we had reported earlier in the year just in terms of activity and I think.

It is important to note that.

Unlike the <unk>.

Rollout, what we're seeing is more broad based customer activity and five G. A lot more activity in the labs and so that users.

More of our general purpose equipment.

And then we're actually seeing less activity on the towers, there's just not as much testing.

Requirements on the towers and so the wireless part of our communications business really hasnt picked up but the wired part of the communications business actually has and so that's all of the fiber that's being laid two towers the fiber that goes up the towers fiber to the home.

All of that bandwidth is being expanded and so we're seeing good activity.

That segment of the business.

And again.

We're quite pleased with the long term.

Activity in long term message is that we're getting from our customers on the <unk> rollout that we think is going to stick with us for a number of quarters ahead.

So we're very positive on that.

Excellent. Thank you on that.

Heading over to modular.

Could you could you just kind of give us a little bit more elaboration on what is what is.

A more significant headwind or which is more significant and maybe categorizing what's occurring with both headwind.

A your customers seeing supply chain delays and pushing out projects and be your own supply chain issues. Just curious if you are having a problem getting product and therefore unable to serve your customers.

Some on the discussion on each please.

Sure.

Let me, let me take the first one being the customer supply chain issues.

I would say that is the more substantial impact to the business.

Sure.

And that just has to do with cut.

Customers not being able to get materials they need on site.

And so or they may cost more than they had planned and so.

What you May see there is a customer that is ready to embark on a project and as theyre getting the necessary quotations they need they.

They realized hey, this this project is going to cost more than we thought it was oh, we need to go back and re quote and perhaps take some scope out of the project and just that issue right then and there may cause a delay in the project and so.

Those things are we're seeing that dynamic across the across the business with some of these supply. Some of these sales projects that we are that we're working on as far as our own supply.

That has affected us to a bit and I would say that's been more in our environment next business.

Window or something for a building that typically takes two or three weeks now might take several months and so we can ship the building and we can get the building installed we may not be able to finish the project and so that that causes a delay.

And I wouldn't say, it's extensive but it has happened to us on a.

A few occasions and so that's kind of the flavor of some of these dynamics that we're experiencing right now which are very very unusual I mean I've been doing this for 20 years now and I haven't quite ever seen the supply chain is.

Turbulent as it is right now and so we're working through this.

And.

The most important thing for US Scott is that we see very healthy pipelines and so we're just viewing these things as you know.

Temporary issues that are affecting the business, there's no doubt about it but ones that we can work through and ones that.

I don't think are going to cause major disruption to the business on a longer term basis. So hopefully that's helpful.

It is thanks.

And then there was mention of increasing pricing.

Can you talk about how assertive you are being.

And is it is it sufficient to cover your own cost inflation, and then with your customers with issues. It sounds like you are.

And they are modifying scope, but.

Not on price just kind of addressing overall and then that last topic. Thanks, Yes sure. It's a fair question I would say we are being as we're being aggressive I mean, we have to.

The cost pressures that we're seeing are mandating that we that we do that and to give you a few examples.

We do customer modifications in our inventory centers for a modular project as an example, we've increased all of that pricing across the board.

And so now we are charging more and customers are paying it because.

Typically.

They want the product and so they're not necessarily.

Willing to give up on on too much of the scope.

It has happened to us, but it's not as common as as.

Them, saying, hey, I'm going to stick with it I'll pay more and Thats the environment right now and so we're seeing that more and more in terms of our.

The 7% price increases that Youre seeing one thing that's important to note is when we incur costs in our inventory centers on preparing modifying and getting product ready to go out on rent, we incur all of those cost upfront, but when you roll a price increase on <unk>.

Rental revenues into the rent that's something of course that we collect over the rental period. So the cost all come in the front the revenues kind of come as we rent the product later and so there is a little bit of an imbalance. There that you have to work through but it's something that.

We're all over and that where we talk about all the time and that we're planning to mitigate as much as we possibly can.

Okay. Thanks, one last one quickly for me.

Very interesting year your commentary on a million.

