Q3 2024 McGrath RentCorp Earnings Call
The Sons of the World
[inaudible]
Speaker Change: Please stand by your program as about to begin. If you need assistance during your conference today, please press star zero.
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the McGrath Rint Corp. 3rd quarter, 2024 earnings call. At this time, all conference participants are now listening 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 one on your telephone keypad.
Speaker Change: This conference call is being recorded today, Thursday, October 24, 2024.
Speaker Change: Before we begin, note that the matters of the company management will be discussing today that are not statements of historical facts.
Speaker Change: Our forward-looking statements with the meaning of the private securities litigation reform act of 1995, including statements relating to the company's expectations, strategies, prospects, backlog or targets.
Speaker Change: These four-leking 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.
Speaker Change: In Forten factors that could cause actual results to different materialy from the company's expectations or disclose under risk factors in the company's form 10K and other SEC filings.
Speaker Change: For the King Statements are made only as the date hereof. Except as otherwise required by law, we assume no obligation to update any forward-looking statements.
Speaker Change: In addition to the press release issue today, the company also filed with the SEC the earnings release on Form 8K and its Form 10Q for the quarter ended September 30, 2024.
Speaker Change: Speaking today we'll 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 sir.
Joe Hanna: Thank you Jeffs. Good afternoon everyone and thank you for joining us on our call today. It has been quite an eventful quarter.
Joe Hanna: On September 18th, we announced that we had mutually agreed to terminate our pending acquisition by Will Scott. In accordance with the terms of the merger agreement, the graph received a termination fee of $180 million.
Joe Hanna: From the announcement of the merger in January 2024, we navigated a nine-month period where our graph operated as a company anticipating being acquired.
Joe Hanna: Needless to say, this stretch was an unfamiliar operating environment for our company.
Joe Hanna: We maintained our independent competitive positioning in the marketplace throughout this period. My direction to our teams was very simple. First, stick to our strategy and execute as we have always done.
Joe Hanna: Second, deliver our financial plan and keep the company healthy.
Joe Hanna: Through the nine-month period across the company we kept our teams together, found ways to reduce cost and to enhance revenue streams and supported one another throughout.
Joe Hanna: I truly think it is a testament to our strong culture and the dedication and commitment of our team members to each other and to our customers that we lost very few people to turn over through this challenging period.
Joe Hanna: I could not be proud of everyone's accomplishments during such an uncertain time.
Joe Hanna: With that, we are back to normal, quarterly earnings, reporting and discussion. So let's turn now to our latest results.
Joe Hanna: For the third quarter, total company revenues increased 10% and adjusted Eva Daw increased 13%.
Joe Hanna: The modular business performed very well, while our portable storage and TLS businesses experienced market demand headwinds during the quarter.
Joe Hanna: Mobile Modular had a strong quarter with rental revenues growing 9% and sales revenues growing 14%.
Joe Hanna: Both are commercial business and our education rentals grew during the quarter.
Joe Hanna: The commercial wins we experienced were geographically broad-based and at a wide variety of market verticals, including government and technology.
Joe Hanna: Our Education Business benefited from modernization and growth projects and encompass both public and private school customers.
Joe Hanna: We maintained our focus on solid execution, our team actively managed pricing, fleet utilization, and deployment of new fleet.
Joe Hanna: Consistent with recent ABI data and other macro indicators of construction-related demand, we experience some delays in softness in the demand environment.
Joe Hanna: Utilization dips slightly year over a year and ended a quarter at 76.5%. We still consider this to be a healthy range.
Joe Hanna: Based on quote volumes and bookings, we have opportunities to improve this number. In addition to our core rental revenue drivers, we also continue to expand our revenues in the services portion of our customer offerings.
Joe Hanna: Revenue is from Mobile Modular Plus, site-related services, and custom modular sales all grew in the quarter. And we remain excited about the opportunities, these additional services offer our customers.
Joe Hanna: Turning to our portable storage business, rental revenues declined by 11% in the quarter from a year ago.
Joe Hanna: Reason ABI data and other macro indicators of construction-related activity reflect delays and softness in the demand environment.
