Q1 2024 McGrath RentCorp Earnings Call

Please standby we're about to begin.

Ladies and gentlemen, thank you for standing by welcome to the <unk>.

The graph rent Corp, first quarter 2024 earnings 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 do have a question you will need to press it'd be starkey followed by the one key on your telephone.

This conference call is being recorded today Thursday April 25th 2024.

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 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.

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-K, and other S. E C 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 statements.

In addition to the press release issued today. The company also filed with the SEC The earnings release on form 8-K, and its Form 10-K 10-Q excuse me for the quarter ended March 31 2024.

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

Thank you Bo.

Good afternoon, and thank you everyone for joining us on today's call. We are pleased to be together today and look forward to providing additional perspective on our results for the first quarter.

Keith E. Pratt: I will start with some overall comments on our first quarter and Keith will provide additional detail in his financial review before we open the call up for questions.

On a total company basis, we had a good first quarter rental revenue increased 9% sales revenues increased 48% and adjusted EBITDA grew by 17%.

Mobile modular was the highlight of our first quarter with rental revenue increasing 19%.

We have been diligently executing our strategy of offering an expanded range of modular solutions to our customers and it continues to show in the results.

Keith E. Pratt: Our teams are focused and clear about what successes for our customers and the business.

They've been doing an excellent job delivering on those commitments.

We finished the quarter with a rental backlog that is the highest in the company's history.

The high backlog was driven by our education segment, which was very active at school districts address both modernization and growth projects in our operating geographies.

This is a positive sign as we now have many units under contract that are already scheduled for shipment.

Therefore, we have front loaded much of our planned capex spend for the year.

Modular sales revenues were also up very nicely for the quarter increasing 49%.

Keith E. Pratt: With our custom modular solutions initiative, we have positioned ourselves as a provider of modular solutions that range from very small installations to projects larger and more complex in scope and the market opportunities are many.

Our rental projects and summer sales.

We want both.

Keith E. Pratt: We've been very pleased by the development of this capability within the business.

Talented team in place to grow this segment.

Commenting specifically now on our other growth initiatives, we are expanding contract scope and realized strong growth increases in both mobile modular plus and site related services of 26% and 31% respectively.

Keith E. Pratt: Our customers value the benefit of having their buildings arrive with additional amenities included in their rental contract as well as the value of services provided on the outside of the building to make it completely ready for years.

Keith E. Pratt: We are gaining traction as each quarter passes and customer acceptance has been positive.

Keith E. Pratt: Our portable storage rental revenues increased 8%.

Consistent with recent Abi data and other macro indicators of construction related demand project activity was slightly muted in the quarter and returns were higher year over year.

Importantly, we executed well and our close ratios remained steady.

At Trs <unk> rental revenues decreased by 13% year over year, reflecting continued industry wide weakness in the computer and semiconductor portion of that business.

Keith E. Pratt: We continued adjusting for the softer market conditions.

We reduced purchases of new rental equipment and sold fleet, which was collectively reduced our fleet size by $7 million during the quarter.

Our team has significant depth of experience and we are confident in our ability to manage the portfolio effectively through cycles.

Since we announced the merger agreement with well Scott Mobile mini on January 29th and while the transaction is still pending we continue to operate with a business as usual mindset.

During this period, our teams remain very focused on delivering exceptional service to our customers and to each other.

I could not be more pleased with their performance and commitment.

Thank you everyone for your dedication and strong execution in the quarter.

As always and now during the pending merger our focus will remain on the execution of our strategic plans and delivering positive financial results.

The preliminary form S. Four has been filed and we are working with will Scott mobile mini on effectiveness of that document. So we can call a special meeting of shareholders to approve the merger.

As stated last quarter, we will not be providing any financial guidance or future outlook.

Now, let me turn the call over to Keith.

Thank you Joe and good afternoon, everyone.

As Joe highlighted we delivered strong results in the first quarter driven by the performance of our mobile modular and portable storage businesses.

Looking at the overall corporate results for the first quarter total revenues from continuing operations increased 15% to $187 8 million and adjusted EBITDA increased 17% to $72 1 million.

During the first quarter the company sold a property, which resulted in a $9 3 million net gain and contributed 28 cents in earnings per diluted share.

These types of sales are infrequent.

Keith E. Pratt: Excluded from adjusted EBITDA.

Reviewing mobile modular is operating performance as compared to the first quarter of 2023.

Mobile modular had an impressive quarter with adjusted EBITDA, increasing 34% to $43 3 million.

Total revenues increased 23% to $127 6 million.

There were increases across all revenue streams, including 19% higher rental revenues, 49% higher sales revenues and 12% higher rental related services revenues.

As a reminder, the prior year first quarter included just two months of best of module from the acquisition date of February one 2023.

The extra months of vested in the first quarter 2024 contributed approximately 5 million rental revenue and $2 million adjusted EBITDA.

The rental revenue growth reflected overall positive business conditions across our commercial and education customer basis.

Sales revenues increased $8 4 million to $25 3 million demonstrating continued execution of our initiatives to grow modular sales projects.

We continued our disciplined fleet management on a larger fleet with 18% higher average rental equipment on rent and average fleet utilization of 78, 7% compared to 79, 4% a year ago.

We have achieved this healthy total fleet utilization throughout the integration process at best.

Concurrently investing a new rental fleet for growth.

Rental revenues increased by 19%, while inventory center costs decreased 6% and depreciation expense increased 14%, resulting in rental margins of 57% up from 49% a year ago.

Similar to last quarter I will share additional data that help illustrate our progress delivering on our modular business strategy.

