Q1 2025 McGrath RentCorp Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the Mcgrath rent Corp, first quarter 'twenty to 'twenty five earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
Speaker Change: At that time, if you have a question you will need to press the star key followed by the one key on your telephone.
Speaker Change: This conference call is being recorded today Thursday April 24th 2025 before.
Speaker Change: Before we begin note that the matters the company manage I'll 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.
Speaker Change: Including statements relating to the company's expectations strategies prospects 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, 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 8-K, and its Form 10-Q for the quarter ended March 31st 2025.
Speaker Change: Speaking today will be Joe Hanna Chief Executive Officer, and Keith Pratt Chief Financial Officer.
Speaker Change: I will now turn the call over to Mr. Hanna. Please go ahead Sir.
Speaker Change: Thank you Jeff Good afternoon, everyone and thank you for joining us today for Mcgrath Bancorp's first quarter 2025 earnings call.
Speaker Change: I am pleased to report on our performance over the past quarter.
Speaker Change: To provide an update on our outlook for this year.
Speaker Change: I will also address current economic conditions and the possible effects of tariffs on the business.
Speaker Change: First I will review our quarterly results for the quarter total company revenues increased 4%.
Speaker Change: Adjusted EBITDA increased 3% compared to a year earlier.
Speaker Change: This performance was driven by continued progress from our modular strategic growth initiatives as well as some recovery at Trs.
Speaker Change: Mobile modular rental revenues grew 3% both.
Speaker Change: Both commercial and education rentals were positive the commercial wins, we experienced were geographically broad based and in a wide variety of market verticals, including government technology and health care.
Speaker Change: We continue to win education business in both public and private school across all our geographies.
Speaker Change: The architectural billing index data and other macro indicators of construction related demand continued to indicate some weakness and some project delays.
Speaker Change: Our quote activity was up for the quarter, while new rental bookings were below the prior year due to the softer construction market.
Speaker Change: This reflects longer close cycles, and some mix shift.
Speaker Change: Sales revenues were lower for the quarter, reflecting typical quarter to quarter variability, our new modular sales growth initiatives continued to be on a positive trajectory as we see more acceptance of modular solutions for construction projects across many market segments.
Speaker Change: Mobile modular plus and site related services performed well and saw healthy increases in the quarter, helping to offset lower units on rent.
Speaker Change: Turning to our portable storage business rental revenues declined by 13% in line with what we expected and reflecting ongoing commercial construction softness we entered the year with a rental revenue run rate that was below the start of 2024 and it will take some time.
Speaker Change: For it to recover.
Speaker Change: At Trs <unk> telco rental revenues grew slightly we had an encouraging start to the year with broad based improvement across multiple equipment categories.
Speaker Change: Our rental pipeline is up from the prior year and some previously delayed projects were started.
Speaker Change: We have been effectively managing the fleet to maximize opportunities to sell unutilized equipment utilization.
Speaker Change: Utilization improved substantially to end the quarter at 65% up from 59% in the fourth quarter.
Speaker Change: Now, let's look at how 2025 is unfolding amidst the uncertainty present in the broader economy.
Speaker Change: Overall, we expect the impact of tariffs in 2025 to be a limited headwind to the business.
Speaker Change: As a reminder, we own our fleet so the investments generating our revenue are substantially made.
Speaker Change: Cost increases for materials, we use to operate the business for repair and maintenance that are subject to tariffs are not significant cost drivers and in some cases, we have purchased ahead. So the 'twenty 'twenty five exposure is limited.
Speaker Change: Our exposure to China tariffs is also limited at T. R. S. Only 4% of our current rental fleet was sourced from China.
Speaker Change: Portable storage, China is the primary source of new containers, but with current fleet utilization at 60%, we do not expect to make significant new equipment purchases in the near to medium term.
Speaker Change: We shared on our fourth quarter call that the key driver for our performance in 2025 will be the demand conditions across all our business segments.
Speaker Change: At present, we have good activity levels in the field related to current projects as we look further ahead and into the second half of the year, we have concerns that in the overall market. Some companies may be slowing new project starts due to uncertainty around the impact of tariffs.
Speaker Change: Costs overall economic growth and possible government spending cuts.
Speaker Change: We've been very clear in past quarters that our strategic focus is on the modular business and on the.
Speaker Change: The implementation of our plans to be a solutions provider to our customers.
Speaker Change: None of that has changed nor will it change due to current economic uncertainty.
Speaker Change: Our mobile modular plus site related services and custom sales had been good revenue contributors since their launch and we will continue to work on growing now.
