Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp Fourth Quarter 2023 Earnings Conference Call. At this time, all conference participants are in a listen-only mode. Later, we will conduct a question and answer session. This conference call is being recorded today, Wednesday, February 21, 2024. Before we begin, note that the matters the company management will be discussing today that are not statements of historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to the company’s expectations, strategies, prospects, 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-K 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-K for the quarter ended December 31, 2023. 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, Bill. Good afternoon, everyone. Thank you for joining us on our call today. We are pleased to be together today and look forward to providing additional perspective on our strong finish to the year. I will start with some overall comments on our fourth quarter and full year 2023 performance and Keith will provide additional detail in his financial review before we open the call up for questions. On a total company basis, we delivered strong results in the fourth quarter. Rental revenue increased 19%, sales revenues increased 12%, and adjusted EBITDA grew by 12%. This progress was achieved with a combination of stable modular and storage market conditions and solid execution of our strategy. Along with a good market, our people made all the difference. Without the dedicated work of our teams across the country, we would not have realized these strong results. Mobile modular had impressive fourth quarter performance. Rental revenue increased 37%. Equipment on rent increased for the fourth quarter, both from Vesta equipment integrated into the fleet and augmented with organic growth. Pricing also continued to see healthy gains with higher new shipment rates driving total fleet pricing positively. We maintained our focus on pricing optimization with solid gains on fleet average pricing as well as pricing on new orders compared to a year ago. Additionally, the performance of portable storage for the quarter was healthy with a 13% increase in rental revenues. This increase reflected strength and execution as we expanded in the markets where we operate. Our strategy to be a solution provider to our customers yielded results. We realized healthy growth with our mobile modular plus and site-related services initiatives. These initiatives provided convenience and value to our customers. In addition, modular equipment sales revenues increased 21% for the quarter. The organization infrastructure we have built to enable custom modular sales gained traction in the market and our team was more productive. At TRS-RenTelco, rental revenues decreased by 11% reflecting continued weakness in the computer and semiconductor part of the business. To adjust for the softer market conditions, we reduced purchases of new equipment and sold fleet, reducing our fleet size by 9.5 million during the quarter. Our team was very focused on managing the portfolio effectively in varied market conditions. We continued work on the Vesta integration during the year. In November, we successfully moved all Vesta transaction and financial systems over to McGrath and we are now fully integrated. Overall, Vesta has performed very well and we saw many successes in the combined businesses during the fourth quarter and for all of 2023. I'm very proud of everything we accomplished in 2023. Integrating Vesta was a lot of extra effort for our teams who tirelessly worked to ensure we achieved all of our internal milestones on time and with success. Simultaneously, we executed well on our growth initiatives with positive moves in pricing and utilization while also finding opportunities to deploy new fleet. In addition, we completed three portable storage tuck-in acquisitions, opening some new markets and increasing density in others. We also grew new modular sales as we continued to position ourselves as a solutions provider to a wider customer base. All of this demonstrated successful execution of our strategy that we implemented over the past few years. Reflecting on the impressive performance track record for McGrath, none of it would have been possible without the dedication and commitment of our entire McGrath workforce. This is a special company filled with people who truly understand the meaning of service to each other and to our customers. The engagement and level of commitment has been truly inspiring to me and I'm privileged to lead such a wonderful group of people. To everyone, I would like to extend my sincere thank you for a job well done in 2023. You should all be very proud. On January 29th, we announced the merger with WillScot Mobile Mini for $3.8 billion. This marks a transformation for McGrath as we become part of a new organization. Our focus will remain on execution of our plans and delivering positive financial results. We will not be providing any financial guidance or outlook for 2024. This conference call will address only our fourth quarter and full year 2023 results. Additional information about the merger will be set forth in the joint proxy statement that we will file together with WillScot. Now, let me turn the call over to Keith.