First quarter monthly revenue per unit on rent increased 18% year over year to $772.

For new shipments over the last 12 months the average monthly revenue per unit increased 9% to $1063.

Progress with mobile modular plus is embedded in these data points and as an additional growth driver.

We continued to make progress with our modular services offerings for.

For the first quarter 2024, mobile modular plus revenues increased to $7 2 million from $5 7 million a year earlier.

And site related services increased to $3 2 million up from $2 4 million.

Turning to the review of portable storage in the first quarter adjust.

Adjusted EBITDA for portable storage was $1 5 million, an increase of 15% compared to the prior year.

During the quarter, we saw increases in all revenue streams, resulting in a total revenue increase of 9% to $24 8 million.

Rental revenues for the quarter increased 8% to $18 4 million.

Rental margins were 87%.

Up from 85% a year earlier.

Average equipment on rent increased 2%, while average utilization for the quarter was 69, 8% compared to 80%, 88% a year ago.

Turning now to review of Trs <unk> telco.

Just did EBITDA was $18 5 million, a decrease of 10% compared to last year.

Total revenues decreased $2 4 million or 7% to $33 8 million.

Rental revenues for the quarter decreased 13% as.

As the industry experienced continued softness in semiconductor related demand.

Average utilization for the quarter was 56, 5% compared to 59, 2% a year ago.

And rental margins were 36% compared to 40% a year ago.

Sales revenues increased 33% year over year to $6 8 million with gross profit increasing 1 million Q3 dollars 9 million a result of higher sales revenues and improved margins.

To address the softer business conditions at Trs, we continue to maintain our return on capital discipline.

We reduced new equipment capital spending focused on sales of used equipment and reduced fleet size based on the original cost of equipment from 378 million at the end of December to $371 million at the end of March.

We continued to make progress with reducing fleet size to better align with current demand conditions.

The remainder of my comments will be on a total company basis from continuing operations.

First quarter, selling and administrative expenses increased $2 3 million to 59 8 million the.

The increase was primarily the result of higher employee salaries and benefit costs, partly offset by reduced marketing and administrative costs.

2024 costs included $9 4 million of transaction expenses from the pending will Scott merger.

2023 costs included $14 1 million investment acquisition, and Adler divestiture related transaction costs.

Interest expense was $12 7 million, an increase of $5 2 million.

As a result of higher average interest rates and $215 million higher average debt levels during the quarter, which was primarily the result of funding of last year's acquisitions.

The first quarter provision for income taxes was based on an effective tax rate of 23, 6% compared to 23, 8% a year earlier.

The decrease was primarily due to changes in business mix by state.

Turning to our year to date cash flow highlights net cash provided by operating activities was 59 million compared to 36 million in the prior year.

Rental equipment purchases were $79 million compared to $78 million in the prior year.

In addition to continued investments in new fleet healthy cash generation allowed us to pay $12 million in shareholder dividends.

Proceeds from sales of property plant and equipment were $12 million.

At quarter end, we had net borrowings of 799 million comprised of $175 million notes outstanding and $624 million under our credit facility.

On April 23rd the company entered into an incremental borrowing facility amendment, which provided for a 75 million term loan.

This loan was used to pay down our existing bank lines of credit.

And ink and creates additional borrowing capacity for general corporate purposes, and working capital needs, including the front loading of our 2024 module at our capital spending to support positive demand conditions.

And for incremental transaction expenses.

The ratio of funded debt to the last 12 months actual adjusted EBITDA was 2.4321.

We are very proud of Mcgrath <unk> strong first quarter performance and we are fully focused on solid execution for the remainder of 2024.

That concludes our prepared remarks.

You May now open the lines for questions.

Thank you very much Mr. Pratt, ladies and gentlemen at this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to once again that is star one to ask a question and we'll pause for just one moment to allow questions to queue.

Well go first this afternoon to Scott Schneeberger of Oppenheimer. Scott. Please go ahead.

Thanks, very much good afternoon, good afternoon guys.

Hum.

Hey for the first question and I have a bunch of.

Well Keith I think you said it about in dollar terms and I haven't had a chance to go back and reconcile what was the organic growth in modular versus the best contribution since we were dealing with a partial quarter. Thanks.

Yeah on the rental revenue side, approximately 12% organic.

Thanks appreciate that.

With regard to pricing and this is this is a question relating to slide 24.

The and I have a feeling that the plays into this answer here, but your.

Units shipped over the last 12 months modular grew 9% year over year in the first quarter. The total portfolio plus 18% year over year I'm, a little confused I mean, both nice numbers that I am a little bit confused by the magnitude of each and I suspect it has.

Do what I read in the footnote you started including invest that in November of 'twenty three.

Is that the main difference there and could you take us through that a little bit please Keith.

Yeah, I think that is the main difference Scott again that is the data the footnotes are important as you understand the data.

You mean from the footnotes were reflecting the data we have available from our systems and vascular was incorporated into the data capture on the first of November and I think the trends are still positive across the business. We are getting more revenue per unit on rent I think that reflects a couple of things one is units or more.

Operator: Please stand by; we're about to begin. Ladies and gentlemen, thank you for standing by.

Operator: Welcome to the McGrath RentCorp first quarter 2024 earnings 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 1 key on your telephone.

Operator: Expensive, both the purchase and maintain so we have to charge accordingly, and importantly, we're adding more services into the business. So with some of our contracts capturing more of the mobile modular plus services further enhances the revenue per units.

Operator: This conference call is being recorded today, Thursday, April 25th, 2024. 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 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.