Joe Hanna: Les Activity in Commercial Construction, driven by interest rate headwinds appears to be a primary factor driving our portable storage decrease.
Joe Hanna: Shipments for new projects were below expectations and returns were higher than planned, as projects completed and were not replaced as quickly.
Joe Hanna: The effect was widespread across our geographies and not concentrated in any one area.
Joe Hanna: At T.R.S. Rintelco, Renew Avenue is declined by 10%, with both our general purpose and communications and Renew Avenue's impact.
Joe Hanna: This reflected the continuing industry wide slowdown in test and measurement equipment markets both at OEM and rental equipment providers.
Joe Hanna: We took appropriate measures in the quarter to continue to keep the business on a stable footing. We sold excess equipment and scaled back purchases of new equipment.
Joe Hanna: Shifting gears beyond a third quarter, I would like to take a moment now to comment about the Heline and Milton hurricanes. Our operations are secure and we are up and running in all locations with negligible disruption.
Joe Hanna: Despite the extensive regional storm damage and heartbreaking photos in coverage of these natural disasters, events like this are typically not a big needle mover form of graph.
Joe Hanna: Near-term, the storms in some cases could have a negative impact with delays to customer projects, either in the field now or planned.
Joe Hanna: Also, until recovery efforts reach further stages, we are not anticipating much in the way of new business opportunities for McGraft.
Joe Hanna: Nevertheless, we are positioned to provide both space and storage for customers who need it. We will likely know more about any new storm related demand in the months ahead as recovery operations continue.
Joe Hanna: Continuing to look ahead for the fourth quarter and beyond 2024, there is clearly uncertainty in the overall demand environment.
Joe Hanna: Soft a man that we have been experiencing our portable storage and TLS businesses may continue into 2025.
Joe Hanna: at Mobile Modular, our range of growth initiatives and positive pricing dynamics should remain positive and help to offset any market demand softness.
Joe Hanna: With the interstrates projected to ease in the quarters ahead, we are cautiously optimistic that demand conditions may improve, although that could take time, and we will likely be well into 2025 before we see results.
Joe Hanna: That said, long term, I could not be more positive about the prospects for our growth and continued execution of our strategy.
Joe Hanna: Our efforts to grow our modular business both organically and by strategic acquisitions continue to produce encouraging results.
Joe Hanna: with our broader geographic coverage from our new branch locations and acquisitions, we have plenty of opportunities to make further fleet investments to serve customers. We have run way to continue to grow for many years ahead.
Joe Hanna: Our pricing disciplines and processes are robust and as the fleet turns over, we will have a revenue tailwind.
Joe Hanna: The initiative that we started, namely mobile modular plus, site-related services, and custom modular sales, are adding value for our customers and growing.
Joe Hanna: We have a large diverse and high quality customer base across commercial and education markets.
Joe Hanna: Our commercial opportunities are broad and include mega projects, government infrastructure and data center growth.
Joe Hanna: We believe our education business has a multi-year period of continuing school modernization needs.
Joe Hanna: New Construction to support shifting student populations.
Joe Hanna: and Growth Opportunities in private schools and charter schools. And we are well positioned to serve those customers across multiple geographies.
Joe Hanna: Our portable storage business not only has markets we are in that we are early in their growth phase but also many new markets for us to enter over time, representing future growth potential.
Joe Hanna: Our TRS business is a leading technology provider with the ongoing demands for more bandwidth and faster speeds and devices we use every day. We see a positive path ahead for the business to recover.
Joe Hanna: In summary, we believe our multi-year opportunity to bring additional value to our customers, through expanded service offerings, and are committed to continuing to increase our customer base and geographic coverage.
Joe Hanna: We remain committed to building long-term shareholder value through sound strategic focus, discipline, capital allocation, and consistent execution.
Joe Hanna: A graph is on a strong footing as we emerge from the terminated merger agreement. Sometimes companies emerging from a terminated merger process are damaged. We are not.
Joe Hanna: Fundamental to our success is a culture that I am genuinely honored to be a part of. Our team members care about our customers and each other unlike anything I have seen in my 34 years of business experience.