Speaker Change: Our efforts in increasing revenue per unit are still yielding results and we believe we have more room to continue that progress.
Speaker Change: Our expansion into new geographies will continue as we invest to grow the topline responsibly.
Speaker Change: And finally, we have a robust M&A pipeline that should yield results in future quarters.
Speaker Change: And looking at the total company Mcgrath has a resilient business model.
Speaker Change: Our broad base of customers and the recurring rental revenues that they drive provide some stability if economic conditions soften. Additionally.
Speaker Change: Additionally, if demand declines, we generally incur lower expenses to satisfy customer orders and we can reduce rental equipment capital spending which improves cash flow.
Speaker Change: These dynamics were evident in 2020, as we navigated the COVID-19 pandemic and enabled Mcgrath to finish 'twenty 'twenty in a healthy financial state despite the unprecedented market disruptions.
Speaker Change: In closing Mcgrath has successfully managed through all sorts of economic challenges for more than 40 years.
Speaker Change: Always with a focus on returning value to our shareholders.
Speaker Change: Our company's sustainability.
Speaker Change: We have an experienced leadership team management continuity and our long tenured base of team members throughout the company.
Speaker Change: While the exact economic impact of the current tariff and trade disruptions are not completely clear.
Speaker Change: I am confident we have the skill set to continue to manage through this latest economic challenge and execute our strategy effectively.
Speaker Change: As always we will be working diligently to maximize opportunities to keep the business strong and deliver results for our shareholders.
Speaker Change: With that I will turn the call over to Keith who will take you through the financial details of our quarter and updated outlook for the full year.
Keith Pratt: Thank you Joe and good afternoon, everyone.
Speaker Change: As Joe highlighted we delivered solid results in the first quarter.
Keith Pratt: Driven primarily by the performance of our mobile modular business.
Keith Pratt: Looking at the overall corporate results for the first quarter total revenues increased 4% to $195 4 million and adjusted EBITDA increased 3% to $74 5 million.
Keith Pratt: Reviewing mobile modular is operating performance as compared to the first quarter of 2024.
Keith Pratt: Mobile modular had a strong quarter with adjusted EBITDA, increasing 10% to $47 6 million.
Keith Pratt: Total revenues increased 3% to $131 9 million.
Keith Pratt: 3% higher rental revenues and 22% higher rental related services revenues were partly offset by 11% lower sales revenues.
Keith Pratt: Rental margins were 60% up from 57% a year ago, primarily because of the rental revenue growth and lower inventory center costs.
Keith Pratt: Sales revenues decreased $2 8 million to $22 5 million as a result of lower new and used sales projects during the quarter.
Keith Pratt: Average fleet utilization was 74, 6% compared to 78, 7% a year ago.
Keith Pratt: First quarter monthly revenue per unit on rent increased 8% to $831.
Keith Pratt: For new shipments over the last 12 months the average monthly revenue per unit increased 12% to $1194.
Keith Pratt: There is still a positive pricing tailwind opportunity as our fleet churns.
Keith Pratt: We continued to make progress with our modular services offerings mobile modular plus revenues increased to $8 6 million from $7 2 million a year earlier.
Keith Pratt: And <unk> related services increased to $4 1 million up from $3 2 million.
Keith Pratt: Turning to the review of portable storage in the first quarter.
Keith Pratt: Adjusted EBITDA for portable storage was $8 6 million, a decrease of 25% compared to the prior year.
Keith Pratt: Weak demand conditions continued primarily because of low commercial construction project activity.
Keith Pratt: Rental revenues for the quarter decreased 13% to $16 1 million.
Keith Pratt: And rental margins were 84% Don from 87% a year earlier.
Keith Pratt: Average rental equipment on rent decreased 10%, while average utilization for the quarter was 62%.
Keith Pratt: Purchased 69, 8% a year ago.
Keith Pratt: Turning now to review of Trs one telco.
Keith Pratt: Adjusted EBITDA was $17 9 million, a decrease of 3% compared to last year.
Keith Pratt: Total revenues increased $1 3 million or 4% to $35 million.
Keith Pratt: Rental revenues for the quarter were up slightly at $25 5 million, which was the first quarterly increase since the first quarter of 2023.
Keith Pratt: Average utilization for the quarter was 61, 6% compared to 56, 5% a year ago.
Keith Pratt: <unk> improved demand conditions.
Keith Pratt: And our continued focus on fleet management.
Keith Pratt: Rental margins were 40% compared to 36% a year ago.
Keith Pratt: Sales revenues increased 17% to 8 million with gross profit of $3 7 million.