Operator: 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-K and other SEC filings. Forward-looking statements are made only as of the date hereof, and, except as otherwise required by law, we assume no obligation to update any forward-looking statements. In addition to the press release issued today, the company also filed with the SEC its earnings release on Form 8-K and its Form 10-Q for the quarter ended March 31, 2024. 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. Please go ahead.

Speaker Change: Alright. Thanks.

Joseph F. Hanna: Some volume questions.

Joseph F. Hanna: I think Joe May have referenced that Abi has been bouncing around recently I think he addressed it when he was speaking to portable storage containers.

Operator: Curious what what are you seeing in the demand environment for both the two major.

Joseph F. Hanna: Asset classes and in mobile modular about portable and and modulators since we last spoke in mid February.

Operator: Yeah.

Joseph F. Hanna: Yes, Scott.

Joseph F. Hanna: I actually as I referenced in the comments our.

Joseph F. Hanna: Backlog our.

Joseph F. Hanna: Rental backlog right now is very strong and that's mostly supported by really good orders that we've received so far for education.

Joseph F. Hanna: So that's been that's been a highlight I think of the quarter.

Joseph F. Hanna: Not only in bookings that we made but the actual billings too.

Joseph F. Hanna: So that part of the business is strong I would say a little bit more muted in the commercial construction market just not quite the activity level that we've seen in prior years, but still.

Joseph F. Hanna: Hanging in there still pretty steady.

Joseph F. Hanna: Hello, good afternoon, and thank you everyone for joining us on today's call. We are pleased to be together today and look forward to providing additional perspective on our results for the first quarter. I will start with some overall comments on our first quarter, and Keith will provide additional detail in his financial review before we open the call up for questions. On a total company basis, we had a good first quarter. Rental revenue increased 9%, sales revenues increased 48%, and adjusted EBITDA grew by 17%.

Joseph F. Hanna: And so I would say that would be the two major differences.

Keith: Thanks, and Joe you mentioned.

Joseph F. Hanna: You can pull forward Capex, maybe this brings can fit into the conversation pull forward Capex is.

Joseph F. Hanna: I know that a cut.

Joseph F. Hanna: Moving away from the annual guidance here, but.

Joseph F. Hanna:

Joseph F. Hanna: It is this pull forward of Capex are you looking to do more or is it just wont do it earlier and it sounds like it's predominantly an education classroom modulators.

Joseph F. Hanna: Is it is it is the excess for anything else or and would you be doing actually last if not for the educational.

Joseph F. Hanna: Mobile Modular was the highlight of our first quarter, with rental revenue increasing 19%. We have been diligently executing our strategy of offering an expanded range of modular solutions to our customers, and it continues to show in the results. Our teams are focused and clear about what success is for our customers and the business, and they've been doing an excellent job delivering on those commitments. We finished the quarter with a rental backlog that is the highest in the company's history. The high backlog was driven by our education segment, which was very active as school districts addressed both modernization and growth projects in our operating geography.

Speaker Change: Yes, Scott Here's the way I'd frame it it's really driven by the education market.

Joseph F. Hanna: Joe commented education market conditions have been good for the first part of the year I think you'll recall the education market is seasonal most of the activations will be in the summer months. So we really have to frontload the capex to meet demand in that part of the market.

Joseph F. Hanna: Certainly, adding some we selectively but I would say that then your capex focus is much more on the education side of the business and it needs to happen early in the year to be effective.

Speaker Change: Thanks Keith.

Speaker Change: This is a question on portable storage utilization.

Joseph F. Hanna: Only been.

Joseph F. Hanna: Reporting that segment separately, the last two quarters, but it's been down about a 1000 basis points give or take year over year.

Joseph F. Hanna: This is a positive sign, as we now have many units under contract that are already scheduled for shipment. Therefore, we have front-loaded much of our planned CAPEX spend for the year. Modular sales revenues were also up very nicely for the quarter, increasing 49%. With our Custom Modular Solutions Initiative, we have positioned ourselves as a provider of modular solutions that range from very small installations to projects larger and more complex in scope, and the market opportunities are many. Some are rental projects, and some are sales. We want both.

Speaker Change: And we don't have the historical context prior but what is the big difference there year over year. If you could just elaborate a little bit. Thanks.

Joseph F. Hanna: Yeah.

Speaker Change: Yes, Scott I would say, we have a bigger fleet.

Joseph F. Hanna: So units on rent have actually hung in there pretty well utilization has dropped.

Joseph F. Hanna: And we've gotten more returns than we had planned and bookings weren't quite as strong as we had planned in the quarter. So I think thats really what youre seeing in the numbers there.

Joseph F. Hanna: And first quarter, Joe is the seasonally softest quarter right.

Joseph F. Hanna: We've been very pleased by the development of this capability within the business and have a talented team in place to grow this segment. Commenting specifically now on our other growth initiatives, we are expanding contract scope and realizing strong growth increases in both Mobile Modular Plus and site-related services of 26% and 31%, respectively. Our customers value the benefit of having their buildings arrive with additional amenities included in their rental contract, as well as the value of services provided on the outside of the building to make it completely ready for use. We are gaining traction as each quarter passes, and customer acceptance has been positive. At portable storage, rental revenues increased by 8%.

Speaker Change: Correct absolutely.

Speaker Change: Alright, thanks, I'm going to pivot over all of them getting towards the end here. Thanks.

Joseph F. Hanna: Trs <unk> telco skills semiconductor softness.

Speaker Change: Are you seeing any signs of a turn any any visibility there or is it still tough to call.

