Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp Second Quarter 2024 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 call is being recorded today, Thursday, July 25, 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, backlog 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-Q for the quarter ended June 30, 2024. 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. Please go ahead, sir.

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, and residential, to name a few. Our broad reach gives us a diversified base of clients with 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 that 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. 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 their 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 industry-wide 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. We are 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 teams in the front office, in our production centers and in the field continue to provide 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 this 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.

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 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. 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% 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. 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 notes outstanding, $544 million under our credit facility, and 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.

We’ll take our first question from Scott Schneeberger with Oppenheimer. Please go ahead. Your line is open.

Thanks very much. Good afternoon. Joe and Keith, I’ve got a few and I’m going to go around the segments a bit. I’ll start with modular. Could you speak to the two main business lines you serve, education and commercial? Just if you can compare and contrast, first quarter you mentioned the highest rental backlog in company history, and that was largely driven by education. Sounds like both education and commercial are up year-over-year. If you can just delve in a little bit more to that on the rental side. Thanks.

Sure. Scott, you’re correct. Both education and commercial were up. Commercial was up 14% and education was up 6%. So, even though commercial construction has been a little bit softer as we’ve highlighted from the Portable Storage business, we were seeing good results from government and private industry, healthcare, and things like that, which have offset that a little bit. And we’ve been pleased with the progress that we made. And again, our rental backlogs have been very good. The backlog is 24% up from a year ago, and so that’s good. And on the education side, the continuing lack of sufficient funding in school districts to do all the work that they need to do to fix decrepit facilities is just continuing. Funding is there, but it’s never enough. And so, that’s just a continuing cycle of opportunity for us, and it’s happening in virtually all the regions that we operate in. In areas like Florida, where there’s continued student population growth, we’re also seeing districts that just can’t keep up. And so, they open a school and it just doesn’t have enough room. They need rental buildings and we’re there to provide them for them. So, that has been in play for this quarter for us.

Joe, just following up on that, that you said commercial up 14%, education up 6%. I would have thought education up bigger, but is that just because we’re in the Q2 and the real big activity occurs? You have a big backlog there, but the real big activity would occur more so in the third quarter. Is that why that one was not actually stronger on the print?

Yes, that’s a great point, and yes, you are correct. Third quarter is typically our best quarter for education and fourth quarter.

Thanks. Appreciate that. Just a sense on the commercial side, you hit on it a little bit, but I want to ask, are the mega projects carrying the day? I imagine in modular, you might have some softness on the smaller projects due to interest rate sensitivity. And I’m going to ask a similar question on storage in a minute. But just curious what you’re seeing, large and small customers in modular and any other breakout you care to share that would be insightful in regard to the end markets being served?

Yes. Scott, you’re absolutely right. It’s the smaller projects that are associated with commercial construction that we’ve seen less of, and it’s due to exactly what you said. It’s higher construction costs, interest rate issues that have precluded the start of some of those projects. But the mega projects and large infrastructure projects that we’ve been involved with and continue to be involved with have been there. We definitely are seeing that as a continuing rental demand issue for us. And so we’re right there for those projects and we’re glad to be part of them, and they’re continuing very nicely.

Thanks. Joe, just to clarify something you said a moment earlier, did you say in commercial, the backlog was up 24% year-over-year in this quarter?

No, that’s overall modulars.

Overall.

Yes, overall. Correct.

And I would assume that’s heavier weighted to education and commercial, but good in both. Is that the right way to think about it?

I think that’s accurate, yes.

Okay. Just wrapping up on modular, I’m curious about shipments or even quoting activity, which is a little bit more of a leading indicator. But you and Keith spoke to shipments on the call. Just that ties into that backlog, but how does it look there for you in your deliveries, your shipments?

Sure. Our quoting levels have been quite strong, and they were up 14% on a year-over-year basis. So we’ve been very pleased with how that’s panned out so far for the year. Shipments were comparable about to a year ago. And so with strong quoting activity, that usually means future shipments for us, and I think that that will pan out as the year progresses. So we’re happy to see that.

And that answer, was that commercial alone or was that modular overall?

Modular overall. Overall modular, correct.

Thanks. And then my last one on modular, just the pricing environment. I heard what Keith mentioned and see it on your slide, slide 24 that, for instance, your shipments, the pricing is up 13% in the last 12 months and that sounds strong. What are you seeing for the pricing environment out there looking out over the balance of the year?

It’s been healthy. We’ve been able to really increase the revenue per unit based on the Mobile Modular Plus that we’re providing for our customers and also modest pricing increases too. So, you combine those two things together, our revenue per unit has gone up very nicely. We’re happy to see that.

