MCGRATH-RENTCORP Earningcall Transcript Of Q2 of 2024

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.

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Joseph F. Hanna -- President and Chief Executive Officer

Thank you, David. 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  second  quarter.  I  will  start  with  some  overall  comments  on  the  quarter,  and  Keith  will  provide

additional detail in his financial review before we open the call up for questions.

The  company  delivered  solid  second-quarter  results.  Rental  revenues  increased  3%.  Sales

revenues increased 14% and adjusted EBITDA grew by 9%. Our Mobile Modular division continued

to perform well with rental revenues increasing 10%.

We realized growth in both our commercial and education sectors. In our commercial business, we

serve many market verticals, including commercial construction, government, industrial, residential,

to  name  a  few.  Our  broad  reach  gives  us  a  diversified  base  of  clients  that  have  a  wide  variety  of

space  needs,  which  we  are  well  suited  to  serve.  On  the  education  side,  both  modernization  and

enrollment growth drove rentals.

There continues to be a significant backlog of deferred work the districts are busy addressing in all

of our markets. Funding is available and project backlogs are healthy. Our teams continue executing

efficiently  in  the  field,  and  we  are  in  our  busy  summer  season  with  all  cylinders  firing  to  get  jobs

completed  on  time  for  our  customers.  Modular  sales  revenues  decreased  6%  for  the  quarter  but

were up 11% year to date.

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Sales projects can be affected by timing, which we saw in play for this quarter. Our backlog for sales

projects  is  very  strong  and  our  strategy  to  provide  customers  with  custom  sales  opportunities  has

been  very  positively  received.  We  remain  confident  in  the  future  growth  of  this  portion  of  the

business.  We  continue  to  make  progress  with  our  other  mobile  modular  growth  initiatives  with

growth in Mobile Modular Plus and site-related services in the quarter.

Our customers value the benefit of having their buildings arrive with additional amenities included in

the rental contract as well as the convenience 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. Our revenue per unit in Mobile Modular showed healthy gains for the

quarter, with new shipment rates up nicely compared to the prior year. This momentum is a positive

tailwind  for  overall  fleet  rates  which  should  increase  as  rental  units  cycle  during  normal  business

operations.

At  portable  storage,  rental  revenues  decreased  4%.  Specifically,  commercial  construction  project

activity has slowed, and we saw fewer shipments and higher returns year over year. Close ratios are

still very good, and we have been maintaining our pricing discipline despite softer market conditions.

At  TRS-RenTelco,  rental  revenues  decreased  by  11%  year  over  year,  reflecting  industrywide

weakness in test and measurement equipment rentals.

Both  our  general  purpose  and  communications  equipment  rental  revenues  decreased  for  the

quarter,  with  the  exception  of  wired  communications  rentals.  Data  center  work  and  associated

infrastructure  to  support  projects  were  a  bright  spot.  We  continued  adjusting  for  the  softer  market

conditions.  Our  fleet  capex  has  been  reduced,  and  we  have  been  successfully  selling  idle

equipment to adjust for less demand.

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We  were  fully  focused  on  winning  rental  bookings  and  managing  the  fleet  given  tougher  market

conditions  and  will  continue  to  do  so.  We  continue  to  operate  as  an  independent  company,

notwithstanding the merger announcement with WillScot Mobile Mini in January. Our team is in the

front office, in our production centers, and in the field continue to provide the exceptional service to

our customers and each other. I've been impressed by the engagement and commitment shown by

everyone during this period.

Thank  you  for  all  your  ongoing  dedication  and  hard  work.  On  July  11,  our  shareholders  voted  to

approve the merger. Now that the significant milestone has passed, we are continuing to cooperate

with the FTC in their analysis of the transaction. During this time, we have plenty of work to do to

deliver ongoing solid financial results for our shareholders.

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 E. Pratt -- Executive Vice President, Chief Financial Officer

Thank you, Joe, and good afternoon, everyone. As Joe highlighted, we delivered solid results in the

second quarter, driven by the performance of our mobile modular business. Looking at the overall

corporate results for the second quarter. Total revenues from continuing operations increased 5% to

$212.6 million and adjusted EBITDA increased 9% to $83.7 million.

During the second quarter, the company incurred $12.4 million in transaction costs attributed to the

pending merger with WillScot Mobile Mini, negatively impacting earnings per diluted share by $0.36.