Speaker Change: Yes, its still pretty tough to call as you know in that business are.

Joseph F. Hanna: Rental terms are shorter hard to see out far over the hood, there and so we take it on a month by month by month basis.

Joseph F. Hanna: So a little bit tough to predict right now, but we're.

Joseph F. Hanna:

Speaker Change: We're pulling all the right levers in the business to adjust for the current market condition. So.

Joseph F. Hanna: I am pleased that the team has taken the steps that they are to keep the business healthy.

Speaker Change: Any any quick comments <unk>, just any any progress report on that thanks.

Joseph F. Hanna: Consistent with recent ABI data and other macro-indicators of construction-related demand, project activity was slightly muted in the quarter, and returns were higher year over year. However, importantly, we executed well, and our close ratios remained steady. At TRS-Rentelco, rental revenues decreased by 13% year over year, reflecting continued industry-wide weakness in the computer and semiconductor portion of the business. However, we continued adjusting for the softer market condition. We reduced purchases of new rental equipment and sold fleet, which collectively reduced our fleet size by $7 million during the quarter.

Speaker Change: Not really no no big developments there.

Joseph F. Hanna: To speak of.

Speaker Change: Alright, Thanks, and then I'll wrap it up recently, a proxy out having to do with your pending transaction with Wolfcamp mobile mini.

Joseph F. Hanna: It was provided.

Joseph F. Hanna: Revenue EBITDA ebay unlevered free cash flow for the business through.

Joseph F. Hanna: Through 2028.

Joseph F. Hanna: Yes.

Joseph F. Hanna: Curious kind of hot I mean, obviously that's out there publicly for all the C. What was behind that.

Speaker Change: Some of the major assumptions that youre applying particularly to the revenue line as that was put together. Thanks.

Joseph F. Hanna: Our team has significant depth of experience, and we are confident in our ability to manage the portfolio effectively through cycles. Since we announced the merger agreement with Will Scott Mobile Mini on January 29th, and while the transaction is still pending, we continue to operate with a business-as-usual mindset. During this period, our teams remained very focused on delivering exceptional service to our customers and to each other. I could not be more pleased with their performance and commitment.

Joseph F. Hanna: So let me characterize it yes.

Speaker Change: Yes go ahead, I'll make a quick comment and Keith Ken Keith can give you more color I would say that we.

Joseph F. Hanna: No real what we really wanted to do there as we put those projections together were to filter in.

Joseph F. Hanna: The initiatives that we have that are going in the business too and so.

Joseph F. Hanna: We tried to predict further penetration of those initiatives into the into the all the work that we're doing on a current basis and so we rolled all of that forward Keith.

Joseph F. Hanna: Keith.

Joseph F. Hanna: I don't know if you want to add anything to that that was that was going to be exactly my point, Joe and really emphasizing that was our organic outlook for the business, we own and operate and we see a lot of opportunities with it a lot of those opportunities are based around the modular growth strategy that we've articulated over the last few years.

Joseph F. Hanna: Thank you, everyone, for your dedication and strong execution in the quarter. As always, and now during the pending merger, our focus will remain on the execution of our strategic plans and delivering positive financial results. Preliminary Form S-4 has been filed, and we are working with Will Scott Mobile Mini on the effectiveness of that document so we can call a special meeting of shareholders to approve the merger. As stated last quarter, we will not be providing any financial guidance or future outlook. Now, let me turn the call over to Keith.

Keith: Ears, and I think you see in today's report card that we continue to make progress in those areas.

Keith: Thanks, and kind of for both uses such as with regard to initiative is is what you're doing with regard to to add on inside and outside the assets.

Joseph F. Hanna: And then maybe Keith maybe some consideration for what type of economic outlook is I mean, it's a five year.

Keith E. Pratt: Thank you, Joe, and good afternoon, everyone. As Joe highlighted, we delivered strong results in the first quarter, driven by the performance of our mobile modular and portable storage business. Looking at the overall corporate results for the first quarter, total revenues from continuing operations increased 15% to $187.8 million, and adjusted EBITDA increased 17% to $72.1 million. During the first quarter, the company sold a property which resulted in a $9.3 million net gain and contributed $0.28 to earnings per diluted share. These types of sales are infrequent and are excluded from adjusted EBITDA.

Keith: Outlook still are you are you kind of what type of.

Speaker Change: CAGR GDP are you anticipating there.

Speaker Change: And anything else just kind of Ah I assume no acquisitions are or in that number but I just wanted to clarify.

Speaker Change: Yeah, all organic no acquisitions.

Keith E. Pratt: When we put together any forecast, we really begin by looking at the overall economic backdrop. We review published studies that are out there and then we look at specific studies that are related to important end markets that we that we serve so things like Adi construction spending and the like.

Keith E. Pratt: I look for school expanding school enrollment all those kinds of things will take a look at as we formulate our forecast. So that's all in the normal course of business and what he's done is we developed the forecast with the information that is most current at the time they are put together.

Keith E. Pratt: Reviewing MobileModular's operating performance as compared to the first quarter of 2023, MobileModular had an impressive quarter with adjusted EBITDA increasing 34% to $43.3 million, and total revenues increasing 23% to $127.6 million. There were increases across all revenue streams, including 19% higher rental revenues, 49% higher sales revenues, and 12% higher rental-related services revenues. As a reminder, the prior year's first quarter included just two months of VESTA modular from the acquisition date of February 1st, 2023.

Speaker Change: Great. Thanks, I appreciate that that's helpful. One more I'm going to sneak in just a real estate sale can you share a little bit more color on that and I'll turn it over thanks guys.

