McGrath RentCorp (MGRC) FY Conference May 07, 2025 10:30 AM ET Speaker0 Hey. Good morning, everyone. I'm Scott Schneeberger, senior business and industrial services analyst at Oppenheimer. Thank you all for joining us today. It's my pleasure to have from McGrath, with us today, the CFO, of excuse me. The CEO, Johanna, the CFO, Keith Pratt, and the COO, Phil Hawkins. We look forward to hearing the story. McGrath rents and sells modular office and classrooms and portable storage containers and electronic test ...

Q1 2025 Quarterly Investor Presentation APRIL 24, 2025 Safe Harbor Statements contained in this presentation, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrath's (the "Company's") expectations, strategies, prospects, or targets are forward-looking statements. These forward-looking statements also can be identified by the use of forward-looking ...

Financial Data and Key Metrics Changes - Total company revenues increased by 4% to $195.4 million, and adjusted EBITDA increased by 3% to $74.5 million compared to the previous year [23][7]. - Mobile Modular's adjusted EBITDA increased by 10% to $47.6 million, with total revenues rising by 3% to $131.9 million [24][23]. - Rental margins for Mobile Modular improved to 60%, up from 57% a year ago [24]. Business Line Data and Key Metrics Changes - Mobile Modular's rental revenues grew by 3%, while rental-related services revenues increased by 22%, partially offset by an 11% decline in sales revenues [24]. - Portable storage rental revenues declined by 13% to $16.1 million, with rental margins at 84%, down from 87% a year earlier [27]. - TRS RenTelco's total revenues increased by 4% to $35 million, with rental revenues slightly up at $25.5 million, marking the first quarterly increase since Q1 2023 [28]. Market Data and Key Metrics Changes - The architectural billing index and other macro indicators of construction-related demand showed some weakness and project delays [9]. - Average fleet utilization improved to 65%, up from 59% in the previous quarter [13]. Company Strategy and Development Direction - The company remains focused on modular business growth and aims to be a solutions provider to customers [16]. - Expansion into new geographies is a priority, with investments aimed at responsibly growing the top line [18]. - The company has a robust M&A pipeline that is expected to yield results in future quarters [18]. Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about potential delays in new project starts due to economic uncertainty and tariff impacts [16][61]. - The company expects limited impact from tariffs in 2025, as most of its fleet is owned and prior purchases have mitigated exposure [14][33]. - The overall economic uncertainty could lead to slower decision-making from customers, affecting rental and sales projects in the second half of the year [96]. Other Important Information - First-quarter selling and administrative expenses increased by 1% to $50.9 million, while interest expense decreased by $4.5 million due to lower average interest rates [30]. - The company generated $54 million in net cash from operating activities and reduced debt by $31 million [32]. Q&A Session Summary Question: What are the indications for order flow in the education sector? - Management noted that bookings were light in Q1, but April showed an increase in orders, indicating a positive outlook for education [42][43]. Question: How is the sales team adapting to capture opportunities in larger projects? - Management confirmed that the sales team is motivated and actively pursuing both large and small projects, with good activity levels reported [102]. Question: Is the uptick in TRS RenTelco's rental revenue sustainable? - Management expressed cautious optimism, noting that the increase is not seen as a temporary blip, with delayed projects starting to come online [60]. Question: How does the company plan to manage margins in portable storage? - Management indicated that they are looking at operational efficiencies and pricing strategies to protect margins despite current pressures [84]. Question: What is the company's approach to geographic expansion? - Management emphasized that geographic expansion is a priority, with a focus on building infrastructure and sales capabilities for future growth [113].

Group 1 - McGrath (MGRC) reported quarterly earnings of $1.15 per share, exceeding the Zacks Consensus Estimate of $1.02 per share, and up from $0.93 per share a year ago, representing an earnings surprise of 12.75% [1] - The company posted revenues of $195.42 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 2.96%, compared to year-ago revenues of $187.83 million [2] - Over the last four quarters, McGrath has surpassed consensus EPS estimates three times and topped consensus revenue estimates three times [2] Group 2 - The stock's immediate price movement will depend on management's commentary during the earnings call, with McGrath shares down about 8.4% year-to-date, slightly better than the S&P 500's decline of 8.6% [3] - The current consensus EPS estimate for the coming quarter is $1.31 on revenues of $223.53 million, and for the current fiscal year, it is $6.19 on revenues of $954.05 million [7] - The Zacks Industry Rank for Financial - Leasing Companies is currently in the bottom 13% of over 250 Zacks industries, indicating potential challenges for stock performance [8]

McGrath RentCorp (MGRC) Q1 2025 Earnings Call April 24, 2025 05:00 PM ET Company Participants Joseph Hanna - President & CEOKeith E. Pratt - Executive VP & CFOScott Schneeberger - Managing DirectorDaniel Moore - Partner - Director of ResearchSteven Ramsey - Deputy Director of Research Conference Call Participants Marc Riddick - Business Services Analyst Operator Ladies and gentlemen, thank you for standing by. Welcome to the McGrath Rent Corp. First Quarter twenty twenty five Earnings Call. At this time, al ...

Financial Performance - Consolidated revenues for Q1 2025 increased by $7.6 million, or 4%, to $195.4 million compared to $187.8 million in Q1 2024[69] - Consolidated net income for Q1 2025 rose by $5.4 million, or 23%, to $28.2 million from $22.8 million in Q1 2024, with earnings per diluted share increasing 23% to $1.15[69] - Gross profit for Q1 2025 increased by $3.2 million, or 3%, to $96.4 million, with Mobile Modular's gross profit rising by $3.6 million, or 6%[70] - Adjusted EBITDA for Q1 2025 increased by $2.4 million, or 3%, to $74.5 million[70] - Total gross profit for the three months ended March 31, 2025, increased by $1.0 million, or 7%, to $14.9 million[94] Revenue Breakdown - Mobile Modular's total revenues increased by $4.3 million, or 3%, to $131.9 million in Q1 2025, primarily due to higher rental-related services and rental revenues[71] - Total revenues for Mobile Modular increased by $4.3 million, or 3%, to $131.9 million for the three months ended March 31, 2025, compared to $127.6 million in 2024[73] - Rental related services revenues rose by $5.3 million, or 22%, primarily due to higher delivery and site related services[78] - Portable Storage's total revenues decreased by $3.5 million, or 14%, to $21.3 million for the three months ended March 31, 2025[79] Expenses and Profitability - Selling and administrative expenses increased by 1% to $50.9 million in Q1 2025[70] - Selling and administrative expenses for Portable Storage decreased by $0.3 million, or 3%, to $7.6 million[85] - Rental revenues decreased by $2.3 million, or 13%, due to 10% lower average rental equipment on rent and 3% lower average monthly rental rates, resulting in a gross profit decrease of $2.5 million, or 15%, to $13.5 million in 2025[86] - Average monthly total yield for Portable Storage decreased by 16% to 2.30%[81] Cash Flow and Financing - Net cash provided by operating activities was $53.9 million for the three months ended March 31, 2025, down from $59.4 million in the same period of 2024, representing a decrease of approximately 9.2%[106] - Net cash used in investing activities decreased significantly to $2.7 million in 2025 from $78.1 million in 2024, a reduction of approximately 96.5%[107] - Net cash used in financing activities was $48.6 million in 2025, compared to $19.7 million in net cash provided during 2024, indicating a change of $68.3 million[109] Debt and Compliance - The Company had $650.0 million in unsecured revolving credit facilities, with $311.5 million outstanding and an additional borrowing capacity of $338.5 million as of March 31, 2025[114] - The Company issued $75.0 million of 6.25% Series F Senior Notes, maturing on September 27, 2030, to fulfill tax obligations from a divestiture[119] - The principal balance outstanding under the Series E Senior Notes was $60.0 million as of March 31, 2025[123] - The Company was in compliance with all financial covenants as of March 31, 2025, with no anticipated trends indicating non-compliance[125] Market and Risk Factors - There were no material changes in the Company's market risk exposures from those reported in the 2024 Annual Report[129] - There were no material changes in critical accounting estimates during the three-month period ended March 31, 2025[128] - Contractual obligations and commitments have not changed materially from those included in the 2024 Annual Report[127]

Financial Data and Key Metrics Changes - Total company revenues increased by 10% to $244 million in Q4 2024, while adjusted EBITDA rose by 5% to $92 million compared to the previous year [28][8] - For the full year 2024, both revenue and adjusted EBITDA grew by 10% [13] Business Line Data and Key Metrics Changes - Mobile Modular experienced a strong quarter with rental revenues growing by 8% and sales revenues increasing by 32% [8][29] - Portable Storage rental revenues declined by 15% to $16.7 million, attributed to lower commercial construction activity [11][32] - TRS-RenTelco rental revenues decreased by 9%, reflecting industry-wide slowdowns in test and measurement equipment markets [12][34] Market Data and Key Metrics Changes - Utilization rates dipped year-over-year, ending the quarter at 75.1% [10] - Average fleet utilization for Mobile Modular was 76%, down from 79.7% a year ago [30] Company Strategy and Development Direction - The company is focusing on long-term growth despite challenges, with a commitment to executing strategic initiatives in the Modular business [7][20] - There is an emphasis on increasing sales team coverage and prudent equipment purchases to meet order volumes [20] - The company plans to invest in growing locations and pursuing tuck-in acquisitions to augment growth [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about demand conditions in 2025, noting stronger quote activity in January compared to the previous year [16][17] - The company anticipates that the Modular segment will be the primary driver of adjusted EBITDA growth for 2025 [39] - Management acknowledged the challenges in the Portable Storage segment but noted early signs of stabilization [21][42] Other Important Information - The company celebrated its 40th anniversary as a NASDAQ-listed entity and announced a dividend increase for the 34th consecutive year [26] - Phil Hawkins was promoted to Chief Operating Officer to support growth efforts [24] Q&A Session Summary Question: Growth in Modular segment for commercial vs education - Management indicated that both segments grew, with commercial growing by 9% and education by 7% in Q4 [49] Question: Outlook for classroom rentals - Management believes the growth will be balanced and noted improved customer activity compared to the previous year [51][52] Question: Overall business outlook for 2025 - Management expressed a positive outlook for Modular, a challenging position for Portable Storage, and stabilization for TRS [54][55][56] Question: Pricing dynamics in Mobile Modular - Management highlighted a significant gap between average pricing on the fleet and new orders, which is expected to drive margins [60][62] Question: Capital allocation and M&A opportunities - Management remains flexible regarding capital allocation, including potential M&A opportunities and buybacks [78][80] Question: Green shoots for TRS-RenTelco - Management noted consistent bookings outpacing returns, indicating positive momentum in the general purpose and wired communications rentals [112][113]

Core Viewpoint - McGrath (MGRC) reported quarterly earnings of $1.58 per share, exceeding the Zacks Consensus Estimate of $1.49 per share, and showing an increase from $1.30 per share a year ago, indicating a positive earnings surprise of 6.04% [1] Group 1: Earnings Performance - The company has surpassed consensus EPS estimates three times over the last four quarters [2] - McGrath's revenues for the quarter ended December 2024 were $243.75 million, which missed the Zacks Consensus Estimate by 1.27%, but increased from $221.59 million year-over-year [2] - The company had a significant earnings surprise of 34.53% in the previous quarter, where it reported earnings of $1.87 per share against an expected $1.39 per share [1] Group 2: Stock Performance and Outlook - McGrath shares have increased approximately 9.3% since the beginning of the year, outperforming the S&P 500's gain of 4.2% [3] - The future performance of the stock will largely depend on management's commentary during the earnings call and the earnings outlook [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.99 on revenues of $188.31 million, and for the current fiscal year, it is $6.40 on revenues of $918.57 million [7] Group 3: Industry Context - The Financial - Leasing Companies industry, to which McGrath belongs, is currently ranked in the top 36% of over 250 Zacks industries, indicating a favorable industry outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact McGrath's stock performance [5]

Debt and Interest Rates - The majority of the company's indebtedness is subject to variable interest rates, with a $415.4 million balance of variable rate debt outstanding as of December 31, 2024, leading to an annual debt service obligation increase of approximately $4.2 million for each 1% rise in interest rates [122]. - The company is subject to various financial covenants under its credit agreements, which could limit its ability to obtain future financing or make strategic acquisitions [120]. Market Demand and Competition - Significant reductions or delays in funding to public schools have caused a decline in demand and pricing for modular classroom units, which may negatively impact revenues and profitability [123]. - California is the largest market for classroom rentals, heavily reliant on public funding from state and local facility bond measures; failure to pass these measures could materially affect revenues and operating income [124]. - The company faces strong competition in the modular building and portable storage markets, which may prevent it from raising rental fees or sales prices to offset increased costs [139]. - Competition in the rental equipment market is intense, with competitors potentially offering lower prices and better service [151]. Operational Challenges - As of December 31, 2024, 63% of the modular portfolio and 57% of the container portfolio had equipment on rent for periods exceeding the original committed term, indicating potential challenges in remarketing returned units [141]. - Significant increases in raw material and labor costs could raise acquisition costs for new modular rental units and repair costs, negatively impacting profitability [142]. - The company relies on third-party manufacturers for its products, with 18% of modular products purchased from a single manufacturer in 2024, indicating potential risks if this supplier is lost [143]. - Warranty costs may increase, and warranty claims could negatively impact revenues and operating income, with a historical trend of low warranty costs [145]. - The electronic test equipment business is subject to cyclical downturns, which may lead to low demand, excess inventory, and impairment charges [146]. - The company faces risks of equipment becoming obsolete due to changing technology, potentially leading to impairment charges [148]. - The company relies on favorable purchasing terms from manufacturers for rental equipment; unfavorable terms could adversely affect operations [152]. Seasonal Trends - The company's business is impacted by seasonal demand, with the highest rental and sales revenues typically occurring in the second and third quarters [138]. - Seasonal declines in rental activity are expected in December and the first two months of the year, impacting quarterly results [147]. International Operations and Currency Risks - Less than 10% of the company's revenues currently come from foreign operations, but there is potential for growth in international markets [154]. - The company is exposed to currency exchange rate fluctuations, which could negatively impact financial results when converting foreign revenues to U.S. dollars [155]. - The Company formed a wholly owned Canadian subsidiary, TRS-RenTelco Inc., in 2004 and a wholly owned Indian subsidiary, TRS-RenTelco India Private Limited, in 2013 [296]. - The Company began closing its Indian operations in 2017, which subjects it to foreign currency risks due to Canadian operations [296]. - In 2024, the Company experienced minimal impact on net income from foreign exchange rate fluctuations [297]. - The Company does not expect future foreign exchange gains and losses to be significant given the size of its Canadian operations [297]. Regulatory and Tax Considerations - Public policies affecting funding for educational products may change, leading to decreased demand and pricing for the company's offerings [126]. - Changes in tax laws and accounting standards may affect the company's effective tax rate and reported financial results, making future earnings less predictable [157][158]. Product Lifespan - The estimated useful life of the modular product is 18 years with a residual value of 50%, while containers have a useful life of 25 years with a residual value of 62.5% [144].

Financial Performance - Total revenues from continuing operations for Q4 2024 were $243.7 million, a 10% increase compared to Q4 2023[1] - Net income from continuing operations for Q4 2024 was $38.9 million, or $1.58 per diluted share, up from $32.0 million, or $1.30 per diluted share in Q4 2023[1] - For the full year 2024, total revenues increased to $910.9 million, a 10% rise from $831.8 million in 2023[2] - Adjusted EBITDA for the full year 2024 was $351.7 million, reflecting a $33.4 million increase, or 10%[2] - Total revenues for the twelve months ended December 31, 2024, increased to $910,942,000, up 9.5% from $831,842,000 in 2023[22] - Gross profit for the twelve months ended December 31, 2024, was $435,415,000, representing a 10.6% increase compared to $393,633,000 in 2023[22] - Net income for the twelve months ended December 31, 2024, rose to $231,727,000, a 32.7% increase from $174,621,000 in 2023[22] - Earnings per share from continuing operations for the twelve months ended December 31, 2024, was $9.44, compared to $4.57 in 2023, reflecting a 106.4% increase[22] - Total revenues for Q4 2024 reached $243.746 million, a 9.9% increase from $221.706 million in Q4 2023[30] - Adjusted EBITDA for Q4 2024 was $92.002 million, compared to $87.869 million in Q4 2023, indicating a 4.8% increase[30] - Total gross profit for Q4 2024 was $114.757 million, up from $110.122 million in Q4 2023, representing a growth of 4.8%[30] Cash Flow and Dividends - Cash flows from operating activities for the twelve months ended December 31, 2024, amounted to $374,375,000, significantly up from $95,343,000 in 2023[26] - The Company declared a cash dividend of $0.485 per share for Q1 2025, a 2% increase from the prior year[3] - Cash dividends declared per share increased to $1.90 for the twelve months ended December 31, 2024, compared to $1.86 in 2023[22] - Net cash provided by operating activities for Q4 2024 was $36,779,000, a significant recovery from a cash used of $(23,560,000) in Q4 2023[45] Assets and Liabilities - Total assets as of December 31, 2024, were $2,277,584,000, an increase from $2,217,283,000 in 2023[24] - Total liabilities decreased to $1,154,216,000 as of December 31, 2024, down from $1,283,481,000 in 2023[24] Operational Metrics - Average utilization rate improved to 76.0% in Q4 2024, compared to 79.7% in Q4 2023[30] - Rental revenues increased to $124.220 million in Q4 2024, up from $123.563 million in Q4 2023, reflecting a growth of 0.5%[30] - Average monthly total yield for Q4 2024 was 2.15%, slightly down from 2.19% in Q4 2023[30] - The average monthly total yield for rental operations was 2.34% in 2024, slightly down from 2.43% in 2023[33][36] - Average utilization rates for rental equipment were 77.5% in 2024, compared to 79.7% in 2023, showing a decline of 2.2 percentage points[33][36] Expenses and Costs - Selling and administrative expenses for Q4 2024 totaled $51.669 million, compared to $54.506 million in Q4 2023, a decrease of 5.4%[30] - Interest expense for Q4 2024 was $8.858 million, compared to $12.126 million in Q4 2023, reflecting a reduction of 26.5%[30] - The company incurred interest expenses of $47,241,000 in 2024, compared to $40,560,000 in 2023, marking an increase of about 16.6%[33][36] - The company incurred transaction costs of $2,002,000 in Q4 2024, up from $1,575,000 in Q4 2023[42] Future Outlook - For full-year 2025, the Company expects total revenue between $920 million and $970 million[15] - The Company anticipates Adjusted EBITDA for 2025 to be between $345 million and $360 million[15] - The company plans to continue expanding its rental operations and investing in new rental equipment to support growth[22] Other Notable Items - The company reported a gain on merger termination of $116,841,000, contributing positively to operating activities[26] - The company reported a foreign currency exchange loss of $270,000 in Q4 2024, compared to a gain of $144,000 in Q4 2023[30] - The gain on sale of used rental equipment was $9,900,000 in Q4 2024, compared to $8,678,000 in Q4 2023, showing an increase of 14.1%[45]