Thank you, Joe, and good afternoon, everyone. As Joe highlighted, we delivered strong results in the fourth quarter, driven by the performance in our mobile modular and portable storage businesses. Looking at the overall corporate results for the fourth quarter, total revenues increased 21% to $221.6 million, and adjusted EBITDA increased 12% to $87.9 million. During the fourth quarter, we determined that our portable storage business met the accounting standards criteria for separate recognition in a reportable segment. Our discussion today will therefore include separate reviews of both our mobile modular and portable storage disaggregated segments. Turning to the review of Mobile Modular's operating performance, as compared to the fourth quarter of 2022, mobile modular had an impressive quarter, with adjusted EBITDA increasing 27% to $54.1 million. Total revenues increased 36% to $150.7 million. There were increases across all revenue streams, including 37% higher rental revenues, 50% higher rental-related services revenues, and 21% higher sales revenues. The Vesta Modular acquisition was an important contributor to fourth quarter results, and accounted for approximately two-thirds of mobile modular rental revenue growth. In addition to the contributions from Vesta, our rental operations experienced strong organic growth across our commercial and education customer bases. Sales revenues increased $7.4 million to $42.3 million, demonstrating execution of our initiative to grow modular sales projects. We continued our disciplined fleet management on a much larger fleet, and achieved a 32% higher average rental equipment on rent, with average fleet utilization of 79.7% compared to 80.5% a year ago. Keep in mind that we have achieved this healthy total fleet utilization while integrating Vesta's fleet, which was utilized in the mid-70s at the time of acquisition. The average monthly rental rate for the portfolio was 2.75%, which was 4% higher than a year ago, and reflects our focus on pricing optimization, as well as healthy market conditions. Rental revenues increased by 37%, while inventory center costs increased 29% and depreciation expense increased 37%, resulting in rental margins of 63%, up from 62% a year ago. Similar to last quarter, I will share additional data that help illustrate our progress with our modular business strategic focus. Fourth quarter monthly revenue per unit on rent increased 15% year-over-year to $743, for new shipments over the last 12 months, the average monthly revenue per unit increased 13% to $1,059. These pricing dynamics are significant positive revenue drivers. As the rental fleet churns, we expect a rental revenue tailwind as the average rental unit pricing for all units on rent moves towards current market rates. 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 full year 2023, Mobile Modular Plus revenues increased to $27.5 million from $19.1 million a year earlier, and site-related services increased to $24.5 million, up from $14.1 million. As I mentioned earlier, we are now providing portable storage information as a separate segment, disaggregated from the Mobile Modular segment. So I will now provide a review of portable storage in the fourth quarter. Adjusted EBITDA for portable storage was $12.8 million, an increase of 20% compared to the prior year. During the quarter, we saw increases in all revenue streams at portable storage, resulting in a total revenue increase of 18% to $27 million. Rental revenues for the quarter increased 13% to $19.8 million, and rental margins were 87%, up from 86% a year earlier. The average monthly rental rate was 4.02%, an increase of 7%, which reflects healthy market conditions. Average rental equipment on rent increased 6%, while average utilization for the quarter was 74.8%, compared to 84.9% a year ago. Turning now to a review of TRS-RenTelco, adjusted EBITDA was $20.7 million, a decrease of 18% compared to last year. Total revenues decreased $6.2 million, or 15%, to $35.2 million. Rental revenues for the quarter decreased 11%, as we experienced continued softness in semiconductor-related demand. The average monthly rental rate was 4.16%, a decrease of 1%. Average utilization for the quarter was 58.9%, compared to 63% a year ago. And rental margins were 41%, compared to 42% a year ago. Sales revenues decreased 34% year-over-year to $5.8 million, with gross profit decreasing to $3.2 million as a result of lower sales revenues and decreased margins. To address the challenging business conditions at TRS, we maintained our return on capital discipline. We reduced new equipment capital spending, focused on sales of used equipment, and reduced fleet size, based on the original cost of equipment, from a peak of $398 million at the end of March to $374 million at the end of December. We continued to make progress with reducing fleet size to better align with demand conditions. The remainder of my comments will be on a total company basis from continuing operations. Fourth quarter selling and administrative expenses increased $15 million to $54.5 million. The increase primarily reflects the addition of Vesta, higher variable compensation, and $1.7 million of M&A transaction expenses. Interest expense was $12.1 million, an increase of $8 million, as a result of higher average interest rates and $317 million higher average debt levels during the quarter, which was primarily the result of funding of our acquisitions. The fourth quarter provision for income taxes was based on an effective tax rate of 26.7%, compared to 21.8% 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 $95 million, compared to $194 million in the prior year. Tax payments related to the gain on sale of Adler Tank Rentals funded most of the reduction. Rental equipment purchases, excluding equipment received from recent acquisitions were $230 million, compared to $188 million in the prior year. The total cash paid for acquisitions year-to-date of Vesta, Brekke, Dixie, and Inland was $462 million. Proceeds from the sale of Adler Tank Rentals were $268 million. In addition to significant investments in the new fleet and the acquisitions, healthy cash generation allowed us to pay $46 million in shareholder dividends. At quarter-end, we had net borrowings of $763 million, comprised of $175 million note outstanding and $588 million under our lines of credit, with capacity to borrow an additional $62 million under these lines of credit. The ratio of funded debt to the last 12 months actual adjusted EBITDA was $2.34 to one. We are very proud of McGrath's strong fourth quarter and full-year performance, and we are fully focused on solid execution in 2024. That concludes our prepared remarks. Bo, you may now open the lines for questions.

Thanks very much. Good afternoon, Joe. Good afternoon, Keith.

Hi, Scott.

Hi, Scott.

Hey, I want to start out just volume trends in Mobile Modular. If you could address, I guess now we haven't broken out, but in modular and portable storage, I understand you're not going to provide guidance for 2024, but I'm curious what type of momentum you have as you're exiting 2023? Sounds good, but I just want to get a sense of is that something that can persist or are we near a tail? Thanks.