Speaker Change: Yes, Scott as you know for certain key operating locations, we may own our property across our businesses and in this particular instance, this is a property, which Adler tank rentals was the division that use the property and obviously, we divested that business last year, we had an opportunity.

Keith E. Pratt: To sell the property and can use that capital to redeploy it into the module side of the business.

Speaker Change: Sounds good thanks, guys.

Keith E. Pratt: Thank you. Thank you.

Keith E. Pratt: The extra month of VESTA in the first quarter 2024 contributed approximately $5 million in rental revenue and $2 million in adjusted EBITDA. The rental revenue growth reflected overall positive business conditions across our commercial and education customer base. Sales revenues increased $8.4 million to $25.3 million, demonstrating continued execution of our initiative to grow modular sales projects. We continued our disciplined fleet management on a larger fleet with 18% higher average rental equipment on rent and average fleet utilization of 78.7% compared to 79.4% a year ago.

Keith E. Pratt: Thank you well go next now to Marc Riddick of Sidoti.

Speaker Change: Hi, good evening.

Speaker Change: Hi, Mark.

Speaker Change: So I was wondering if you could sort of take us back to the strength of the education for a moment because I think it's kind of interesting the.

Speaker Change: Commentary there it seems as though things were looking pretty good already as we got to the end of last year in that space. So can you maybe just take us through maybe a couple of puts and takes as to.

Keith E. Pratt: What what was stronger than what you expected whether it was a mix issue pricing as you would like what what was it doesn't really kind of bumped up education, maybe a little faster than what maybe you were expecting at the end of the year.

Keith E. Pratt: Sure.

Speaker Change: I would say that's really the main driver of our education business is the is the amount of money that's.

Keith E. Pratt: Out on local bond measures and state bond measures, primarily what we're seeing now is more local bonds and so and those go out on the ballot for election they pass.

Keith E. Pratt: We have achieved this healthy total fleet utilization throughout the integration process of Vesta while concurrently investing in new rental fleet for growth. Rental revenues increased by 19% while inventory center costs decreased 6% and depreciation expense increased 14%, resulting in rental margins of 57%, up from 49% a year ago. Similar to last quarter, I will share additional data that help illustrate our progress delivering on our modular business strategy.

Keith E. Pratt: <unk> bye have a nice majority usually.

Keith E. Pratt: And those are significant bonds.

Keith E. Pratt: That passed in these in these municipalities for modernization and for growth projects and over the past year.

Keith E. Pratt: A year or so a lot of those have passed and that money is now being deployed in the market right now and where we're positioned very nicely to take advantage of it.

Keith E. Pratt: Really solid execution, our relationships with our.

Keith E. Pratt: Education clients that really bring those projects to fruition. So we're very pleased with how that market has developed.

Keith E. Pratt: First quarter monthly revenue per unit on rent increased 18% year over year to $772. For new shipments over the last 12 months, the average monthly revenue per unit increased 9% to $1,063. Progress with Mobile Modular Plus is embedded in these data points and is an additional growth driver. We continue to make progress with our modular services offering.

Speaker Change: So it's.

Keith E. Pratt: The funding availability.

Keith E. Pratt: Sort of been building in the last couple of years folks are now more comfortable with releasing those in sort of putting that to work.

Keith E. Pratt: Are there is that particularly in California, and Texas are there any particular areas that you're seeing that or is it kind of across the board.

Keith E. Pratt: Across the board.

Speaker Change: Absolutely right that money is being deployed and it's across the board.

Speaker Change: Excellent excellent.

Speaker Change: So you talked about sort of bringing forward some of the capex to sort of address that and obviously there is the seasonal nature and the timing of when those will.

Keith E. Pratt: For the first quarter of 2024, Mobile Modular Plus revenues increased to $7.2 million from $5.7 million a year earlier, and site-related services increased to $3.2 million, up from $2.4 million. Turning to the review of portable storage, in the first quarter, adjusted EBITDA for portable storage was $1.5 million, an increase of 15% compared to the prior year. During the quarter, we saw increases in all revenue streams, resulting in a total revenue increase of 9% to $24.8 million.

Keith E. Pratt: Be deliberate.

Speaker Change: Do you get any sense of any supply chain.

Speaker Change: Jane concerns as to what Youll need or how should how should we think about that.

Keith E. Pratt: Yes.

Keith E. Pratt: So I would say supply chain issues, we manage that very carefully we have excellent relationships with our suppliers, we work with them to reserve line time.

Keith E. Pratt: And we're not seeing that being a hindrance to us at all for this year.

Speaker Change: Been tight in prior years, not quite as tight this year, but.

Speaker Change: Like I said, we manage it very carefully and I think we're in very good shape, there with our suppliers.

Speaker Change: Okay excellent and then finally, it seems as though with the pricing dynamic that you guys have been working on for quite some time continues to generally.

Keith E. Pratt: Rental revenues for the quarter increased 8% to $18.4 million, and rental margins were 87%, up from 85% a year earlier. Average equipment on rent increased 2%, while average utilization for the quarter was 69.8%, compared to 80.8% a year ago. Turning now to a review of TRS for Intelco.

Keith E. Pratt: Generally move in the right direction I, just wonder if you could talk a little bit about those efforts and kind of.

Speaker Change: So if there are any pieces that we should be aware of that maybe we haven't had a chance to talk about as much lately.

TRS: Yes, Mark as we commented earlier the goal here is deliver more value to the customer.

Keith E. Pratt: We're achieving better revenue per unit deployed.