Joe Hanna: There will to serve and lean in with the driver of our success through an uncertain period. And I'm quite sure that coupled with our strategies and execution plans in place today.
Joe Hanna: We have what it takes to move a graph to another level of growth and performance. We will be focused on doing just that, benefiting our shareholders, customers, partners, and team members along the way.
Joe Hanna: I would like to once again thank our team members and leaders for the outstanding job each of you has already done this year. We are focused as a team on a solid finish to 2024.
Joe Hanna: With that, I'd like to turn the call over to Keith who will take you through the financial details of our quarter and our outlook for the full year.
Keith Pratt: Thank you, Joe and good afternoon everyone.
Keith Pratt: As Joe highlighted, we delivered very good results in the third quarter driven by the performance of our mobile modular business.
Keith Pratt: Looking at the overall corporate results of the third quarter, total revenues from continuing operations increased 10% to 267 million and is just to leave it down increased 13% to 104 million.
Keith Pratt: During the third quarter, the company received a $180 million payment from Will Scott Mobile Mini, attributed to the termination of the previously announced merger agreement.
Keith Pratt: The transaction costs incurred during the quarter due to the nigh terminated merger process were 39 million.
Keith Pratt: The proceeds received partly offset by the transaction cost incurred and an increase in provision for income taxes resulted in a 104 million net income contribution during the quarter.
Keith Pratt: or $4.21 for diluted chair.
Keith Pratt: Reviewing mobile modular operating performance has compared to the third quarter of 2023.
Keith Pratt: Mobile Modular had an impressive quarter as we continued to make progress delivering on our mobile modular business growth strategy.
Keith Pratt: I just did Eva Tau increase 23% to 71.4 million.
Keith Pratt: and Total Revenue's increased 13% to 1951.4 million.
Keith Pratt: There were increases across all operational revenue streams.
Keith Pratt: including 9% higher rental revenues.
Keith Pratt: 23% higher rental related services revenues and 14% higher sales revenues.
Keith Pratt: He sales revenue's increase with primarily due to higher new equipment sales and demonstrated good progress with our initiatives to grow modular sales projects.
Keith Pratt: Rental margins were 62% up from 59% a year ago.
Keith Pratt: Primarily, because of the rental revenue growth and the lower inventory center costs.
Keith Pratt: We continued our discipline-free management on a larger fleet with 5% higher average rental equipment on rent
Keith Pratt: and average fleet utilization of 77.1%.
Keith Pratt: from Purchase 79.9% a year or go.
Keith Pratt: Third quarter, months-we revenue per unit on rent, increased 18% year over year to 820 dollars.
Keith Pratt: or New Shipments over the last 12 months. The average monthly revenue per unit increased 16% to 1,191 dollars.
Keith Pratt: Plagrants with mobile module are plus, is embedded in these data points, and is an additional growth driver.
Keith Pratt: We continue to make progress with our modular services offerings.
Keith Pratt: So the third quarter, Mobile Module or Plus revenues increased to 7.9 million from 7.6 million a year earlier. And cycloated services increased to 12.8 million up from 10.1 million.
Keith Pratt: Turning to the review of portable storage.
Keith Pratt: adjusted even to offer portable storage with 10.8 million, a decrease of 10% compared to the prior year.
Keith Pratt: The man conditions during the quarter were weaker, primarily because of lower commercial construction project activity.
Keith Pratt: Kyrs sales revenues partly offset rental weakness resulting in a total revenue decrease of 11% to 23.1 million.
Keith Pratt: Rental revenues for the quarter decreased 11% to 17 million and rental margins were 86% compared to 84% a year ago.
Keith Pratt: Average Wentful Equipment on Rent, D.C. 12%, while average utilization for the quarter was 62.8%. Approach to 76.5% a year ago.
Keith Pratt: We responded to the software market demand conditions by reducing new equipment capital spending and perfectly managing operating costs.
Keith Pratt: Turning on to the review of TLS Rental Co. Adjusted Ebit Ga, was 18.9 million. A decrease of 10% compared to last year, and total revenues decreased 11% to 34.8 million.