Thanks. And I’m going to segue over to the Portable Storage segment now. I guess, let’s just go with pricing because we were talking about it. It sounds like you’re holding the line and still have solid pricing, although volumes are off, which I’ll ask about next. But could you just speak to the pricing, I guess integrity that you’re experiencing?

Yes. I think that’s accurate. We are, our preference is to hold pricing, and that’s what our teams have been doing, and they’ve been doing a very nice job of it. And so, we’ve been happy to see that there is good industry discipline there, and we’re going to continue to try to maintain pricing wherever we can. Keep in mind too that we are also putting additional services inside of our containers, which is helpful on overall revenue per unit for our Portable Storage business too. So that’s an impact on overall pricing in a positive way.

Thanks. Understood. And then just swinging it on Portable Storage to volumes, it just sounds like commercial construction a little more exposure there to rate sensitive projects, but anything else to add there? I assume that’s the answer, but if you could just take it a little bit more broadly, please. Thanks.

Yes, I think that’s accurate. Our overall, that business has the most exposure to commercial construction and that’s where we have seen the weakness. It’s a lot of smaller projects that we’ve talked about earlier that were not as many starts in the first half of the year. And as projects rolled off, we’ve gotten returns that were a little bit higher than what we had planned. And so that’s overall affected our revenues for the business. But I think really fundamentally that’s where the softness we’re seeing in that business.

I just want to address the quoting and shipments question to get a sense of the lead indicator. Are we approaching a bottom, or are we just fluctuating at the bottom? Could you share your observations on quoting activity from the customers? Thank you.

Quoting activity in that business has decreased. However, looking at indicators like the construction backlog, which focuses on commercial construction starts, there has been a slight increase. While it's not at last year's levels, it's on an upward trend compared to earlier this year. Overall, I don't see conditions significantly worsening. I'm optimistic that we might be reaching a low point. I don't perceive any major macroeconomic challenges that would push this part of the business further down. The potential for interest rate cuts in the second half could also help boost demand. Additionally, our retail business typically performs well in the second half, and that hasn't picked up yet. So, I'm overall confident that we won't experience any major downturns.

Thanks, Joe. Just a couple more, and I appreciate you allowing me this time. In TRS, just two important business lines of yours are semiconductor business and then 4G to 5G transition. If you could just comment on trends you’re seeing in both of those? Thanks.

Yes. What we’ve shared in last quarter was our computer and semiconductor business has just been slow, and that’s reflective of things that are taking place within that industry. Intel as an example, under massive reorganization internally. And so there just aren’t as many projects that are taking place in that business. And we’re seeing that trend continue. And so, if you look at switch over to the communications side, the wireless portion of the business, and the 5G activity that has taken place in the field, we’re just not seeing as much of it as we have in the past. The carriers are not, as aggressively upgrading to 5G networks in the field. So, we’re not seeing as much activity there. But on the wired side, we’re seeing quite a bit, and that’s associated with data centers and all the work and backhaul and everything that is associated with putting a data center in place. A lot of that work is going on. And so that was a positive impact for us for the quarter. But overall, we’re seeing in that business, our trends are typically not off from what we’re seeing from our OEMs that we buy from. Keysight as an example and other OEMs have reported softness in their sales, and we’re seeing the same thing. And so we’re confident that we’re not giving up any market share, losing customers, anything like that, and that we’re maintaining our discipline with pricing in the market. And we just need to get through this trough that we’re in at this point.

And just following real quick on the 5G part, that slowdown, is that a cyclical thing or is that a secular thing that you’re sensing?

I don’t think it’s cyclical. I think it’s secular. There’s just not as much activity taking place in the field. And the contractors that we work with, that do that work just aren’t as busy.

Okay. And, any leads, that’s the last one and then I have a final on regulatory. But anything that gives you a sense we could see that turn in the TRS segment, or is it kind of like how you answered portable storage, kind of sounds like bouncing along the bottom and looking for indicators?

I believe we are at a low point. We track our rental bookings very closely, and for July, our daily rental bookings have shown consistent improvement. Additionally, our billing rate is gradually increasing. While the improvement is not significant, it's encouraging that things aren't getting worse. We're pleased to see this trend, which gives me a positive outlook for the remainder of the year.

Thanks, Joe. And then lastly, just on the FTC front with the pending acquisition by WillScot, Mulvaney. I saw just some things in the queue. It didn’t seem like any meaningful new information. Just, you’re not permitted to close the transaction before September 27th, but it didn’t sound I mean, it sounds like we’re just still waiting on them to continue to research the situation. Is that the appropriate way to look at it, or is there a meaningful update there? And then it seems there’s something with State’s Attorney General. Could you comment on that too? Thanks.

Yes. Scott, you’ve read the 10-Q correctly. Both ourselves and WillScot agreed to extend the time available to the FTC to review the transaction and agreed not to close before September 27th. And then it’s customary in situations like this that certain state attorney generals may want to review the transaction as well. So, ours is subject to some similar review.

Thanks, Keith. And just a final follow-up on that. Does that mean that we’re probably not going to hear from the FTC in their process until September or is that just legal wording and there is a chance we could hear sooner?

Yes, we really can’t speculate on when the FTC will be complete with its work.

We’ll take our next question from Marc Riddick with Sidoti. Please go ahead. Your line is open.

Hi, good evening.

Hi, Marc.

Hi, Marc.

So, I wanted to touch a little bit on sort of where we were with the growth initiatives and maybe sort of how you’re positioned there as far as Modular Plus and site related services certainly have moved nicely. I was wondering if you could talk a little bit about maybe how you’re positioned or what you may need for the remainder of the year given the demand environment? Should we be looking for additional hiring or are there other things that you need to sort of support that growth as we get through the remainder of the year?

I believe we are well-equipped internally with the resources needed to meet future demand. It’s primarily a matter of the sales team executing their responsibilities efficiently and delivering Mobile Modular Plus services to our customers. We are highly focused on this and are poised to perform well. In terms of site-related services, we are actively seeking all opportunities to offer that service to our customers. These projects can be more variable compared to Mobile Modular Plus, so you may notice fluctuations in revenue, particularly if we secure a larger project in a given quarter. Nonetheless, we are confident that we have the infrastructure, training, and team in place to manage this effectively.

Yes, you probably recall the Mobile Modular Plus, think of that as attaching additional items to the contract for the building and that then becomes part of the recurring revenue stream. And as Joe pointed out on the site related services, think of that as really one time typically at the time the unit is set up at the beginning of the contract, so that can be more lumpy. It’s really tied to activations. Some of those projects are fairly large, so you’ll see some of the comps can move around a little bit, but year-to-date in both areas, making good progress.

Okay, great. And then it seemed as though, in the commentary around education, it seemed as though there’s the seasonal timing involved, but the demand certainly is still there and especially given the fact that it’s going up against fairly not certainly not easy comparisons. I was wondering if you could talk a little bit about if you’re seeing anything in particular, regional, are there any pockets of regional strength that are worth calling out? And then sort of as a follow-up on top of that, there’s always kind of the thought process around the timing of funding initiatives and things that may be on the ballot coming up for November and in some cases September. Maybe you could talk to a little bit about are there any areas that we should be looking for potential funding changes?

Yes. Regarding funding, I don’t see any significant changes in the public’s acceptance of putting local bonds on the ballot to help with education facility projects. Most parents know the condition of schools, and they want their kids to go to a school that’s got good infrastructure. And so they’ve been overwhelmingly passing these local bonds. I don’t think that’s going to change anytime in the future. And the success rate of these bonds passing has always been very high. So, I just don’t think that’s going to change. We’re seeing that same mentality and activity literally across the country. I wouldn’t say there’s any particular strong point. It’s been pretty balanced and present in all the geographies that we operate in.

Okay. And then just sort of curious, are you seeing any difference between public and private activity as far as demand in projects that are in the works?

I wouldn’t say there’s any significant difference there. There’s we have activity in both of those segments, both public and private. And it just depends on where in the U.S. that the project could be and for what size. We’ve got some very large sales projects in the private sector that we’re working right now and we’ll continue to do that.

Okay, great. And then I guess the last one from us, wondering if there are any particular areas where you’re getting any push. They didn’t seem as though there were any, but maybe you could sort of just put a fine point on whether or not you’re seeing any pushback in any particular pricing dynamics in any parts of the business that we should be aware of. It didn’t seem like enough numbers, but I was just like curious.

Yes. What I would say, Marc, is pricing in the last couple of years has gone up largely to account for higher costs. Cost of new units has gone up, cost of maintaining the existing fleet has gone up. I think there’s been some moderation in those inflationary pressures. So, now what you’re seeing is normal cycling of the fleet where new contract pricing is generally higher than legacy contract pricing, and there is some upward inflationary pressure, but not as acute as it was two or three years ago, and we were talking about that a lot when it was causing us much higher costs. So, the environment, I think, overall is a little better from a cost point of view, and I think pricing has been stable with some positive effects as the fleet turns. And of course, as we mentioned earlier, our initiatives in areas like Mobile Modular Plus, which we’re all trying to capture more revenue per unit as we service the customer.

That’s it from me. I appreciate it. Thank you.

Thanks. Marc.

Thank you.

And 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.

I’d like to thank everyone for joining us on the call today and for your continuing interest in our company.

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