Keith E. Pratt: That's partly because of the services emphasis it also reflects higher cost of new equipment and higher cost of maintaining equipment and getting it rental ready. So this is all about protecting our economics, we've talked about that over the last few years and I think our teams have done really good work and addressing those issues and.

Keith E. Pratt: Adjusted EBITDA was $18.5 million, a decrease of 10% compared to last year. Total revenues decreased $2.4 million, or 7%, to $33.8 million. Rental revenues for the quarter decreased 13 percent as the industry experienced continued softness in semiconductor-related demand.

Keith E. Pratt: And that's reflected in the numbers.

Speaker Change: And then I guess the last one for me with given whats taking place. The I was wondering could you talk a little bit about sort of how you see.

Keith E. Pratt: Average utilization for the quarter was 56.5% compared to 59.2% a year ago, and rental margins were 36% compared to 40% a year ago. Sales revenues increased 33% year over year to $6.8 million, with gross profit increasing $1 million to $3.9 million, as a result of higher sales revenues and improved margins. To address the softer business conditions at TRS, we continue to maintain our return on capital discipline. We reduced new equipment capital spending, focused on sales of used equipment, and reduced fleet size based on the original cost of equipment from $378 million at the end of December to $371 million at the end of March. We continue to make progress with reducing the fleet size to better align with current demand conditions.

Keith E. Pratt: The labor market and in development I think.

Speaker Change: But the entire time I've covered you I'm always worried about.

Speaker Change: Being able to get enough drivers and I would imagine that could be something that could be on the table as well, but maybe you could talk a little bit about the labor market and what youre experiencing there.

Keith E. Pratt: Yes.

Keith E. Pratt: Actually this year, we've been able to.

Keith E. Pratt: Fill open positions pretty effectively.

Keith E. Pratt: You're right the driver market typically is one that's very very tight and.

Speaker Change: We have.

Speaker Change: We're not experiencing any specific.

Keith E. Pratt: Issues right now and filling those roles. So I feel very good that we have the right labor at.

Speaker Change: At the right places in the company to get the job done that we need to right now so I think I think we're in pretty good shape.

Speaker Change: Excellent. Thank you very much.

Speaker Change: Thank you Mark Thank you.

Joseph F. Hanna: And ladies and gentlemen that appears to be the last question. Let me now turn the call back over to Mr. Hannah for any closing comments.

Speaker Change: I'd like to thank everyone for joining us on the call today and for your continuing interest in our company.

Keith E. Pratt: The remainder of my comments will be on a total company basis from continuing operations. First quarter selling and administrative expenses increased $2.3 million to $59.8 million. The increase was primarily the result of higher employee salaries and benefit costs, partly offset by reduced marketing and administrative costs.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation you may now disconnect.

Keith E. Pratt: Hmm.

Keith E. Pratt: [music].

Keith E. Pratt: 2024 costs included $9.4 million of transaction expenses from the pending Will Scott merger. 2023 costs included $14.1 million in Vesta acquisition and Adler divestiture related transaction costs. Interest expense was $12.7 million, an increase of $5.2 million as the result of higher average interest rates and $215 million higher average debt levels during the quarter, which was primarily the result of funding last year's acquisition. The first quarter provision for income taxes was based on an effective tax rate of 23.6% compared to 23.8% a year earlier. The decrease was primarily due to changes in business mix by state.

Keith E. Pratt: Hum.

Keith E. Pratt: Mhm.

Keith E. Pratt: [music].

Keith E. Pratt: Hum.

Keith E. Pratt: Mhm.

Keith E. Pratt: [music].

Keith E. Pratt: Hum.

Keith E. Pratt: [music].

Keith E. Pratt: Mhm.

Keith E. Pratt: [music].

Keith E. Pratt: Hum.

Keith E. Pratt: Yes.

Keith E. Pratt: Oh.

Keith E. Pratt: [music].

Keith E. Pratt: Turning to our year-to-date cash flow highlights, net cash provided by operating activities was $59 million, compared to $36 million in the prior year, and rental equipment purchases were $79 million, compared to $78 million in the prior year. In addition to continued investments in UFLEET, Healthy Cash Generation allowed us to pay $12 million in shareholder dividends. Proceeds from sales of property, plant, and equipment were also $12 million. At quarter end, we had net borrowings of $799 million, comprised of $175 million in notes outstanding and $624 million under our credit facility.

Keith E. Pratt: Uh huh.

Keith E. Pratt: [music].

Keith E. Pratt: Hum.

Keith E. Pratt: Yes.

Keith E. Pratt: Hum.

Keith E. Pratt: On April 23, the company entered into an incremental borrowing facility amendment, which provided for a $75 million term loan. This loan was used to pay down our existing bank lines of credit and creates additional borrowing capacity for general corporate purposes and working capital needs, including the front loading of our 2024 modular capital spending to support positive demand conditions and for incremental transaction expenses. The ratio of funded debt to the last 12 months' actual adjusted EBITDA was 2.43 to 1.

Keith E. Pratt: We are very proud of McGrath's strong first quarter performance, and we are fully focused on solid execution for the remainder of 2024. That concludes our prepared remarks. Now, you may now open the lines for questions.

Operator: Thank you very much, Mr. Pratt. Ladies and gentlemen, at this time, if you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question, and we will pause for just one moment to allow questions. We'll go first this afternoon to Scott Schneeberger of Oppenheimer. Scott, please go ahead.