Keith Pratt: rental revenues for the quarter decreased 10% as the industry experience continued and market weakness.
Keith Pratt: Average utilization for the quarter was 57.3% compared to 59.4% a year ago and rental margins were 37% compared to 40% a year ago.
Keith Pratt: Bill's revenues decreased 13% to 7.6 million and gross margins were 52% compared to 35% a year ago.
Keith Pratt: To address the software business conditions, we continue to reduce new equipment capital standing.
Keith Pratt: and I focused on sales of used equipment, reduced fleet size and carefully managed operating costs.
Keith Pratt: Total heat value based on our original cost of equipment with 357 million at the end of September 911 million from the second quarter and 926 million from a year ago.
Keith Pratt: The remainder of my comments will be on a total company basis from continuing operations.
Keith Pratt: 3rd quarter, selling and administrative expenses increased 0.8 million to 49.3 million.
Keith Pratt: During the quarter, the company determined that transaction costs totaling 39 million, attributed to the terminated merger agreement, were not operating, and therefore were excluded from selling at administrative expenses.
Keith Pratt: Interest Expans was 12.6 million, an increase of 1.6 million as the result of higher average interest rates and higher average death levels during the quarter.
Keith Pratt: The third quarter provision for income taxes was based on an effective tax rate of 26.4%. Compared to 27.3% a year earlier.
Keith Pratt: The decrease was primarily due to changes in business next by state.
Keith Pratt: Turning to our year-to-day cash flow highlights.
Keith Pratt: Net Cash provided by operating activities was 338 million compared to 119 million in the prior year.
Keith Pratt: The increase was primarily attributed to the 180 million payment received from well-scot mobile many, that of 61 million transaction costs.
Keith Pratt: Wrenful equipment purchases were 167 million compared to 171 million in the prior year.
Keith Pratt: New equipment purchases were primarily for the modular business, as we reduce spending at T.R.S. and portable storage in response to softer demand conditions.
Keith Pratt: In addition to investments in new fleet, healthy cash generation allowed us to pay 35 million in shareholder dividends.
Keith Pratt: at Porterhand, we had net borrowings of 609 million and the issue of funded dance since the last 12 months of Justin Ebertoff was 1.75 to 1.
Keith Pratt: Finally, our 2024 Financial Act Look.
Keith Pratt: For the full year, we currently expect results from continuing operations to be total revenue between 910 and 920 million.
Keith Pratt: I just did EBITDA between 345 and 351 million.
Keith Pratt: Rose Twenthal equipment capital expenditures between 180 and 190 million.
Keith Pratt: Our I-Click reflects the following expectations for the final quarter of the year.
Keith Pratt: modular rental revenues up slightly from the third quarter.
Keith Pratt: Modular rental related services revenues at a level comparable to the second quarter.
Keith Pratt: We expect fewer psychrelated services projects in the fourth quarter compared to the seasonally busier third quarter.
Keith Pratt: Modular sales revenues donned slightly from the third quarter.
Keith Pratt: Overall performance at TRF and portable storage below 3rd quarter levels.
Keith Pratt: Reflecting demand, market softness and seasonality.
Keith Pratt: Total McGrath, selling and administrative expenses, excluding expenses related to the Merger Transaction, up sequentially from the third quarter.
Keith Pratt: Interest Expans, but approximately 10.5 to 11 million.
Keith Pratt: and
Keith Pratt: In summary, McGrath is on a solid financial footing.
Keith Pratt: We remain committed to building long-term shareholder value through signed strategic focus, disciplined capital allocation, and consistent execution.
Keith Pratt: Despite distractions from the merger process,
Keith Pratt: and challenging and market demand conditions for two of our businesses.
Keith Pratt: We have delivered this long year to date results.
Keith Pratt: and we are fully focused on solid executions of the remainder of the year.
Keith Pratt: That concludes our prepared remarks.
Speaker Change: Jeff, you may not open the lines for questions.
Jeff: Thank you. At this time if you would like to ask a question, please press 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. We'll pause for a moment to allow questions to queue.
