McGrath RentCorp

Ladies and gentlemen, thank you for standing by. Welcome to the McGrath Rent Corp third quarter 2025 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, you will need to press the star key followed by the one key on your telephone. This conference call is being recorded today, Thursday, October 23, 2025. Before we begin, note the matters of the company management we'll 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 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 8K and its Form 10Q for the quarter ended September 30, 2025. Speaking today will be Joe Hanna, Chief Executive Officer, and Keith Pratt, Chief Financial Officer. I'll now turn the call over to Mr. Hanna. Go ahead, sir.

Mr. Thank you, Dave. Good afternoon, everyone. We appreciate your attendance on McGrath Rent Corp's third quarter earnings call for 2025. It's a pleasure to be here today, and we're eager to share further insights into our performance. I'll begin with an overview of our third quarter results before Keith shares the financial details, and then we will open up the call for questions. For the third quarter, total company rental operations revenues rose by 4% with growth from all three of our rental businesses. Project activity remained steady despite ongoing market uncertainties. Mobile modular rental revenues increased by 2%. The rental revenue growth we experienced in the quarter was primarily due to commercial activity centered around larger infrastructure projects across all our geographies. Smaller projects have been less prevalent, which is consistent with the trend we have experienced year to date. We had a busy education season with a good level of new shipment activity. funding for the education business remains solid as the need for classroom modernization and growth in select areas remains consistent with higher shipments volumes for the quarter we faced higher inventory center costs to prepare equipment for delivery we used off-rent inventory rather than investing in new product continuing to manage the fleet with a sharp focus on deploying capital efficiently Despite challenges in the demand environment, our booked orders increased during the third quarter. This was encouraging and positive for our momentum entering the first quarter. Our ongoing efforts with Mobile Modular Plus and site-related services continue to go well. Both experienced healthy growth during the quarter. We continue to be pleased with our year-to-date progress. At portable storage, rental revenues increased by 1 percent year-over-year and by 2 percent sequentially from the prior quarter. Shipments grew and pricing remained stable. Opportunities in energy, data centers, and seasonal retail offset the flat construction market. Overall, we are encouraged by these positive signs that suggest the market may be stabilizing after a challenging demand contraction in 2024. Here at Rentalco's rental revenue grew by a strong 9%. Both our general purpose and communications rental revenues saw strong growth, maintaining positive momentum from the first half of the year. Utilization at a healthy 65% improved year over year and remained steady sequentially versus the second quarter. Rental demand pipelines remain solid as we enter the fourth quarter, indicating that the business is well positioned to continue its growth trajectory. Returning my comments to the whole company, we do not believe McGrath is currently facing any immediate headwinds due to the ongoing federal government shutdown, and any potential impacts from a long shutdown are unclear at this time. With regard to the dynamic tariff environment, the impact of tariffs has been managed appropriately by our teams and has had minimal impact on our results. Looking ahead to the rest of the year, uncertain market conditions persist. Non-residential construction indicators such as the architectural billing index or ABI remain soft. we remain focused on our strategic growth priorities dedicated to expanding our modular and portable storage businesses. Over the course of this year, we have taken steps to enter new regions, grow our Mobile Modular Plus and site-related services initiatives, and increase our coverage through tuck-in acquisitions. All of these items support our efforts to become a true national modular solutions provider capable of serving our customers with storage units, single-wide units, large multi-floor and multi-story facilities and services to meet all their space needs. I want to thank all our team members for your third quarter accomplishments and steadfast commitment to delivering the highest quality service to our customers. Our culture at McGrath is a driving force behind our growth as we introduce more customers to the exceptional experience we offer. I am pleased with our progress so far in 2025, and we remain dedicated to providing value to our customers and shareholders as we finish the year. With that, I will turn the call over to Keith, who will take you through the financial details of our quarter and our updated outlook for the full year.