Scott Andrew Schneeberger: Thanks very much. Good afternoon, guys. Hey, for the first question, and I have a bunch, Keith, I think you said it, but in dollar terms, and I haven't had a chance to go back and reconcile, what was the organic growth in modular versus the Vesta contribution since we were dealing with the partial quarter?

Keith E. Pratt: Yeah, on the rental revenue side, approximately 12% is organic.

Scott Andrew Schneeberger: With regard to pricing, and this is a question relating to slide 24, and I have a feeling Vesta plays into this answer here, but your units shipped over the last 12 months modular grew 9% year-over-year in the first quarter. The total portfolio, plus 18% year-over-year, I'm a little confused. So I'm in both nice numbers, but I'm a little bit confused by the magnitude of each, and I suspect it has to do with, I read in the footnote, you started including Vesta on November 23. Is that the main difference there, and could you take us through that a little bit, please, Keith?

Keith E. Pratt: Yeah, I think that is the main difference, Scott. Again, that is the data. The footnotes are important as you understand the data.

Keith E. Pratt: As you can glean from the footnotes, we're reflecting the data we have available from our systems, and Vesta was incorporated into the data capture on the 1st of November. I think the trends are still positive across the business. We are getting more revenue per unit on rent. I think that reflects a couple of things.

Keith E. Pratt: One is that units are more expensive, both to purchase and maintain, so we have to charge accordingly. Importantly, we're adding more services into the business. With some of our contracts, capturing more of the mobile modular plus services further enhances the revenue per unit.

Scott Andrew Schneeberger: All right, thanks. Some volume questions. I think Joe may have referenced that ABI has been bouncing around recently. I think he addressed it when he was speaking about portable storage containers. But just curious, what are you seeing in the demand environment for both of the two major asset classes in mobile modular about portable and in modulars since we last spoke in mid-February?

Joseph F. Hanna: Yeah, Scott, actually, as I referenced in the comments, our backlog, our rental backlog right now is very strong, and that's mostly supported by really good orders that we've received so far for education. So that's been, that's been a highlight, I think, of the quarter.

Joseph F. Hanna: Actually, not only in bookings that we made but in the actual billings, too. So that part of the business is strong. I would say a little bit more muted in the commercial construction market, just not quite the activity level that we've seen in prior years, but still, you know, hanging in there, still pretty steady. And so I would say those would be the two major differences.

Scott Andrew Schneeberger: Thanks. And Joe, you mentioned that you'd pull forward CapEx. Maybe this brings Keith into the conversation.

Keith E. Pratt: Pull forward CapEx is, I know that kind of moving away from the annual guidance here, but, is this pull forward to CapEx? Are you looking to do more, or is it just, we'll do it earlier? And it sounds like it's predominantly for education classroom modulars. Is the excess for anything else? And would you be doing actually less if not for education?

Keith E. Pratt: Yeah, Scott, this is the way I'd frame it. It's really driven by the education market. As Joe commented, education market conditions have been good for the first part of the year. But I think you'll recall the education market is seasonal. Most of the activations will be in the summer months, so we really have to frontload the CapEx to meet demand in that part of the market. We're certainly adding some fleets selectively, but I would say the new CapEx focus is much more on the education side of the business, and it needs to happen early in the year to be effective.

Scott Andrew Schneeberger: This is a question about portable storage utilization. You've only been reporting that segment separately the last two quarters, but it's been down about a thousand basis points, give or take, year over year. And we don't have the historical context prior, but what is the big difference there year over year, if you could just elaborate a little bit?

Keith E. Pratt: Yeah, Scott, I would say, you know, we have a bigger fleet, so units on rent have actually hung in there pretty well, but utilization has dropped, and we've gotten, you know, more returns than we had planned, and bookings weren't quite as strong as we had planned in the quarter, so I think that's really what you're seeing in the numbers there.

Joseph F. Hanna: And the first quarter, Joe, is the seasonally softest quarter, right?

Joseph F. Hanna: Correct. Absolutely not.

Scott Andrew Schneeberger: All right, thanks. I'm going to pivot over. I'm getting toward the end here.

Scott Andrew Schneeberger: TRS-Rentelco, still semiconductor softness. Are you seeing any signs of a turn, any visibility there? Is it still tough to call?

Joseph F. Hanna: Yeah it's still pretty tough to call and as you know you know in that business our rental terms are shorter hard to see out far over the hood there and so you know we we take it on a month by month by month basis so a little bit tough to predict right now but we're you know we're pulling all the right levers in the business to adjust for the current market condition so you know I'm pleased that the team is is taking the steps that they are to keep the business healthy

Scott Andrew Schneeberger: Any quick comments, 4G to 5G, just any progress report on that?

Joseph F. Hanna: Not really; there are no big developments there to speak of.

Scott Andrew Schneeberger: Alright, thanks, and then I'll wrap it up. Recently, a proxy was out having to do with your pending transaction with Wolfcott Mobile Mini, and it provided revenue EBITDA, EBIT, and unlevered free cash flow for the business through 2028. Just curious kind of high. I mean, obviously, that's out there publicly for all to see. What was behind kind of some of the major assumptions that you're applying, particularly to the revenue line, as that was put together?

Joseph F. Hanna: Well, I'll make a quick one. Yeah, go ahead. I'll make a quick comment.

Keith E. Pratt: And Keith can give you more color. I would say that we, you know, realize what we really wanted to do there as we put those projections together was filter in the initiatives that we have that are going into business too. And so, you know, we tried to predict further penetration of those initiatives into all the work that we're doing on a current basis. And so we rolled all that forward. Keith had, I don't know if you want to add anything to that.