Speaker Change: We'll go first to Scott Schneeberger with Oppenheimer. Your line is open, please go ahead.
Scott Schneeberger: Thank you, good afternoon, Joe and Keith.
Scott Schneeberger: I'm going to start in Mobile Modular with the end-market commercial and education. You mentioned both are up in rental and it sounds good. Could you give us a sense of the magnitude? I would imagine education is a good bit stronger, but can you give us a sense of the magnitude of how much each of them is up?
Speaker Change: Sure Scott actually was pretty balanced for the quarter. There was...
Speaker Change: Not a big divergence there as far as how those both those segments performed. I think education was up 10% and commercial was up 8% for the quarter. So pretty pretty balanced.
Scott Schneeberger: and could we speak to Pratt's versus volume with regard to that? It looks so good we saw the...
Speaker Change: The charts in the deck that you're still getting very strong pricing. I guess so there's two questions in this. One due anticipate strong pricing to continue in the next year, something to demand environment solid and then how was the price volume split?
Speaker Change: Yeah, I would say I'll answer the first part and Keith can follow up. I would say we are, we have a nice tail wind there. Our pricing efforts have paid off for us and we anticipate that same dynamic will go into next year.
Keith Pratt: Yes, Scott, just in terms of Christ volume pricing overall remains healthy. We've also been working hard as you know to add in additional services to contracts, so that helps with the statistics.
Speaker Change: on Revenue per unit on rent. So we're making progress there. You'll see in some of our published statistics.
Speaker Change: that the value of equipment on rent increased for the third quarter compared to a year earlier, was up about 5%. Having said that, there is a dynamic as we turn the fleet and we introduce newer assets that are more expensive units on rent were actually done slightly year over a year. So there's a lot of moving parts there, a lot of mixed issues as well, but those are some of the dynamics that we saw in the third quarter.
Scott Schneeberger: Thanks, Keith, it's following on that memo mootunotus segment, but the...
Scott Schneeberger: How was your quoting activity in your deliveries there? I realized this time of year for classrooms, probably quiet until you get to the first quarter and also for commercial modulars. But with type of trends are you seeing there, maybe on a year or a year basis, or however you care to comment.
Speaker Change: Yes, Scott actually quote volumes and opportunities.
Speaker Change: Resulting from those quotes were up very nicely in the quarter. I'm talking, you know, some of that was influenced by the addition of Vesta.
Speaker Change: but...
Speaker Change: We're in the double digit range very easily there and so we were very encouraged and that has remained strong virtually the entire year so far.
Speaker Change: Great, thanks so appreciate that on y'all
Speaker Change: Over-importable storage obviously a little bit more, as it will be pressure-ditch.
Speaker Change: Could you answer the same question please either want to you on the quoting and deliveries?
Speaker Change: and specifically I kind of missed it Keith. You said something about...
Speaker Change: and fourth quarter, just now in the guide, portable fourth quarter versus third quarter, it did expect to be down despite these, you know, I know you don't do a lot of these and a relative to maybe some others in the industry, but if you could just speak to that trend. Thanks.
Speaker Change: Yeah, just to start with your last comment, Scott. Yes.
Speaker Change: If you plot a chart and just look at the Wenco Raving Use It Portable Storage this year
Speaker Change: They've actually gone done as we went to one to Q2 to Q3. It's disappointing. It reflects the very difficult demand conditions we've seen there. And at this point, we don't see any change around those demand pressures. So we think the fourth quarter, most likely we will see rental revenues lower than the third quarter, and therefore overall performance.
Speaker Change: of that part of the business we would expect to be lower than Q3.
Speaker Change: So that's sort of the first comment. We're not necessarily going into all of the percentage detail. If you look at the drop in rental revenues in Q3, we saw similarly a reduction in cold opportunities, reductions in bookings, reductions in shipments.
Speaker Change: All the metrics were consistent with a difficult demand environment and similar to some of the comments we made, I think at the end of Q2. So, difficult conditions and definitely what we experienced.
Scott Schneeberger: Thanks, Keith. Is this one more in that segment? Give me everything you just said. How's the pricing environment? Just any elaboration on that topic, thank you.