Keith Pratt: The remainder of my comments will be on a total company basis.
Keith Pratt: First quarter, selling and administrative expenses increased 1% to $50 9 million <unk>.
Keith Pratt: Interest expense was $8 2 million a decrease of $4 5 million as a result of lower average interest rates and lower average debt levels during the quarter.
Keith Pratt: The first quarter provision for income taxes was based on an effective tax rate of 24, 6% compared to 23, 6% a year earlier.
Keith Pratt: Yeah.
Keith Pratt: Turning to our year to date cash flow highlights net cash provided by operating activities was $54 million compared to $59 million in the prior year.
Keith Pratt: Rental equipment purchases were $12 million compared to 79 million in the prior year consistent with the lower fleet utilization and our plans to use available fleet to satisfy customer orders.
Keith Pratt: Healthy cash generation allowed us to pay $12 million in shareholder dividends and reduced debt by $31 million.
Keith Pratt: At quarter end, we had net borrowings of 559 million comprised of 175 million notes outstanding and $384 million under our credit facility and the ratio of funded debt to the last 12 months actual adjusted EBITDA was.
Keith Pratt: 1.58 to one.
Keith Pratt: While it is difficult to accurately assess the impacts of the tariff and trade policy developments I will provide several additional comments on the potential impact on Nebraska.
Keith Pratt: First some comments on the demand outlook, starting with domestic revenues, which account for over 95% of our business.
We are more cautious regarding the potential demand strength and upsides for the second half of this year.
Keith Pratt: There are certain examples of construction industry project delays and cancellations that are surfacing in the overall market and if this becomes more widespread it could negatively impact our modular and portable storage businesses.
Keith Pratt: Total Mcgrath international revenues have ranged between 2% and 4% over the past three years and occur in our Trs business.
Tariffs may erode the economic attractiveness of some of our international transactions at Trs.
Keith Pratt: Next some comments on capital spending.
Given current utilization levels, we have less need to add new rental equipment. This year.
Keith Pratt: Some suppliers of rental equipment are beginning to contemplate tariff driven price increases.
Keith Pratt: With some estimates in the 5% to 15% range.
Keith Pratt: However, some of our spending on rental equipment for 2025 has already been secured which should limit any negative tariff impact this year.
Keith Pratt: Lastly, operating costs incurred as we maintain our rental suites may also experience some tariff driven increases we're still working to determine the scope and size of increases and how much can be passed along to customers or offset by efficiency and cost management.
Pat McGrath: Initiatives Pat Mcgrath.
Pat McGrath: All of these comments are based on the limited information and our views may change going forward.
Pat McGrath: In summary.
Pat McGrath: Our business performance was solid in the first quarter.
Pat McGrath: And looks positive for the second quarter.
Pat McGrath: Based on what we know today, we currently expect tariff and trade policy disruptions to heavy relatively limited impact on 2025 financial performance.
Pat McGrath: Our primary concern is that the overall economic uncertainty could result in some delays or fewer rental and sales projects in the second half of the year.
Pat McGrath: So we have updated our full year financial outlook to reflect this.
Pat McGrath: We currently expect total revenue between 920 and $960 million.
Pat McGrath: Adjusted EBITDA between 343 and $355 million.
Pat McGrath: Gross rental equipment capital expenditures between 115 and $125 million.
Pat McGrath: We are proud of Mcgrath <unk> first quarter performance.
Pat McGrath: We are fully focused on solid execution for the remainder of 2025.
Pat McGrath: That concludes our prepared remarks, Jess you may now open the lines for questions.
Speaker Change: Thank you Sir 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 Q. Once again that is star one to ask a question.
Speaker Change: I'll pause for a moment to allow questions to queue.
Speaker Change: We will go first to Scott Schneeberger with Oppenheimer.
Scott Schneeberger: Thanks, very much good afternoon all.
Scott Schneeberger: Yes, Joan Keith I'll focus my first questions in mobile modular.
Scott Schneeberger: The education, you mentioned growth in rental revenue in both categories in commercial and education rentals.
Scott Schneeberger: On education, what are you seeing as far as the order flow for the year. I know this is the time of year, where you start to see it for activity later in the year. So just kind of curious in that one category what kind of indications are you getting less far.
Keith Pratt: Sure I can answer that Scott.
Keith Pratt: We bookings were just a little bit light for education in the first quarter, but in April we're starting to see more orders so.
Keith Pratt: The funding dynamics really haven't changed the demand situation really hasn't changed and I would say that.
Keith Pratt: You know our education opportunities are really don't run concurrently or in conjunction with the general.