Keith E. Pratt: That was going to be exactly my point, Joe, and really emphasizing that was our organic outlook for the business we own and operate. We see a lot of opportunities for it. A lot of those opportunities are based around the modular growth strategy that we've articulated over the last few years, and I think you see in today's report card that we continue to make progress in those areas.

Scott Andrew Schneeberger: Thanks, and kind of for both of you, the such-as with regard to initiatives is what you're doing with regard to add-on inside and outside the assets, and then just maybe, Keith, maybe some consideration for what type of economic outlook is. I mean, it's a five-year outlook, so are you, kind of, what type of... Kager GDP are you anticipating there? And anything else, just kind of. I assume no acquisitions are in that number, but just want to clarify. Thanks.

Keith E. Pratt: Yeah, all organic, no acquisitions. When we put together any forecast, we really begin by looking at the overall economic backdrop. We review published studies that are out there, and then we look at specific studies that are related to important end markets that we serve, so things like ABI, construction spending, and the like, outlook for school spending, school enrollment, all those kinds of things we'll take a look at as we formulate our forecast. And what we do is we develop the forecast with the information that is most current at the time it's put together.

Scott Andrew Schneeberger: Great. Thanks. I appreciate that. That's helpful. One more I'm going to sneak in. Just a real estate sale. Can you share a little bit more color on that? And I'll turn it over. Thanks. Yeah, Scott, as you know, for certain key

Keith E. Pratt: Scott, as you know, for certain key operating locations, we may own our property across our businesses. In this particular instance, this is a property where Adler Tank Rentals was the division that used the property, and obviously, we divested that business last year. We had an opportunity to sell the property and can use that capital to redeploy it into the modular side of the business. Sounds good. Thanks, guys.

Scott Andrew Schneeberger: Thank you. We go next to Marc Riddick of Sidoti.

Marc Frye Riddick: So I was wondering if you could sort of take us back to the strength of education for a moment because I think it's kind of interesting, the commentary there, that things were looking pretty good already as we got to the end of last year in that space. So can you maybe just take us through maybe a couple of put and takes as to what was stronger than what you expected, whether it was a mix issue, or a pricing issue, like what was it that really kind of bumped up education maybe a little faster than you maybe were expecting at the end of the year?

Joseph F. Hanna: Sure. I would say that really the main driver of our education business is the amount of money that's out on local bond measures and state bond measures. Primarily, what we're seeing now is more local bonds, and so when those go out on the ballot for election, they pass by a nice majority usually, and those are significant bonds that pass in these municipalities for modernization and for growth projects. And over the past year or so, a lot of those have passed, and that money is now being deployed in the market right now, and we're positioned very nicely to take advantage of it. And it's really solid execution, our relationships with our education clients that really bring those projects to fruition, so we're very pleased with how that market has developed.

Joseph F. Hanna: So it's the funding availability that has sort of been building in the last couple of years; folks are now more comfortable with releasing funds and sort of putting that to work. Is that particularly in California and or Texas? Are there any particular areas that you're seeing that, or is it kind of across the board?

Joseph F. Hanna: It's across the board. You're absolutely right. That money's being deployed, and it's across the board.

Joseph F. Hanna: Excellent, excellent. And then, you talked about, you know, sort of bringing forward some of the CapEx to sort of address that. And obviously, there's the seasonal nature and the timing of when, you know, those will be delivered. Do you get any sense of any supply chain concerns as to what you'll need or how we should think about that?

Joseph F. Hanna: I would say supply chain issues. We manage that very carefully. We have excellent relationships with our suppliers. We work with them to reserve line time, and we're not seeing that being a hindrance to us at all for this year. It's been tight in prior years, not quite as tight this year, but like I said, we manage it very carefully, and I think we're in very good shape there with our suppliers.

Keith E. Pratt: Okay, excellent. And then finally, it seems as though the pricing dynamic that you guys have been working on for quite some time continues to generally move in the right direction. I was wondering if you could talk a little bit about those efforts and kind of, you know, if there are any pieces that we should be aware of that maybe we haven't had a chance to talk about as much lately.

Keith E. Pratt: Yeah, Marc, as we commented earlier, the goal here is to deliver more value to the customer. We're achieving better revenue per unit deployed. That's partly because of the services emphasis, but it also reflects the higher cost of new equipment and the higher cost of maintaining equipment and getting it rental ready. So this is all about protecting our economy. We've talked about that over the last few years. And I think our teams have done really good work addressing those issues, and that's reflected in the numbers.

Marc Frye Riddick: And then I guess the last one for me, given what's taking place, I just wanted to talk a little bit about how you see the labor market and development. I think the entire time I've covered you, I've always worried about not being able to get enough drivers, and I would imagine that could be something that could be on the table as well. But maybe you could talk a little bit about the labor market and what you're experiencing.

Joseph F. Hanna: Actually, this year, we've been able to fill open positions pretty effectively. You're right.

Joseph F. Hanna: The driver market is typically one that's very, very tight. We're not experiencing any specific issues right now in filling those roles. I feel very good that we have the right people at the right places in the company to get the job done that we need to right now. I think we're in pretty good shape.

Marc Frye Riddick: Excellent. Thank you very much.

Joseph F. Hanna: Ladies and gentlemen, that appears to be the last question. Let me now turn the call back over to Mr. Hanna for any closing comments.

Joseph F. Hanna: I'd like to thank everyone for joining us on the call today and for your continuing interest in our company.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.

Operator: ?? ¶¶ ¶¶ ¶¶ ¶¶ ¶¶ ¶¶