Speaker Change: Yeah, pricing has we've had to reduce slightly but we've really worked to hold our pricing as much as possible. And so I haven't seen a significant deterioration there Scott.
Speaker Change: and thanks for your interview.
Scott Schneeberger: I guess you'll for you. The standard questions. One, if you could speak to what you're seeing with regard to semiconductors and 5G. Then the last question on this segment would be...
Speaker Change: This has been a pretty prolonged cyclical downturn. Could you speak to the duration of past downturns and how you compare a contract that is if possible.
Speaker Change: Sure. As we reported earlier in the year, the weakness that we had first seen in the business was with semiconductor computer and semiconductor part of the business, but that is actually spread a bit. It is now we're seeing
Speaker Change: Sloanus in the wireless part of the business and that's mostly, you know, tower work and things like that that the service providers.
Speaker Change: are doing outside and we're just seeing less of that than we had anticipated.
Speaker Change: Wired communications on the other hand, which is supporting all of the bandwidth requirements for data centers and things like that has actually been very strong. So we're seeing two different kind of mixes in that business.
Speaker Change: To address your question about longevity. This has been a longer downturn than typically we've seen. And so we'd like it to turn. We think it will turn. One of the things notable in the business that I think is worthy of mentioning is that
Speaker Change: you know from a sequential quarter over quarter basis.
Speaker Change: The business has been performing in a very narrow band, so we really haven't seen a deterioration there as the year progresses. So I have to hope that we're in a kind of a situation right now where things have leveled out and that we have upside ahead of us.
Scott Schneeberger: Thanks, and then last one for me is just on the $180 million cash inflow, Keith, you quantified it on the call as...
Speaker Change: Post, you know, your legal and other expenses and post taxes. I think it was $104 million left over. How is that going to be applied across the business?
Speaker Change: Sure Scott and I just want to expand upon your comment and you're absolutely right with what we said regarding the third quarter results.
Speaker Change: and the contribution that we got related to the $180 million of our termination fee.
Speaker Change: But if you look at it more broadly and go back all the way to the fourth quarter when we began to incur transaction-related expenses, you may recall we just closed approximately 2 million of expense.
Speaker Change: Back in that quarter and then we had additional expenses in the first and second quarter of this year. Really the entire journey of the transaction process caused us to incur 63 million in expenses.
Speaker Change: and if you take that number against the 180 million and then apply a tax rate to the sort of gain that we had, really the net proceeds to the graph are much closer to 86 million. So that's the first comment. Everything you said was right about the third quarter. I like to look at it in terms of the overall economic impact on the graph. When we look at the full journey that would be known with the terminated transaction. [inaudible]
Speaker Change: In terms of what we do with the money, a couple of comments, I think the first thing to keep in mind is we just got the funds slightly over a month ago and we're assessing our options.
Speaker Change: If we look at the business, really it gives us a little bit more flexibility in terms of our capital allocation choices. We routinely look across the business and look at all the normal areas for capital allocation. We start with organic investment in the business.
Speaker Change: We look at our M&A opportunities in the landscape that can complement what we're doing organically. Obviously, we have a long track record with our shareholder dividends and increasing those dividends. And then periodically, we look to repurchase our shares.
Speaker Change: So, any excess capital in the near term that is not immediately allocated to one of those areas is used to pay it on debt, and that's what we did at the end of the third quarter. But we'll be looking at those normal areas of capital allocation as we go forward, and we will try to make wise choices that benefit the shareholder over the long term.
Speaker Change: Great, thanks Keith, and I appreciate your clarifying that over the life of the endeavor with Will Scott.
Speaker Change: A final question on that, are all the costs that you anticipate to incur related to that done as of third quarter or might there be some trickle into the fourth quarter and was that counted in your $86 million net?
Speaker Change: Yeah, substantially all the costs we believe have been incurred at this point.
Speaker Change: Alright, great. Thanks for filling in all my questions. I'll turn it over.
Speaker Change: We will move next to Mark Riddick with SIDDHOTI.