Speaker Change: Construction related.
Speaker Change: Activity that you see in the market is kind of a separate entity because it relies on funding from local bond measures and state bonds and things like that none of that has changed we're expecting to have a good year in education and the.
Speaker Change: The bookings are are not yet fully realized yet so we'll see a lot more to report and in the next quarter on that.
Speaker Change: Alright, thanks on that.
Speaker Change:
Speaker Change: Could you speak a little bit to project size.
Speaker Change: In the commercial category in mobile modular.
Speaker Change: In the larger projects or what are you seeing the strength smaller maybe not so much but could you just kind of frame that for us since we're we're seeing indications of a softer macro.
Speaker Change: Third parties and just wondering what youre seeing out there in speaking with your customers. Thanks.
Speaker Change: Yeah, I would say what you said is accurate Scott.
Speaker Change: The larger projects that had been underway are pretty solid.
Speaker Change: It's the smaller ones that are more.
Speaker Change: We're getting just more uncertainty from those folks.
Speaker Change: What's interesting is the activity level is good.
Speaker Change: Theres a lot of inquiries into projects, we're just seeing that some people may be hesitant to pull the trigger.
Speaker Change: On some things, particularly as.
Speaker Change: As things go into the second half of the year. So.
Speaker Change: That's just kind of where things stand.
So are you seeing demand you see a pipeline there or you just think that hesitancy could occur in this environment potentially.
Speaker Change: Absolutely the pipelines are really good.
Speaker Change: Activity is really good our quoting activity is good and as we said in our prepared remarks that.
Speaker Change: The order sizes are a little bit smaller and that's due to some.
Speaker Change: Some factors like mix shift as an example, but overall activity has is pretty good right now.
Speaker Change: Thanks, and then.
Speaker Change: Pricing on new shipments.
Speaker Change: Over the last 12 months your monthly revenue per unit up 12% year over year. That's good I know as recent as fourth quarter was up 15% slight deceleration, but that number is up I think significantly versus a year ago I'm just looking at plus nine.
Speaker Change: All very nice numbers, you're still seeing that pricing with.
Speaker Change: I mean, we're seeing a slight deceleration any comment on that.
Speaker Change: My my takeaways, it's pretty strong overall, so just if you could dig in a little bit on the pricing environment specifically.
Speaker Change: Sure well I think you've summed it up I think we're doing very well in this area as you know pricing can be influenced by many factors. The type of unit. The region. You are in the length of the contract and what you are looking at is a very aggregated number but it does indicate a couple of things. One is that number has increased over time.
Speaker Change: I'm on new shipments it reflects healthy movement in base unit pricing and in addition, adding more services to the contracts and those are things Joe has talked about extensively we'd been working on for the last couple of years I think every year, we're making more progress in that area and it will continue to be.
Speaker Change: Focus so that's really positive and then the other thing that we've noted in the past is newer units are going out at a rate that is well above the sort of legacy installed base average unit on rent number and so we absolutely believe there's a positive pricing tailwind there that over time.
Speaker Change: As the fleet churns.
Speaker Change: The opportunity to get more revenue per unit from our fleet and that's something we're very focused on.
Speaker Change: Really and Keith would you agree I think the the difference between new shipments over the last 12 months monthly revenue per unit versus your total fleet units on rent monthly revenue per unit.
Speaker Change: It's over 40% higher the recent deliveries so even if you made no more deliveries going forward you would still have an implied double digit.
Speaker Change: Rising lift on conversion is that an accurate way to talk about that.
Speaker Change: Yeah, I think that's a reasonable way to look at it there's a big gap it is over 40% and churn causes us to reset pricing and in that way at churn gives us a revenue lift and I think it's only fair to point out is we.
Noted in the prepared remarks, I mean, the offset here is fewer units on rent and we have seen some pressure you'll see our utilization has drifted slightly lower and that reflects 4% lower units on rent in the first quarter, So making really nice progress on the revenue per.
Speaker Change: Unit and the headwind is that in the current more sluggish commercial construction environment, we're seeing fewer units on rent and again, that's something we've been dealing with not for multiple quarters and we've commented on last year as well as this year. So that's just the one challenge area that I think many players are.
Speaker Change: The wing with but we're very pleased with what we're accomplishing in terms of revenue per unit on rent and with the revenue for new shipments.
Speaker Change: Understood. Thanks for that I'm going to spin it over to Trs and then and then move on.
Speaker Change: A nice step up in rental revenue I think first time in a couple of years can you just elaborate on what youre seeing with regard to demand trends and what you're hearing is it had a potential hiccup or head fake or do you feel that there is maybe something behind this.