Yes, Scott. Let me try to help there, and I'll give you a couple of data points, and you can see some of this in the new disaggregated segmentation. We had more equipment on rent in the modular segment. Equipment on rent in the fourth quarter was up 32%. If you look at the increase, obviously a big portion of that was related to the Vesta acquisition, but if you strip out the impact of Vesta, our organic growth in the modular fleet was up about 9%, so about a 9% increase on the original cost of equipment on rent. So I think that is a good indicator of positive market conditions and positive really work done by our teams. If you look over in the portable storage side, we also had an increase in equipment on rent. In that part of the business, equipment on rent in the fourth quarter was up around 6%. I would say most of that is related to the M&A that we did during the year 2023, as you may recall, with three tuck-in acquisitions. And so what we saw in the fourth quarter was certainly contribution from the acquisitions we had done, positive conditions in much of the market, slightly positive, but a bit softer conditions in the retail portion of the business. That is not a huge segment for us, but it is a segment we participate in, and we saw a sort of shorter and softer retail contribution in the fourth quarter when compared with a year ago.

Thanks, Keith. Appreciate that. And just one more on the volume theme. Any comments on quoting activity, new order activity, just what you're seeing hearing from customers out there, large and small? Thank you.

I would say, yes, go ahead, go ahead, Keith.

Yes. I would say, again, good activity levels for the fourth quarter, and as we exited the year, business conditions overall fairly stable.

I would agree with that. Stable is a good word.

Okay. Thanks, guys, on that. Kind of the same question, but now on the pricing front. Appreciate the charts you share, which tells a good story. But either you'd like to elaborate on the pricing momentum you have right now, maybe categorize in modular or large small project, any way you'd like to break it out. But just curious what you're seeing overall and with a little bit of detail? Thanks.

Yes, Scott, I would say that what we've experienced this year was continued momentum with pricing, and that just went all the way into Q4 for us. So, we have been able to continue to increase pricing both in our education and commercial part of the business, and that just follows the trend that we were following the entire year. And I believe it just reflects that there's still room to increase pricing, and we don't see that ending anytime soon.

All right. Thanks, guys. Just a couple more from me. It's curious, Mobile Modular Plus, site-related services, maybe some discussion of the product categories where you're having some of the most success? Thanks.

Well, with Mobile Modular Plus, I mean, it's our offering of product inside of the building. So it could be furniture, it could be coffee makers, water coolers, whatever it is that holding tanks, things like that, damage waivers, and we're seeing growth in all of those areas. And so it's been pretty broad-based, and we've been very pleased with the traction that we've gotten within the sales force. Site-related services are things that are done outside the building. For somebody who wants a more of a turnkey approach, and that could be walkways, overhead covers, other types of landscaping or driveways or whatever somebody wants to have to use when they have the building installed to make it more than just having a trailer delivered. And so we had opportunities to do that in the quarter, too, and it actually was a very nice quarter for us in our site-related services. So those are just some of the applications for both of those segments.

Thanks. Now, Vesta, congratulations, it looks like all your integration initiatives are now complete, and I know that's a big step, so kudos there. Synergies, if you could remind us, I know that there was EBITDA, Synergy run rate, $8 million by 2024. Just maybe a progress report right here at this time at the end of the '23. Joe, Keith, about where you stand with that, and if there's any update to what you think you can procure there? Thanks.

Yes, I would say, Scott, as we really have indicated, throughout the journey with Vesta, we're very pleased with the business. We're really pleased with the great work done by the joint team, thrive integration. We feel very good about all of our financial goals, including synergies in terms of what we expected and what we have accomplished to date and the outlook for the business.

Thanks, and just one last one. TRS, continuing to see a bit of cyclical softness, particularly semiconductors, I guess, if you can take us a level deeper on to where you are in that cycle? What you're hearing from those customers, and then, maybe just an update on 4G to 5G and trend there? Thanks so much.

Sure. I mean, we've been dealing with this now for most of 2023. We would have expected to come out of this trough by now, and we're hoping that is definitely the case. I think usually these cycles don't last for significant amounts of time, and in Q4, we saw just continued weakness in that particular sector. And so, I can't speculate on when we think that's going to happen. But with more of the AI initiatives and research going on, we'd like to be involved in that and are involved in that, and so that's certainly a bright spot that's out there. And then for the continuing 5G, that's been, I would say, rolled out on a very, very slow basis in tower modifications and backhaul upgrades and things like that for increased bandwidth to deal with 5G have been methodical, but I would say not in any kind of accelerated basis that we saw in 2023. It was pretty much kind of steady business that we got. I don't see that necessarily changing.

Okay. Thanks. That's all from me. Good job.

Thank you, Scott.

Thank you very much, Mr. Pratt. And we'll take our first question this afternoon from Scott Schneeberger at Oppenheimer.

I'd like to thank everyone for joining us on the call today and for your continuing interest in our company. We look forward to speaking with you again in late April to review our first quarter results.

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