1 million student population growth and then 40000 more classrooms needed.

What was the timeframe for that again I assume that number is national could you break it down for the geographies we serve please sir.

Sure actually Scott that was that number pertained to the geographies that we serve.

So that wasn't a national.

Number and of course as you know when you look at the map of geographies that we are present in many of them are in very desirable warm weather.

Locations across the country that people are moving to states like Texas, and Florida and the mid Atlantic.

And so we're seeing this as continued demand continued influx of student population.

And that's that's a huge positive driver for us because.

And as we've seen in many many many years.

<unk> just cannot keep up with the facilities construction projects fast enough to meet that demand a million students over seven years.

A lot now if you look at a state like California might say well, what's going on with the population there what we're actually seeing in California is there are shifts within the state. So people may move out of San Francisco and they might move to the suburbs well, that's creating demand and other areas in the state for us and so <unk>.

Even though overall in a state like California student populations have not been growing there is still business for us and and Thats. We view that we've seen that many years and we view that as a.

As a continued driver of of classroom rentals for us.

Got it and to because you just said that's a $1 million over seven years correct correct correct. Okay. Okay.

All right great I'll turn it over thank you.

Thanks Scott.

Thank you. Our next question comes from the line of Marc Riddick from Sidoti. Your line is now open.

Hi, good evening.

Hi, Mark.

So wanted to touch a little bit first on the <unk>.

Services side of things I Wonder if you could talk a little bit about what youre seeing there on on the labor needs driver needs spending on.

Where you are now versus where you feel as though you need to be.

And then we can follow up from there.

So.

Just to just to be clear when you say the services side of the business are you referring to the extra services that we provide for our modular buildings are you referring to kind of the driver situation and deliveries and things like that.

Correct, that's a lot more of the latter yes.

The latter okay yeah.

Yes drivers.

Been tough.

And to find drivers right now into.

To to keep them.

It's been it's been it's one of our most difficult positions that were hiring across the company.

But it has not really I would say it has not impacted our ability to conduct operations, we do have the ability to outsource.

If we don't have a driver in a particular area.

That does cost more that will pressure margins once we do that but that is an option and we can keep the wheels turning in that situation. So it has not been a hindrance for us.

As we've continued to.

Move along here.

Does that answer your question.

Yes, yes. It does and then I was wondering if you could then move over to.

Talking about the pricing dynamic.

Back to that for a moment as I wonder if you could give us a bit of an update on.

Funding availability that you're seeing in your markets.

If there had been so greater insights since the summer timeframe, where.

That's kind of where you are comfort level.

Availability for future order flow share.

I can tell you this.

Mark I have reviewed the funding situation.

In a variety of different areas that we operate in and I can say this I've actually never seen.

Funding.

The availability of funds as I have seen them now and a lot of that is due to the national stimulus packages that were passed this year.

<unk>.

And I would say that even though.

A lot of the funding has not necessarily been earmarked for facilities.

What you see what happens here is with the funding. That's been made available is that schools will use that funding for new programs.

New programs mean more teachers more teachers mean more classrooms, and so oftentimes what you'll see is this funding takes an indirect way to us.

And that comes down as we don't have enough facilities for these new programs that we're going to put in and we need to add something.

Fill that gap and so.

I'm very positive over the funding environment right now it's just it's been.

More than we had expected and it just takes a while for it to make its way into the market.

Got it that makes sense.

One is there's been a shift over as far as the.

If you give a bit of an update on <unk>.

There's been quite a lot going on with <unk>.

With the marketplace and supply chain and what have you, but maybe give a bit more of a direct update on the integration efforts of the acquisitions and kind of.

Internally kind of where you where you feel some of the pros and cons, maybe thank you sure.

I can.

I'll start and then Keith can follow up just a little bit with some of the.

Financial details but.

First of all we are we are very pleased.

With.

These acquisitions the quality people.

The businesses have been run well and so where we are.

Very much.

Down the road with the integration process, we have switched over onto our systems and we have done training with folks in the businesses. So that they are well prepared and able to transact with customers.