Speaker Change: Yes, I don't think its I don't think it is.
Speaker Change: Blip or anything.
Speaker Change: One of the things that we commented on in prior quarters was the weakness in the semiconductor and computer part of the business that was actually up very nicely in the quarter and the reason is is that.
Speaker Change: Customers are telling us that the projects that had been delayed or actually starting.
Speaker Change: And so we're really glad to see that and we think that trend will continue.
Speaker Change: Okay and then.
Speaker Change: It would be remiss, if I didn't ask on.
Speaker Change: On the guidance overall, I think you trimmed it slightly.
Speaker Change: And I heard a lot of cautionary discussion about uncertainty in the back half of the year. It doesn't sound like you have much direct exposure to tariffs it doesn't sound like that's a concern and with your utilization levels, you don't need to tap market.
Speaker Change: Pending capex right now.
Speaker Change: So it's really just the customers that you're worried about is this a get ahead of it.
Speaker Change: Cut or is this because you're hearing a lot from your customers about hey, yeah were really nervous.
Speaker Change: And is that what's prompting it thanks.
Speaker Change: Yeah, It's a really good question, Scott and probably the way to answer. It is we are dealing here with a very fluid situation. There's a lot we don't know, but the way I would frame. It is as follows if we looked at the world in February you know, we felt pretty good about our start to the year you may recall, we had good quoting activity in the month of Janney.
Speaker Change: All across the business and here, we are it's April and particularly in the last handful of weeks both be a speculation around tariff policy and then some of the announcements and then some of the churning all of that we're concerned about creating more uncertainty and when we look at where we are.
Speaker Change: Our data a lot of issues in the trade press that some things you can go out and find and read it's not so much directly our business experiencing really any cancellations that were aware of and really new major.
Speaker Change: Delays that any different from what we've seen over the last year or so I think the difference is we we are concerned that customers who were planning things. They may take longer to take action and as you appreciate in any rental business. It makes a difference to us whether it's a rental.
Speaker Change: Project begins in June or it gets pushed to September because it limits how much rental revenue, we're going to earn this year on that transaction and in a similar vein. If we take a sales project, where there may be a lot of work that goes into the planning of that project and a lot of back and forth with the customer you know we.
Speaker Change: Those projects, especially the larger ones take many months to bring to fruition. So if we lose a few months in this early part of the year with people hesitating or holding back than projects. We might have thought would happen in September October of this year, they might get pushed into the first quarter of next.
Speaker Change: Year, so all of that could have some impact on our results as you can tell from the shift in the guide it's a very minor shift, but its more an acknowledgment on our part that the journey. This year is just a little bit more uncertain and probably a little bit more challenging than what we thought a couple of months ago, that's really been there.
Speaker Change: Out of it.
Speaker Change: Thanks, I appreciate that answer I'll turn it over guys. Thanks very much.
Daniel Moore: We'll move next to Daniel Moore with CJS Securities.
Daniel Moore: Thank you, Joe and Keith Thanks for the color and taking my questions.
Daniel Moore: Just going through and see which were not covered yet so trs great to see uptick year over year in Q1 is that sustainable given kind of your modestly more cautious outlook overall.
Speaker Change: Do you expect that there may be things to revert a little bit back given.
Speaker Change: In H two from a year over year perspective, any any color there.
Speaker Change: Yes, I think.
Yeah Yeah.
Keith Pratt: Yes go ahead, Keith you want to you want to take this one.
Keith Pratt: Yeah sure just a couple of thoughts Dan and here's the way I sort of paint the picture with our journey, so far and in all of this what I would really stress is it's April so theres still a long way to go but I think in looking at that business. If we looked at how things went in January to February to March and even into.
Keith Pratt: To this.
Keith Pratt: Quarter or month to date in April there has been a really nice solid progression with the business momentum and as we shared in some of our disclosure pretty broad based as well it's not relying on one single thing. So that is really really encouraging and I think under normal circumstances.
Keith Pratt: We'd look at that business and Youll recall back in February that's a business, where we just saw adjusted EBITDA. This year is probably going to be comparable to what it was last year absent all of this sort of turbulence that we're going through I'd be feeling like that business can do better for 2025, and we thought however, when we look at where we are.
Keith Pratt: Today I just think we're we're sort of curbing our enthusiasm just a little despite those really good things that have happened in the first three and a half months and just acknowledging that well second half of the year could just throw a couple of unexpected are unknown.