Thank you, Joe, and good afternoon, everyone. Looking at the overall corporate results for the third quarter, total revenues decreased 4% to $256 million, with rental operations increasing 4%, and sales revenues decreasing 18% during the quarter. Assisted EBITDA decreased 7% to 96.5 million. Excluding prior year items related to the terminated Will Scott merger process, net income for the third quarter decreased 3.6 million, or 8%, to 42.3 million, and diluted earnings per share decreased $0.15 to $1.72. Reviewing Mobile Modular's operating performance as compared to the third quarter of 2024, Mobile Modular total revenues decreased 5% to $181.5 million. The business saw 2% higher rental revenues and 5% higher rental-related services revenues, which were offset by 21% lower sales revenues. The sales revenues decrease was primarily due to lower new equipment sales. As we discussed in July, while 2024 sales were more concentrated in the third quarter, this year we expect a more balanced contribution from sales and related gross profit across the third and fourth quarters. This quarter had higher infantry center expenses to prepare available fleet for new shipment demand, which allowed us to minimize rental equipment capital spending. We also operated with higher selling and administrative expenses to support broader sales coverage. As a result, adjusted EBITDA decreased 10% to 64.6 million. With softer demand conditions, we saw a lower average fleet utilization of 72.6%, compared to 77.1% a year earlier. Despite the softer market demand, Third quarter monthly revenue per unit on rent increased 6% year over year to $865. For new shipments over the last 12 months, the average monthly revenue per unit increased 3% to $1,192. As Joe highlighted, we continue to make progress with our modular services offerings. Mobile Modular Plus revenues increased to $9.7 million from $7.9 million a year earlier, and site-related services increased to $15.6 million, up from $12.7 million. Overall, Mobile Modular had a solid quarter as we continued to make progress with our modular business growth strategy, despite some challenging demand conditions. Turning to the review of portable storage, rental revenues for the quarter increased 1% to $17.3 million, which is the first year-over-year growth since the first quarter of last year. We have begun to feel encouraged that market conditions for portable storage are showing signs of stabilization despite soft commercial construction project activity. Average utilization for the quarter was 61.4%, compared to 62.8% a year ago. Adjusted EBITDA was $9.2 million, a decrease of 14% compared to the prior year. Turning now to the review of TRS Rentalco, TRS had a strong quarter, with total revenues up 6%, to $36.9 million. driven by higher rental revenues. Rental revenues increased 9% as the industry continued to experience improved demand across markets. Average utilization for the quarter was 64.8%, up from 57.3% a year ago. Rental margins improved 43% from 37% a year ago. Adjusted EBITDA was 20.2 million, an increase of 7% compared to last year. The remainder of my comments will be on a total company basis. Third quarter selling and administrative expenses increased 3.2 million to 52.5 million as we operated with broader sales coverage to support long-term business growth, and invested in information technology projects. Interest expense was $8.2 million, a decrease of $4.5 million, as a result of lower average interest rates and lower average debt levels during the quarter. The third quarter provision for income taxes based on an effective tax rate of 27.7% compared to 26.4% a year earlier. Turning to our year-to-date cash flow highlights, net cash provided by operating activities was $175 million. Rental equipment purchases were $92 million, down from $167 million last year, consistent with lower fleet utilization and our plans to use available fleet to satisfy customer orders. At quarter end, we had net borrowings of $552 million, and the ratio of funded debt to the last 12 months' actual adjusted EBITDA was 1.58 to 1. Wrapping up the financial review, while there is still uncertainty in the demand environment, we are pleased with our year-to-date results, and we have seen some encouraging positive trends as we enter the fourth quarter. As a result, we've upwardly revised our full-year financial outlook, and we currently expect total revenue between $935 and $955 million, adjusted EBITDA between $350 and $357 million, and gross rental equipment capital expenditures between $120 and $125 million. We are proud of McGrath's third quarter performance, and we are fully focused on solid execution for the remainder of the year. That concludes our prepared remarks. Dave, you may now open the lines for questions.