We have identified particularly with design space.

Locations, where.

They're short inventory, we've placed orders to get new product in there and those folks that's going to be delivering over the next several quarters. Those folks are very eager to get that product in their hands and out to customers because utilization is very high.

In those locations so.

Where we have.

Sin.

Less than.

Good progress for us it's just been in the sales revenues, it's been a little bit lighter and for some of the reasons that we've explained.

Earlier, due to supply chain issues and projects being pushed but otherwise.

And we view that all as an environmental issue, it's a timing issue.

Our pipelines are very strong.

Very little turnover in the businesses in terms of bringing new employees into the fold and so we're changing that that we're maintaining that.

That customer knowledge and so it's just we really need to unfold our wings here and let these things fly and we're going to be doing that in the next quarters ahead.

Mark in terms of the integration you're also seeing it flow through the financials, you've not got what is more of a run rate.

Our modular <unk> or the inventory center costs, but we itemize on the income statement and also on the modular SG&A and if you look at the increases in those areas.

<unk> line item that was up $4 8 million third quarter year over year $3 1 million of the increase roughly two thirds is tied to the acquisitions.

And similarly, if you look at the SG&A per our modular business that was up $8 $4 million year over year $6 1 million of the increase was related to the acquisitions and that includes $2 4 million of amortizing intangibles. So when you look at the third quarter, you've got a better.

Review of the cost structure for the modular segment for our go forward and as Joe said, we see a lot of really good positive numbers on the rental side, particularly the designs based part of the business I would say just as.

Joe commented on the sales side.

Where the sales mix is higher kitchens to go and also hybrid design space than our than our traditional modular business.

Sales arena has been challenging this year, a lot changed or as we've commented we don't view that as a long term issue. It's more of the supply chain adjustments that are happening. This year, we're working through them and as Joe says, we feel very positive about the longer opportunities here.

Okay. That's very helpful. Thank you.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw.

All your question press the pound key.

Ladies and gentlemen that appears to be the last question. Let me now turn the call back over to Mr. Hannah for any closing remarks.

I'd like to thank everyone for joining us on today's call and for your continuing interest in our company. We wish you all health and safety in the months ahead, and we look forward to speaking with you again in late February 2022 to review our fourth quarter results.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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Okay.

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Sure.

Yes.

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Ladies and gentlemen, thank you for standing by welcome to the Mcgrath Rent Corp, third quarter 2021 conference call. At this time all conference participants are in a listen only mode. Later, we will conduct a question and answer session at that time. If you have a question you will need to press the star key.

Followed by the one key on your telephone this conference call is being recorded today Thursday October 28 2021.

That's relating to the company's expectations strategies prospects or targets. These forward looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected in addition to risks associated with the on.

COVID-19, pandemic and related economic dynamics important factors that could cause actual results to differ materially from the company's expectations are disclosed under risk factors in the company's Form 10-Q, and other SEC filings.

Forward looking statements are made only as of the date hereof, except as otherwise required by law, we assume no obligation to update any forward looking statement. In addition to the press release issued today. The company also filed with the S. E C. The earnings release on form 8-K, and its Form 10-Q.

For the quarter ended September 32021.

Speaking today will be Joe Hanna Chief Executive Officer, and Keith Pratt Chief Financial Officer, I will now turn the call over to Mr. Hanna go ahead Sir.

So let's get started.

First I would like to highlight the performance of our rental engines across the enterprise in the third quarter.

Each of our business units delivered healthy rental revenue growth on a year over year basis.

Mobile modular segment grew 26% Trs <unk> telco, 6% and Adler, 11%.

The rental growth we are seeing is due to the combined positive impact of the acquisitions. We closed earlier this year.

Coupled with improving market conditions, and we are encouraged by the activity we are seeing from customers across our market segments.

These delays can cause projects to shift into future quarters for completion.

Our pipelines are very healthy so we view these occurrences as adjustments to our fluid supply chain situation and not an overall change in demand or a customer outlook.