Keith Pratt: Tax on us so there's just a little bit of caution there, but that's a great example, where we're gonna be tracking that one we may have a different view in July, but we're trying to give us or try and give you a sense of our thinking as it stands today great start really also starting nicely in the second quarter and second half of the year, there's more unknowns.
Keith Pratt: And just as a reminder, that is a business, which churns very quickly shorter rentals shorter terms. So that business is recreating itself every few months and so really second half of the year. It's just too early to tell we'll know more in July.
Speaker Change: No that's great color very helpful.
Speaker Change: Jumping over to suitable storage.
Speaker Change: Given lingering pressure on revenue you've done if we looked at the back half of last year, a remarkable job maintaining margins this quarter, a little bit more pressure so.
Speaker Change: Help me think about how do you expect to be able to hold line on margins for the next few quarters I'm getting.
Speaker Change: Again more of kind of thinking more year over year, rather than in Q1, as a comp or does it get more difficult if if the conditions and revenue deteriorate further.
Speaker Change: Yeah, and again, just big picture on that part of the business as we pointed out and Joe said it in his remarks, we started this year with a much lower run rate than we had at the beginning of 2024. So that's the Big Challenge area. I think Q1 played out as we expected I think if you look at the detail.
Speaker Change: In terms of margins you will see some pressure on rental related services, that's an area where.
Speaker Change: We've looked at it hard we see some people in the industry are using not not rental rate on the unit, but delivery fees and other items to sharpen their pencil on completing transactions I think we're looking at ways to recover some of the lost margin there ourselves we can do things some things to offer.
Speaker Change: Operationally.
Speaker Change: But looking to protect the overall rental rate pricing as best we can and be smart about how we handle that delivery and pickup side of things as well. So looking at the Big picture I don't think theres going to be more margin pressure. There I think we're pricing smartly in this environment and we're looking at the delivery side and the pickups.
Speaker Change: Side to be efficient and smart about how we minimize any loss of margin in that area. So what you've seen is probably in line with what we're going to see for the next couple of quarters, we'll be working hard to try and improve upon it but it's going to be gradual.
Speaker Change: Helpful and in that vein are you.
Speaker Change: Looking to step up.
Speaker Change: Sales or divestments are portable storage units given or.
Speaker Change: Do you tend to hold onto.
Speaker Change: But we have now how do you think about managing utilization and forward and is there a market for them right now.
Speaker Change: Sure well a couple of things I'd point out number one we've got a really high quality fleet a lot of the fleet originated as what in the industry, we called one trippers, mostly from China and so they are great pieces of equipment and they have a very long useful life. So that the real distinction here is it's an asset class that should age.
Speaker Change: Grace Scully and so there's no pressing need to take urgent action in the next six months or this year very different from our electronics business, where you've got all the technology changes that mean you have to actively manage that fleet. So there is just to give you a really contrasting way to look at it and just as in electronics, where we saw some.
Speaker Change: Challenges our team did a really fantastic job over multiple quarters of shrinking the fleet, while they continued to do well in the market winning business. It's different in portable storage, we have probably more units than we need.
Speaker Change: Cross multiple geographies, but we're working hard to put them to work it may take more than a year, but that's not a reason to sell fleet today and then in a couple of years need to buy it all back and another example of an area, where we have some installation from tariff risk because we own the fleet and we have some spare capacity.
So that's where we stand today and that's what we're looking at it.
Speaker Change: Yeah, and I'll just add in there yeah. Please I'll just add in there too where we're happy to sell units. If we have the opportunity so where we are.
The utilization is low.
Speaker Change: We'll sell fleet, if we need to have the chance to do it.
Speaker Change: Makes sense, one or two more.
Speaker Change: You're already leading into refurbishing existing units rather than acquiring new ones.
Speaker Change: And it sounds in your prepared remarks, certainly sounds like you're continuing to move in that direction or is that something you've.
Speaker Change: Or likely accelerate capex.
Speaker Change: Capex guide ticked a little bit lower but you know how are you kind of thinking that beyond the next quarter or two.
Speaker Change: Yes, similar to what we said in February it's a good way to meet demand. It is our preferred way from a free cash flow point of view, it's a very smart way to operate the business. So no real change in our in our general approach there from what we said back in February.
Speaker Change: Helpful last one.
Speaker Change: Similar to Scott's question.
Speaker Change: Great color, so maybe it's beating a dead horse but.
Speaker Change: You know you mentioned limited impact from tariffs.
Speaker Change:
Speaker Change: And then you also mentioned if the weakness becomes more widespread that could.
