MCGRATH RENTCORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was a year with challenges but resilience shown, navigating market demand conditions and terminated merger.
• Mobile Modular had strong quarter with commercial and education rentals growing, sales growth from new initiative.
• Portable Storage affected by soft commercial construction due to high interest rates.
• TRS seeing some early positive signs in customer activity.
• 2025 outlook: Mobile Modular has growth opportunities, Portable Storage hopes for market stabilization, TRS expects business to stabilize.
• Phil Hawkins promoted to Chief Operating Officer.
• Company milestones: 40th anniversary as NASDAQ-listed and 34th consecutive year dividend increase.

Segment Performance

• Mobile Modular: Fourth quarter rental revenues grew 8% and sales revenues grew 32%. Full year total revenues and adjusted EBITDA increased 10% and 5% respectively. Rental revenue gains from pricing optimization and Mobile Modular Plus services offset lower units on rent. Sales growth reflects progress with new Modular sales initiative. Fleet utilization ended the quarter at 75.1%.
• Portable Storage: Rental revenues declined by 15% in the fourth quarter. Less activity in commercial construction driven by high interest rates was a primary factor.
• TRS-RenTelco: Adjusted EBITDA was $19.1 million, a decrease of 8% compared to last year and total revenues decreased 3% to $34 million. Rental revenues decreased 9% as the industry experienced continued end market weakness.

Guidance

• Full year 2025 total revenue expected between $920 million and $970 million, adjusted EBITDA between $345 million and $360 million.
• Mobile Modular expected to be primary driver of adjusted EBITDA growth, shifting from capital spending to operating expense in 2025, expecting $9 million to $13 million higher operating expenses.
• Portable Storage expected to have lower adjusted EBITDA in 2025 than 2024.
• TRS expected adjusted EBITDA comparable to 2024.

Risks

• Market demand fluctuations leading to business delays and softness, e.g., construction-related demand softness affecting Mobile Modular and Portable Storage.
• High interest rates impacting Portable Storage business.
• Industry competition and macroeconomic uncertainties affecting overall performance.

Question and Answer

Q: Talk about growth in Modular segment between education and commercial in fourth quarter and full year?

A: Fourth quarter commercial grew 9%, education grew 7%, full year balanced.

Q: Elaborate on pricing convergence tailwind in Mobile Modular?

A: Average unit on rent is $828, new shipments over last 12 months at $1,220, sizable gap indicating pricing convergence pressurizing rent revenue growth as fleet turns.

Q: Thoughts on acquisition pipeline?

A: Opportunities exist in industry consolidation, particularly in Modular and Portable Storage, with opportunities from owner life events regardless of economy.