McGrath RentCorp

Ladies and gentlemen, thank you for standing by. Welcome to the McGrath Rent Corp Third 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. At that time, if you have a question, please press star 1 on your telephone. This conference call is being recorded today, Thursday, October 27, 2022. Before we begin, note that the matters the Companies 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 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 10Q 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 released on Form 8K and its Form 10-Q for the quarter ending September 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, Gretchen. Good afternoon, and thank you, everyone, for joining us on our McGrath earnings call today. I hope you are all doing well. Keith and I will look forward to your questions after we each highlight aspects of McGrath's progress in the third quarter during our prepared remarks. We were very pleased with our third quarter results which reflected strength in all of our business units. Total company rental revenues increased by 15% and sales revenues increased by 20%. The third quarter continued our strong performance year to date and reflects effective execution of our strategic priorities as well as favorable market conditions. Turning to each of our business units, Mobile Modular once again had a very impressive quarter. Rental revenues grew by 17% with noteworthy increased performance from our education segment where we are seeing recovery post-pandemic and as school districts continue modernization projects in all of our regions. Our strong presence in growth markets where student population is increasing also drove rentals as districts cannot accommodate students fast enough in permanent facilities. Education rentals, which account for a third of our business mix, grew by nine percent which was the largest increase since the beginning of the pandemic in the first quarter of 2020. Commercial rentals also increased a healthy 20%, driven by continued investment in many different end market requirements. We excel at providing complexes, which are multi-floor units typically customized to specific configurations that are needed by large construction contractors and demand was robust for those products. Examples include data centers, municipal building refurbishments, and industrial expansion projects. We again achieved what I describe as the trifecta in our modular division, as we did in the second quarter, and that is improvement in utilization and pricing while also adding new equipment to grow the fleet. I cannot stress enough the significance of this. Turning those dials to a positive outcome is always a challenge, and success equates to effective management of the fleet, pricing strategy, and smart deployment of capital. We continually strive for positive gains in both price and utilization. Overly aggressive actions to increase price can cause utilization to drop. Overly aggressive actions to increase utilization can cause pricing to decline, neither of which would be constructive. So we try to be very thoughtful in execution and to maintain a strong focus on return on capital from our fleet investments. We finished the third quarter at over 81% utilization, a level our modular division has not achieved since 2008. At the same time, pricing on deliveries in the quarter were up by 11%. On the sales front, revenues grew 10% as we benefited from strong used equipment sales. For our portable storage business, we delivered 38% rental revenue growth and saw strength in demand in all of our markets. We had a nice balance of delivering growth in both pricing and volume. Construction and industrial customers and subcontractors who support both of these verticals contributed to the robust realized demand. Ground level offices continue to be a bright spot for our portable storage business as they are a high financial return product in the portable storage fleet and also represent a high growth opportunity. We are able to efficiently produce most of these units in our modular production centers around the country with consistent high-quality standards. At TRS Rentalco, rental revenues grew 9%, reflecting favorable market conditions. Our billing rates for general-purpose equipment are at historic highs. Investment by major firms in R&D projects continued in the quarter, led by strength in aerospace and defense. and more bandwidth continued to help fuel our communications rentals for 5G-related work. Both wired and wireless equipment rentals were very healthy. We were very pleased with the performance of the business. At Adler, rental revenues grew by 18%, continuing the trend of strong growth in the prior quarter and year to date. Rental performance in all regions and market verticals increased in the quarter. Utilization has improved considerably as we've been filling customer orders from units we already own and can deploy quickly without spending capital to buy new fleet. Additionally, pricing continues to improve as the business is steadily regaining momentum. Adler's demonstrated improved operating leverage in the third quarter contributed nicely to overall division and company performance. I'd like to now turn to higher level macro comments about the demand picture, as well as further strategic execution and progress with our modular initiatives. Given the uncertain macroeconomic outlook, I've been working closely with my leadership team to monitor demand trends and identify any signs of weakness. Currently, the demand metrics we track remain very healthy across the business. I also gather field intelligence from our frontline sales managers to get a current sense of what our customers are saying about projects, momentum, and outlook. In my recent conversations with every one of our sales managers in the modular division, the customer and commercial intelligence they shared was very positive. I am pleased to say project activity remains very healthy. Many customers appear more adept at operating in an inflationary environment and are pricing jobs to reflect higher costs and longer timeframes. We are fortunate to have operating locations in desirable areas to live across the country, and that dynamic is an advantage. We are already booking projects for 2023 and this activity is on par with expectations, so we are not currently seeing any signs of broad-based slowdowns. I'd like to turn next to our modular initiatives, which continue to gain traction. We have three areas of focus, as you know, since we have been communicating these now for several quarters. First is Mobile Modular Plus, through which we provide furniture and fixtures inside the building. Next are site-related services, which are services we provide outside the building, such as walkways, electrical and plumbing connections, overhead covers, and other outdoor features. And last but not least are our custom modular solutions, with sales of modular buildings for larger and more custom projects. While currently small, all three of these initiatives have grown at double-digit rates in 2022 and represent significant long-term revenue potential. We are still in the early innings of growing these initiatives within our modular business, and I'm very excited about our progress, as is our modular leadership. In looking at McGrath as a whole, I would also like to highlight that during the third quarter, we updated our corporate logo and tagline. Our new logo reflects the contemporary McGrath that is strategically focused on growing our modular business. It is also a symbol and acknowledgement of our total company's long-term momentum as evidenced by 31 years of dividend growth, a rare distinction among publicly listed companies and unique among our competitive peers. The tagline, which says, enabling our customers to do great things, reflects what we do for our customers. Our modular classrooms and buildings that provide space for children to learn or commercial construction teams to meet, our electronic test equipment that makes a satellite functional, or our tanks and boxes that are quickly delivered to come to the aid of a customer to contain environmental waste are all true enablers. We are proud of the role we play and strive to be the best in the business. in the many ways in which we touch our customers. All of our successes as a growing company over the years in the third quarter, year to date, and looking ahead could not happen without the care and dedication that our teams across the company show to our customers and each other every day. I would like to express my sincere thank you to every one of our team members for showing up at your best each and every day. and for delivering a very strong third quarter and year-to-date results. On the heels of this strong third quarter and year-to-date performance, we are increasing our full-year financial outlook.

Now, let me turn the call over to Keith.