Speaker Change: I guess the question is if it does would that likely drag on kind of lower end of guidance or are you already contemplating some incremental weakness in the revised ranges.
Speaker Change: Yeah again I go back to all the comments that we made earlier, we tried to step you through all the moving parts of demand reminding everyone that we're primarily domestic.
Speaker Change: And where the cost impact would be there could be a little bit in capex, but on the upper hand. This is not a big capex year for us given where utilization is at and then on the operating expense side, there's certainly rumblings of paying a bit more for certain grades of steel or certain types of lumber.
Speaker Change: Again.
Speaker Change: That's limited impact I think in 2025 some of it was materials, we have on hand, or we've placed orders for I think any impact comes later in the year and really the big picture here is just a little bit more caution or concern that customers may move more slowly in there does.
Speaker Change: Susan making in their initiation of projects and given this backdrop of macro uncertainty hopefully there's very little of it we'd be delighted and we loved it.
Speaker Change: Have a great year, but again, our view today compared to two months ago. There is a bit more caution. It's an issue for the second half of the year not the first half of the year.
Speaker Change: Alright, well, thanks again for the color.
Steven Ramsey: We'll move next to Steven Ramsey with Thompson Research group.
Speaker Change: Okay.
Speaker Change: Good evening, maybe just start with on mobile modular plus it continues to be strong and the growth on a percentage basis outpacing.
Speaker Change: Revenue per unit and new shipments growth rate can you talk about operational progress here, but the sales team is making and market acceptance and customers wanting more of what you're offering.
Speaker Change: Sure Yeah, our customers like our offerings, we're very flexible with them in terms of the.
Speaker Change: The the different offerings that we give them.
Speaker Change: Because we we don't actually own the equipment and we can we re rented and we are able to get them specifically, what they need for each of their applications. So the acceptance is good.
Speaker Change: We're doing a much better job with our sales team in terms of integrating those offerings in with each of our rentals.
Speaker Change: A priority in the business and where we're making traction with that as each quarter progresses. So I've been very pleased with how things have gone and where we're going to continue on that trajectory.
Speaker Change: Okay. That's helpful and then thinking about the market kind of slower to local projects, but then bigger projects.
Speaker Change: Being better at least relative to local.
Speaker Change: Sales how is the sales team adapting.
Speaker Change: Approach to capture that opportunity and does it heightened the focus even too.
Speaker Change: To grow modular plus or site related in this kind of environment.
Speaker Change: Yeah, absolutely I mean, where we.
Speaker Change: <unk>.
Speaker Change: Fortunately, we have folks that are in close proximity to our customers. So if it's a large project. We're all over it if it's a smaller project. We're also all over it so.
Speaker Change: I don't see any any problems there with getting the sales force motivated to go after either one of those types of projects.
Speaker Change: So I I.
Speaker Change: We've got we've got all our folks who are highly.
Speaker Change: Motivated to make their commissions and they're out there now.
Knocking on the doors and and in front of the customer. So I think we're doing a pretty good job of that.
Speaker Change: Okay. That's helpful and then on modular R. S.
Speaker Change: Yeah.
Speaker Change: Reflects modular units going on and off rent, but site related services is mostly tied to unit starting a contract if my understanding there is correct.
Speaker Change: But can you talk about how site related.
Speaker Change: Growing at such a strong rate despite the volume headwind in the modular segment.
Speaker Change: Yeah, our site related services actually can be.
Speaker Change: Pretty substantial part of our project and so right now they're kind of more lumpy as we continue to get traction there, but we're.
Speaker Change: You could have a.
A million dollar sale project that has $1 million with site related services that accompany it. So that's that is as you said. It's correctly is is the revenues that we recognize in our rental related services line.
Speaker Change: And actually some of those site related services could be on a dismantle a lot of them are when the project goes in but sometimes there are things that need to happen when the project comes out.
Speaker Change: So we can book revenues for those for the ending of the project too.
Speaker Change: Okay, and then when you think about customer hesitation or general customer sentiment and how it impacts the balance of the year potentially being negative.
Speaker Change: Do you expect this lowered sentiment to bring down the potential growth rates of the modular plus and the site related revenue through the balance of the year. Those two revenue components being moderated or would you say it's in in other parts of the.
Speaker Change: Yes.
Speaker Change: Yeah, It's a good question and here's the way I think about it. This is all about how many new activations, we get so if we were to experience.
Speaker Change: Customers moving more slowly or more deliberately and the pacing of new shipments slowing down relative to maybe what we saw a year ago or two years ago, I think that makes it more challenging to grow things like M M plus and site related services and to some extent we've already.