Speaker Change: Have a good afternoon.
Mark Riddick: Hi Mark. Hi Mark. So I just wanted to follow up on on the uh and I appreciate all the commentary you've already provided. Wanted to talk a little bit about uh the the debt reduction that did take place. Uh I wonder if you could um sort of give us a little um additional uh commentary around the the magnitude and what was taken I guess very at the very end of the the quarter or how how should we think about the debt reduction from from um the end of 2Q to 3Q and maybe the timing what we've got there.
Speaker Change: Yes, so we announced the termination of the merger process on September 18th.
Speaker Change: We promptly received the funds per the merger agreement from Will Scott.
Speaker Change: Gap
Speaker Change: in the third quarter, and that is reflected on the balance sheet. So, you know, if you look at where we are at the end of the third quarter, that's really net of all of that activity. The only item, if you look into the details, is that we will have some higher cash taxes.
Speaker Change: in the fourth quarter. There'll be a few tens of millions there, but the fourth quarter is also a quarter where typically we have much lower rental capex expenditure and generally higher cash flows. So if you want to sort of look ahead and look at debt levels for the fourth quarter and year end, I would say they're gonna be comparable to what we saw at the end of Q3.
Speaker Change: Okay, and that sort of then brings me to the...
Speaker Change: How should we be thinking about things going forward and then maybe could talk a little bit about the potential of ramping up of Acquisition pipeline which was sort of you know you guys have been on the sidelines on that during this process So wonder if you could talk a little bit about those opportunities, maybe and you know the opportunity to start doing that again
Speaker Change: Sure, and I'll let you comment maybe on the broader, you know, how we think about M&A work But just in terms of leverage we ended the quarter 1.75 Keep in mind with our loan agreements. We have a cap of 2.75 So from a leverage point of view, we're extremely comfortable. We're very comfortable running the business in the twos
Speaker Change: And again, we look at that as we look at strategic opportunities and capital allocation. It's just one of the factors we weigh as to when we pull the trigger on M&A or any other big initiatives.
Speaker Change: that are, you know, more sporadic in nature, but very comfortable with leverage at the end of Q3. It really speaks to the fact the company's on a very sound financial footing as we exit this process that we've been through.
Speaker Change: Yeah, Mark, I can kind of comment on our M&A strategy. We're in the process of, you know, updating our priorities there. However, as in the past,
Speaker Change: a continuing viable option for us.
Speaker Change: to either, you know, grow in areas that we are not present in or grow in areas that we have perhaps a newer footprint and could use.
Speaker Change: an acquisition to help build out that area. But we will follow the same guidelines that we have followed in the past. We look for good quality businesses at fair prices, and that's exactly what our strategy would be moving forward.
Speaker Change: Excellent, thank you. And then I was wondering if you could talk a little bit about you know having gone through this process and and I appreciate your commentary around the
Speaker Change: The strength in the culture, and everything that your employees were able to shoulder in this process. Why don't you talk a little bit about those steps.
Speaker Change: So, I'm going to turn it over to Keith to talk a little bit about what you're looking at as far as internal hiring needs or any areas that you might want to be sort of re-looking at or if there are any places that maybe you may not have been active in during the course of the year that you'd like to sort of pick up as far as internal investment-wise, whether it's technology spend or anything like that. Are there any sort of areas that we should be thinking about going forward?
Keith Pratt: Sure, you know we we we are there are some positions that we had
Keith Pratt: put on delay essentially because of the merger agreement and we're going to start hiring those and that really varies across the business. Some sales positions, some operational positions that we'll staff for, but nothing, you know, we
Keith Pratt: We haven't had a significant decrease at all
Keith Pratt: in turnover, or in the number of folks that we had lost during the process.
Keith Pratt: It's not like we're operating from a deficit there.
Keith Pratt: And so I think in terms of other investments that we make, we perhaps delayed some investments in real estate. We put some IT initiatives on a slower path.
Keith Pratt: We'll get those projects going again, but nothing significant to report at this time.
Keith Pratt: Okay.