Reviewing  Mobile  Modular's  operating  performance  as  compared  to  the  second  quarter  of  2023,

Mobile  Modular  had  another  impressive  quarter  with  adjusted  EBITDA  increasing  20%  to  $53.4

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million.  Total  revenues  increased  4%  to  $144.5  million,  primarily  driven  by  10%  higher  rental

revenues  and  4%  higher  rental-related  services  revenues  partly  offset  by  a  6%  decline  in  sales

revenues. The sales revenues decrease was primarily due to lower new equipment sales.

We  continued  our  disciplined  fleet  management  on  a  larger  fleet  with  6%  higher  average  rental

equipment  on  rent  and  average  fleet  utilization  of  78.4%  compared  to  79.3%  a  year  ago.  Rental

margins were 60%, up from 54% a year ago, primarily because of rental revenues growth and lower

inventory center costs. We continue to make progress delivering on our modular business strategy.

Second quarter monthly revenue per unit on rent increased 18% year over year to $793.

For new shipments over the last 12 months, the average monthly revenue per unit increased 13% to

$1,124.  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  offerings.  For  the  second

quarter, Mobile Modular Plus revenues increased to $7.5 million from $6.7 million a year earlier, and

site-related services increased to $5.8 million, up from $5.7 million.

Turning  to  the  review  of  portable  storage.  Adjusted  EBITDA  was  $11  million,  a  decrease  of  11%

compared  to  the  prior  year.  During  the  quarter,  we  saw  lower  rental  and  rental-related  services

revenues.  Demand  conditions  were  weaker,  primarily  because  of  lower  commercial  construction

project activity.

Higher sales revenues partly offset rental weakness resulting in a total revenue decrease of 6% to

$24 million. Rental revenues for the quarter decreased 4% to $17.8 million and rental margins were

86%, comparable to a year earlier. Average rental equipment on rent decreased 6% while average

utilization for the quarter was 66.1% compared to 78.2% a year ago. Turning now to the review of

TRS-RenTelco.

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Adjusted  EBITDA  was  $18  million,  a  decrease  of  16%  compared  to  last  year.  Total  revenues

decreased $5.2 million or 14% to $32.7 million. Rental revenues for the quarter decreased 11% as

the  industry  experienced  continued  end-market  weakness.  Average  utilization  for  the  quarter  was

56.5% and compared to 58.2% a year ago, and rental margins were 36% compared to 38% a year

ago.

Sales revenues decreased 22% year over year to $5.8 million with gross profit decreasing to $3.1

million.  To  address  the  softer  business  conditions,  we  reduced  new  equipment  capital  spending,

focused on sales of used equipment, and reduced fleet size based on original cost of equipment to

$368 million at the end of June. The remainder of my comments will be on a total company basis

from  continuing  operations.  Second  quarter  selling  and  administrative  expenses  increased  $14.3

million to $61.4 million.

The  increase  was  primarily  the  result  of  $12.4  million  in  transaction  costs  incurred  due  to  the

pending  merger  with  WillScot  Mobile  Mini.  Interest  expense  was  $13  million,  an  increase  of  $3.1

million as a result of higher average interest rates and higher average debt levels during the quarter.

The  second  quarter  provision  for  income  taxes  was  based  on  an  effective  tax  rate  of  28.8%

compared  to  25.7%  a  year  earlier.  The  increase  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 $139

million  compared  to  $72  million  in  the  prior  year.  Rental  equipment  purchases  were  $145  million

compared to $128 million in the prior year. In addition to continued investments in new fleet, healthy

cash generation allowed us to pay $23 million in shareholder dividends.

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Proceeds from sales of property, plant, and equipment were $12 million. At quarter-end, we had net

borrowings  of  $794  million,  comprised  of  $175  million  outstanding,  $544  million  under  our  credit

facility  a  term  loan  of  $75  million.  The  ratio  of  funded  debt  to  the  last  12  months'  actual  adjusted

EBITDA  was  2.43  to  1.  We  are  proud  of  McGrath's  second-quarter  performance,  and  we  are  fully

focused on solid execution for the remainder of the year.

That concludes our prepared remarks. David, you may now open the lines for questions. 

Questions & Answers: