Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp Second Quarter 2022 Earnings Call. At this time, all conference participants are in a listen-only mode. Later, we will conduct a question-and-answer session. This conference is being recorded today, Thursday, July 28, 2022. Before we begin, note that the matters the company management will be discussing today that are not statements of historical facts or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our full-year 2022 financial outlook, as well as statements relating to the company’s expectations, strategies, prospects or targets. These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected. Important factors that could cause actual results to differ materially from the company’s expectations are disclosed under Risk Factors in the company’s Form 10-Q and other SEC filings. Forward-looking statements are made only as of the date hereof. Except as otherwise required by law, we assume no obligation to update any forward-looking statements. In addition to the press release issued today, the company also filed with the SEC the earnings release on Form 8-K and its Form 10-Q for the quarter ended June 30, 2022. 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. Go ahead, sir.

Thank you, Chelsea. Good afternoon, and thank you everyone for joining us on today's call. For our second quarter, we delivered excellent results; business momentum that we highlighted previously in our first quarter continued in the second quarter and translated into positive performance across our business units. On a company-wide basis, rental revenues improved 17% together with strong sales growth of 29%. A focus on our growth strategy and corresponding execution is continuing to show results, and we remain very energized on driving our strategic initiatives to fruition. Market conditions were favorable, and we took advantage of tailwinds to move the business forward for the benefit of all our stakeholders. Turning now to specific observations for each of our business divisions. First, I will highlight our results for mobile modular, our largest business segment. Rental revenues grew 22% and reflected strength in our legacy business and the acquisitions we completed in 2021. Units on rent, pricing, and deployment of the new fleet all grew in the quarter. Both our commercial business and education business performed well for the quarter. Construction activity was robust, and we continue to serve many diversified end customers. Infrastructure projects, serving government needs and large commercial projects continued at healthy levels, including units supplied to applications as diverse as military bases, fire stations, and space exploration companies. Our capabilities to fulfill both rental and sales projects across both commercial and education markets continued to be a strong selling point as we are able to serve any combination of these customers depending on the need and project type. Funding was good and fueled activity levels across all of our geographies. Our education customers continue to proceed with both modernization and growth projects depending on the geographies and particular school district needs. Student population increases continued to be considerable drivers of business for us as districts cannot build facilities fast enough in high growth areas. Additionally, student population shifts in states like California drove orders. In any state, there can be growth demand in counties gaining students, while also continued modernization demands in districts with no enrollment growth. Turning to our portable storage business. This particular operation within the Modular segment delivered a 33% increase in total revenues in the second quarter. Our legacy locations, as well as newer branches, all continued to see growth as we gained scale and pricing was healthy. We have been selectively adding fleet to organically grow this segment. Our sales teams again executed very well in the second quarter and continue to focus on providing an exceptional experience for our customers with each transaction, creating continued repeat business. At TRS-RenTelco, we were pleased by the performance of the business for the second quarter. Rental revenues grew by 7%, and we continue to see healthy growth in our general purpose rentals, which generally have longer rental terms. Demand was broad-based and reflected investment in R&D projects by the major technology companies, as well as major companies in aerospace and defense. Our communications rentals also grew nicely and continued to support efforts by the primary telecom carriers to implement 5G. Both field work and infrastructure work such as fiber optic cable installation drove demand in the quarter. Our proactive ordering of fleet in the first quarter enabled us to fulfill increased customer requirements during the second quarter, despite some supply chain delays from suppliers. Our highly experienced product management team does an excellent job keeping the fleet technologically up-to-date and positioned to fulfill customer orders. At Adler Tank Rentals, we realized 18% rental revenue growth for the quarter. Demand was broad-based both in the vertical markets we serve such as environmental services, which positively affected all of our geographic locations. Industrial activity continued to be strong, which translated into tank and box needs for maintenance and plant work during the quarter. Our national branch locations allow us to take advantage of projects of all sizes and to be responsive and able to help customers quickly meet their needs. Our three business divisions have been firing on all cylinders year-to-date, so now as we continue our strategic work to grow our modular business, I would like to remind you about the opportunities we see and where we are focusing our efforts. We continue to gain traction on our solutions-based approach to serving our modular customers. Beginning with the core rental or sale of a modular building or container, we can provide everything the customer needs to use with the building. On the inside, we can provide an array of needs, including desks, chairs, meeting tables, and other ancillary items. We can also provide options for the customer on the outside of the units from electrical connections to ramps, stairs, walkways, overhead covers, and more. If the project is larger, we can provide turnkey assistance and hand the finished project over to the customer when complete. This can include larger installations such as administrative buildings, government buildings, military buildings, and commercial projects for infrastructure like power plants and airport expansions. We are in the early innings of this effort and are very encouraged by the progress we have made so far. I would also like to thank everyone in our company for the enthusiasm they show in the relationships they have with our customers and each other. Without our dedicated and performance-oriented team, we could not deliver the type of results we realized this quarter. Congratulations everyone for a job well done. Looking ahead, we have a good foundation to build from, including a strong first half of the year performance runway. Our bookings are healthy, and customer feedback indicates a positive outlook. As such, we are increasing our full-year guidance. I am very pleased with our second quarter and first half performance in 2022, as we continue to execute our strategy. Now let me turn the call over to Keith.

Thank you, Joe, and good afternoon, everyone. As Joe highlighted upfront, we delivered excellent performance in the second quarter with continued positive performance across the board. Our core rental businesses were healthy organically, along with incremental contributions from the acquisitions of Design Space and Titan Storage containers completed last year as part of our strategic expansion objectives for our modular business. Looking at overall corporate results for the second quarter, total revenues increased 21% to $177 million. The revenue increase was primarily from improved rental operations along with higher sales revenues. With Mobile Modular, TRS-RenTelco, and Adler Tanks, each growing rental revenues year-over-year, reflecting increased demand and healthy business conditions. Second quarter adjusted EBITDA increased 13% to $66.3 million, and consolidated adjusted EBITDA margin was 37%. Breaking the operating performance down by rental division, compared to the second quarter of 2021. Mobile Modular total revenues increased $26.8 million or 32% to $111.4 million. There were increases across all revenue streams, including 22% higher rental revenues, 31% higher rental related services revenues, and 68% higher sales revenues. Approximately half of the increase in rental revenues was from the Design Space and Titan Storage containers acquisitions, while the core organic modular rents increased a healthy 11%. Commercial and education revenues both increased with particular strength in commercial. Sales revenues increased $10 million to $24.8 million from both increased new and used equipment sales consistent with our initiatives to capture more modular equipment sales projects. The total fleet average monthly rental rate for the quarter was 2.72%, which was 5% higher than a year ago and reflects improved pricing conditions. Average fleet utilization for the quarter increased to 78.1% from 75.5% a year ago, even as we added more fleet, reflecting continued improvement in market demand conditions. Higher rental revenues were partly offset by 51% higher inventory center costs and 10% higher depreciation expense, resulting in rental margins of 51%, compared to 57% a year ago. The higher inventory center costs reflect the addition of the acquired businesses, higher business activity levels as we prepared equipment to meet strong order activity levels, as well as some inflation pressures for materials and labor costs. As we experienced some rental margin pressure in the quarter, it is important to note that expenses to prepare equipment are realized in the period incurred, but offsetting price increases that are included in rental revenues are realized over the term of the lease. At TRS-RenTelco, total revenues increased $3.6 million or 11% to $37.3 million. We saw increases in both rental and sales revenues with rental revenues increasing $1.9 million and sales revenues increasing $1.6 million. Rental revenues for the quarter increased 7%, we saw improved demand for communication equipment rentals, which increased 9% and continued strength in general purpose rentals up 6%, compared to a year ago. The average monthly rental rate for the quarter was 4.02%, up 2%, compared to a year ago. This higher average rental rate coupled with 4% higher average equipment on rent reflects good demand and pricing for general purpose and communications equipment rentals. Average utilization for the second quarter was 64.5%, compared to 67.7% a year ago, resulting in rental margins of 40% unchanged from the previous year. Sales revenues increased 35% year-over-year to $6.4 million, with gross profit increasing 23% to $3.6 million. At Adler Tank Rentals, total revenues increased $3.7 million or 19% to $23.7 million on higher rental and rental related services revenues. Rental revenues for the quarter increased 18%. We continue to see demand improvement, which was broad-based across our five geographic regions and six industry verticals and reflects further recovery from pandemic lows in adolescent markets. The average monthly rental rates increased 2% for the quarter to 3.35%, reflecting a generally stable pricing environment. Average utilization for the second quarter increased to 51.6% from 44%, and average margins -- average rental margins improved to 54%, compared to 49% a year ago, reflecting improved demand conditions. The remainder of my second quarter comments will be on a total company basis. Selling and administrative expenses increased $4.5 million or 13% to $40.8 million. The primary driver of the increase was $3.1 million higher employee salaries and benefit costs, primarily due to the addition of Design Space employees. Interest expense was $3 million, an increase of $0.7 million the result of higher average levels attributable to our strategic acquisitions last year and an increase in average interest rates. The second quarter provision for income taxes was based on an effective tax rate of 22.8%, compared to 24.6% a year earlier. The reduced rate this year was primarily due to higher excess tax benefit from stock compensation. Given the recent increase in interest rate outlook, and our higher rental equipment capital spending for growth, which incrementally increases total debt, we now expect full-year interest expense to be approximately $14.5 million to $15 million, compared to our April estimate of $13 million to $14 million. Turning to our year-to-date cash flow highlights. Net cash provided by operating activities was $82 million, a decrease of $16 million as higher net income was offset by changes in working capital and deferred income taxes. Rental equipment purchases were $94.8 million, compared to $58.9 million in the prior year, reflecting increased demand compared to a year ago and our corresponding increased investment for organic growth in modular and portable storage fleet. Healthy cash generation allowed us to pay $22.1 million in shareholder dividends. At quarter end, we had net borrowings of $441.5 million, comprised of $160 million notes outstanding and $281.5 million under our credit facility. The ratio of funded debt to the last 12-months actual adjusted EBITDA was 1.69:1. We were pleased to announce on July 15 that we completed an extension of our credit facility to July of 2027, while also increasing our borrowing capacity from $420 million to $650 million. This increased borrowing capacity makes us well positioned to continue strategic investment in our business. Finally, we are raising the financial outlook that was previously provided in February and confirmed in April. The positive rental and sale demand trends across each of our business segments continue to be encouraging. For the full-year, we currently expect total revenue between $695 million and $720 million, adjusted EBITDA between $266 million and $276 million, and gross rental equipment capital expenditures between $145 million and $155 million. That concludes our prepared remarks. Chelsea, you may now open the lines for questions.

Thank you, sir. And our first questions come from Scott Schneeberger with Oppenheimer. Your line is now open.

Thanks very much. Good afternoon. I guess I'd like to take us around the segments. So first off, just overall in mobile module, last year, some supply chain constraints kicking in around this time of year and you were involved with the acquisition. Just curious how things have improved in that time period? And your thoughts on sustainability overall for the segment? I know you don't want to give 2023 guidance, but the strength you're seeing it sounds like you're comfortable through year-end. Is it something that you believe can persist thereafter? Thanks.

Yes, Scott. I'll take it, and just to address the supply chain question, you're right, it was about this time last year that we really started talking about it. It's been something that we've been working through and continue to work through. I wouldn't say that those issues have abated in any significant way. But I think we have taken definite steps to make them less acute in terms of how they've affected the business. Number one, our ordering processes, we've found different suppliers, we've ordered ahead. We've planned better to be able to deal with some delays. Also, the price increases that we've experienced, we've implemented a number of different price increases in various parts of the business like surcharges and rental rate increases and things like that. So I think we're in much better shape than we were this time last year. And I feel good that we've got that under control. In terms of the second part of your question, and that is the momentum that we're seeing, right now customers are still enthusiastic about the work that they have in front of them. And I'd like to point out that we have a couple of different places in the business where we have a lot of resiliency. Number one, we have a lot of education business, the funding dynamics in that part of the business are very strong, there's a lot of bond money that's been passed. And so it's a matter of just selling those bonds and that typically continues even in less stable economic conditions, so that's good. The technology push that we continue to see across the TRS business in terms of increasing bandwidth, the 5G rollout, those things I think are going to continue even if economic conditions get softer. And then when you turn to Adler, we've come off of pandemic lows in that business and we're still not anywhere where we could be really if that business was firing on all cylinders. We've improved quite a bit, but we still have a long way to go. So even if things get soft, I just don't see that really affecting that business significantly because we're just coming off of a low point. So hopefully that's helpful and explains a little bit about at least our sentiment in the next months ahead here. And you're right, 2023, we haven't done that planning yet, but we'll be doing that in October and November.

Okay. Thanks. Joe, curious with regard to the education vertical, you mentioned certainly sufficient funding availability there. Could you just kind of compare and contrast this environment now to historical time periods in the past? And is this better or worse than what you're seeing in that vertical historically? And things that could speed it up or slow it down potentially on the horizon? Thanks.

Yes, sure. Actually, I think it's pretty good. We hit a little bit of a slow period during the pandemic when districts were turning their attention to just trying to educate kids in a completely new environment. And now the kids are back in the classrooms, we're seeing attention turned back to facilities. And I believe that the momentum there is pretty good, and I would compare it to the equivalent of what we've seen pre-pandemic. And so I feel good about that part of the business.

Great, thanks. I appreciate that color. You touched a bit on TRS before. I want to hone in as we often do on 5G penetration, where would you put us what inning in the ballgame or however you wanted to term it, where would you put us in that process? Are we still very early with many, many years to go? Have you seen it accelerate at all from the last few quarters? Just curious about cadence and activity there? Thanks.

Sure. Yes, I would say we're in inning number two or three. I mean, just from a personal perspective, I mean, I don't even have a 5G phone and I don't really know a lot of people that do at this point. So the whole network really hasn't been rolled out in a serious manner here. And so there is a lot of field work that needs to be completed. And then all of the data centers, all of the infrastructure, the backhaul, all the fiber optic cables that need to increase bandwidth there, those are still being installed and that's going to continue. So I think we're very early; I think we're going to continue to see upside from 5G in that part of the business. I don't think it's going to be a huge spike or anything. But I think it's a nice gradual increase that we'll see and a very nice part of that business that will continue to deliver for us. So overall positive sentiment there.

Thanks. And you've seen that momentum building in recent quarters out of the pandemic, obviously, you just forecast it, which is more important than you think it will persist, but that's exactly the pattern you've seen?

Yes, yes.

Excellent. All right. Thanks on that. Last segment, Adler, you touched a bit on a few of the end markets served and everything sounded quite good. Could you confirm, are you seeing growth across all the end markets that you serve? Or are there any that are lagging? And then just any particular anecdotes, particularly in the oil and gas category of what you might be seeing? Thanks.

Yes. I think we're seeing growth in pretty much all of our locations. I think the one that might be a little bit slower for this quarter was construction. But the other ones that we monitor closely, I mean, have really grown very nicely. And I think the construction was not necessarily any kind of slowdown indicative of what's happening in the business at all. It's just from quarter-to-quarter sometimes, we have projects come on and off rent and it's just more a cycle type thing that we see in the business on a regular basis. But I would say that turning to oil and gas, we -- it's a small part of the business for us right now. It's like 5% of rental revenues in Adler, and so we've really worked to have that be less of an impact on the business, because of the cyclicality of it. But when it's strong that's very good for us and when there's a high price of oil that creates activity in the plants. There's more and more people that are out driving now, the price of gas and everything has the plants running at full capacity. And in that situation, they need to have us there in case there's a maintenance issue or something like that that they need to address. And so that type of a demand environment is always very good for us. And like I said before, we're not really depending on oil and gas to fuel that business. So we're happy to see really broad-based demand across that business, which really insulates us from any issues that we might have in one of the verticals.