Speaker Change: And Mark, just to help you with one of the comments that I made in the prepared remarks regarding SG&A being higher in the fourth quarter than the third quarter this year. If you just think of things like hiring, it's a lot more difficult to make hiring.
Speaker Change: are actually achieve hiring in a period where there's a pending acquisition. So, if you think of where we were in January, we had a few positions we would have liked to hire over the course of the year to support business growth.
Speaker Change: And in addition, like in any normal year, we have some turnover. If you look at the net effect of that, we're running with open positions in the organization that we're not very actively filling, and it's not easier to fill them because we're clearly an independent company, and we're charting our future here. So there's been a little bit of pent-up demand to do that, and that will be reflected on the expense side with some increase in that area. All normal for running the business.
Speaker Change: Excellent, thank you very much.
Scott Schneeberger: Thanks, Mark.
Speaker Change: Ladies and gentlemen, that appears to be the last question. Now let me turn the call back over to Mr. Hanna for any closing remarks.
Joe Hanna: I'd like to thank everyone for joining us on a call today and for your continuing interest in our company. We look forward to speaking with you again in late February to review our fourth quarter results.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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Speaker Change: Rockin' arms in the air My favorite thing was the double row In the clouds, right where it's dried Since we drive through the rain We would pick a fire and make a ash It would be just like the fast They built by son Convicts in Reichswerda Red shoes, they'd put on The old��도 But darlin', you shoulda seen them I'd shoot when they put their guns A shot in the head We'd chop off a man
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Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorps third quarter 2024 earnings 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 1 on your telephone keypad.
Speaker Change: This conference call is being recorded today, Thursday, October 24, 2024.
Speaker Change: Before we begin, note that the matters that 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, backlog, or targets.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Forward-looking statements are made only as the date hereof.
Speaker Change: Except as otherwise required by law, we assume no obligation to update any forward-looking statements.
Speaker Change: In addition to the press release issued today, the company also filed with the SEC the earnings release on Form 8K and its Form 10-Q for the quarter ended September 30, 2024.
Speaker Change: 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 sir.
Joe Hanna: Thank you, Jeff.
Joe Hanna: Good afternoon, everyone, and thank you for joining us on our call today.
Joe Hanna: It has been quite an eventful quarter.
Joe Hanna: On September 18th, we announced that we had mutually agreed to terminate our pending acquisition by Will Scott.
Joe Hanna: In accordance with the terms of the merger agreement, McGrath received a termination fee of $180 million.
Joe Hanna: From the announcement of the merger in January 2024, we navigated a nine-month period where McGrath operated as a company anticipating being acquired.
Joe Hanna: Needless to say, this branch was an unfamiliar operating environment for our company.
Joe Hanna: We maintained our independent competitive positioning in the marketplace throughout this period.
Joe Hanna: My direction to our teams was very simple.
Joe Hanna: First, stick to our strategy and execute as we have always done.
Joe Hanna: Second, deliver our financial plan and keep the company healthy.
Joe Hanna: For more information, visit www.FEMA.gov
Joe Hanna: I truly think it is a testament to our strong culture and the dedication and commitment of our team members to each other and to our customers that we lost very few people to turnover through this challenging period.
Joe Hanna: I could not be prouder of everyone's accomplishments during such an uncertain time.
Joe Hanna: With that, we are back to normal quarterly earnings reporting and discussion. So let's turn now to our latest results.
Joe Hanna: For the third quarter, total company revenues increased 10% and adjusted EBITDA increased 13%.
Joe Hanna: The modular business performed very well, while our portable storage and TRS businesses experienced market demand headwinds during the quarter.
Joe Hanna: Mobile Modular had a strong quarter with rental revenues growing 9% and sales revenues growing 14%.
Joe Hanna: Both our commercial business and our education rentals grew during the quarter.
Joe Hanna: The commercial winds we experienced were geographically broad-based and at a wide variety of market verticals, including government and technology.
Joe Hanna: Our education business benefited from modernization and growth projects and encompassed both public and private school customers.
Joe Hanna: We maintained our focus on solid execution.
Joe Hanna: Our team actively managed pricing, fleet utilization, and deployment of new fleet.