Speaker Change: In there you know if you look back at the last few quarters.
Speaker Change: The construction industry backdrop has being one with some challenges. So the issue is does it incrementally become a little tougher it could and if it did it would make growing those items a little bit harder, but I think it's important to sort of zoom out and say these are longer term initiatives and the battle.
Speaker Change: Neither one are lost at December 31 of this year, it's really a multi year journey, where these are things we do because we think they provide value to customers and we think that we can do them well and we think were uninsured any that's going to be a positive one over the long haul. So that's sort of the way we think about it internally.
Speaker Change: Okay. That's helpful. And then last one for me you talked about geographic expansion being a priority maybe can you clarify some of the nuances for that in 2025 your priorities between geographic focus customer focus product between stores.
Speaker Change: And modular and then maybe high level, how much of that is organic driven versus M&A driven.
Speaker Change: Sure.
Speaker Change: It's a good question our geographic expansion.
Speaker Change: Opportunity and focus this year is important.
Speaker Change: We're not going to see a whole lot of.
Speaker Change: Revenue gains this year, because we're putting some of that infrastructure in place, but when you populate markets with new sales reps and additional sales power and infrastructure.
Speaker Change: That's that's something that.
Speaker Change: It is important to us it's a focus and we will we will see some results this year, but more in future years as we continue to get traction there. So.
Speaker Change: And most of that is the.
Speaker Change: The geographic expansion I mean, most of our that we can control of course is organic but if we can backfill or add or.
Further densify our market by doing an M&A transaction, we will absolutely do that so I would say, they're both they're both important to us and.
Speaker Change: And we're excited to see progress this year in both of those categories.
Speaker Change: Okay. That's great. Thank you for all the color.
Speaker Change: Thank you.
Speaker Change: We'll go next to Marc Riddick with Sidoti.
Marc Riddick: Hey, good evening.
Speaker Change: Hey, Mark.
Speaker Change: So wanted to follow up on.
Speaker Change: In your prepared remarks.
Speaker Change: You need something mentioned in her commentary around some of the around acquisition pipeline, maybe you can sort of talk a little bit about.
Speaker Change: How thats going maybe in and maybe how you might be looking at that and tie that into cash usage I mean with the.
Speaker Change: It's a good time to have a lower debt level of course, you know below one six times on leverage. So maybe you can sort of marry those two and talk about the types of opportunities that may have come to fruition over the last few months and maybe what drove that.
Speaker Change: Yes, there are some.
Speaker Change: There are some larger opportunities that are out there.
Speaker Change: We are we have dialogue and relationships with folks in the industry that we think would be good potential transactions for us.
Speaker Change: Oh, not only on the larger side, but also in terms of our tuck in activity too. So we're out in the market. We're talking to people. We have in our pipeline of folks that are that we're talking to that are showing interest we hope to close some of those in 2025 and so it's been an app.
Speaker Change: Active market and one where we want to be at the table to to add to our rental revenues and add to our offerings that we have so an important part of the business for us and Mark you touched on it our leverage is really appropriate for us to do smart M&A.
Speaker Change: We have some dry powder to do that so we're really happy about that.
Speaker Change: Excellent and then last one from me I was sort of curious as to maybe where you are.
Speaker Change: Comfort level is true.
Speaker Change: Talent.
Speaker Change: Do you see yourself needing to do much in the way of hiring how comfortable are you with talent levels are there any areas that you would like to to add.
Speaker Change: Sure or maybe we should be keeping them out of four.
Speaker Change: Thanks.
Speaker Change: Sure I mean, we've been hiring.
Speaker Change: We put off a number of hires last year due to the merger the pending merger.
Speaker Change: When when that was terminated we started right back in again, if we have not had problems hiring people. So.
The market's been pretty good we're getting the talent that we need and we're we're very pleased with the quality and type of candidates that are available out there. So.
Speaker Change: Been a bit of a good opportunity for us.
Speaker Change: And that's encouraging to hear thank you very much.
Mark: Thank you Mark.
Speaker Change: Once again, if he would like to ask a question. Please press star one on your telephone keypad now.
Speaker Change: And ladies and gentlemen that appears to be the last question. Let me now turn the call back over to Mr. Han Mr. Hannah for any closing remarks.
Speaker Change: I'd like to thank everyone for joining us on our call today and for your continuing interest in the company.
Speaker Change: Thank you, Sir ladies and gentlemen that concludes today's conference call. We thank you for your participation you may disconnect at any time.
Speaker Change: Okay.
Speaker Change:
Speaker Change: [music].