Thanks, Joe. I enjoyed the ton there. The -- just a clarification in Adler, with your saying construction, just a little bit of cyclical dynamic there, kind of a two-fold question, is that anything you're concerned about? Is that just a particular dynamic that's unique in construction with liquid storage containers? And is that anything that projects to your view of construction overall where obviously your modulars are serving and sounds like it's going well? Just kind of curious about that, that comment and the difference in the patterns of those two businesses? Thanks.

Yes, no concern. It’s just a normal cycle of ebb and flow in that business when projects come on and off rent. So I'm not concerned about it.

Okay. And are you confident about non-residential construction otherwise from what you're seeing?

Correct, yes.

Excellent.

Yes.

Thanks. Great, I appreciate that. I will turn it over. Thanks for filling all those.

Thanks, Scott.

All right, thank you. Our next question will come from Marc Riddick with Sidoti. Your line is now open.

Hi, good afternoon everyone.

Hi, Marc.

Hey, Marc.

So I wanted to dive into sort of the pricing strength that you're seeing pretty much across the board, but just wanted to sort of hone in a little bit on maybe the execution of the pricing dynamic and maybe if you could talk a little bit about, sort of, how that's played out through the to the quarter, whether that was something that you were just able to take advantage of as you went along or was this sort of something that's had its greater visibility now than it had in the past?

Well, Keith, let me start off, and I don't know if you want to chime in there. Marc, I will tell you that the pricing work that we've done in the business has been very deliberate and a very focused effort to improve whenever and wherever we can. And we've -- I think we've shared on prior quarterly calls that we have some sophisticated tools in the business to help us do that. So we watch our pricing very closely. The pricing environment is healthy and we've been stepping it up wherever and whenever possible, not only because we see that opportunity, but we're very interested in mitigating the effects of the cost increases that we're seeing in the business too. So again, very deliberate and very focused effort on our part to watch that.

Yes, Marc. I'll highlight a couple of areas where our teams have done really nice work. One area that will be no surprise is when we deliver product to customers, we're seeing the pressure of increased fuel costs and also really over the last couple of years increases in compensation for drivers. It's a challenge to find good drivers; retain them, and everybody's facing that challenge. And we've made a lot of adjustments in the Adler business and the portable storage business to make sure we're pricing appropriately for that part of the service and making sure we maintain healthy margins. And a lot of that work was really done and reviewed and really strategically pressed on in the first part of this year, and we're really seeing results from that, so really good work there. The other area that we've talked about in a number of these calls as a challenge area is some of the -- particularly the material price inflation and secondarily some labor cost inflation that impacts our modular inventory centers and that's what we're spending money to repair equipment and get equipment ready for the next rental opportunity. There I would say from a pricing point of view, we had paused or moderated some of the rate of increase during the pandemic period really since the beginning of this year, we've made it a focus to look hard at adjusting pricing to help offset some of that challenge, particularly on the material and cost inflation and make sure that the economics of our transactions will deliver a healthy margin over the full rental term. So again a lot of work being done in the last few months, a lot of actions being implemented, and I think we're paying close attention to what is still a fairly dynamic picture, but our team is doing a lot of good work on it, and I think we've got the right approach.

That's great. Thank you so much for that. And then the last thing for me is I just wanted to touch a little bit on what you're seeing, as far as the acquisition pipeline, there continues as soon as though, there continues to be some potential targets. So I’ll maybe just talk about the overall pipeline and your general appetite, what we're seeing currently, particularly within the U.S.

Yes, I can answer that. Yes, the pipeline is healthy, and we are very interested in looking at opportunities, and we'll continue to do that. As evidenced by our transactions that we did last year, it is part of our growth strategy. It's an important part, and it's one that we're going to continue to pursue. So we're encouraged by the activity that we're seeing out there. And as you see, we did some refinancing, and so we're positioning ourselves to do more, and we're excited about that. Are you there, Marc?

Thank you. Ladies and gentlemen, that appears to be the last question. Let me now turn the call back over to Mr. Hanna for any closing remarks.

All right. Thank you very much. We’re -- I'd like to thank everyone for joining us on today's call, I apologize and for your continuing interest in our company. We look forward to speaking with you again in late October to review our third quarter results.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and you may now disconnect.