MCGRATH RENTCORP (MGRC)·Q1 2024 Earnings Summary

Executive Summary

• Q1 2024 delivered solid growth: total revenues from continuing operations rose 15% year over year to $187.8M, Adjusted EBITDA increased 17% to $72.1M, and diluted EPS from continuing operations was $0.93, which included a $0.28 boost from a $9.3M gain on a property sale .
• Mobile Modular was the highlight with rental revenue +19% and segment Adjusted EBITDA +34%; backlog reached “the highest in the company’s history,” driven by education projects, and management front‑loaded capex to meet summer activations .
• TRS‑RenTelco remained a headwind as semiconductor demand stayed soft (rental revenues -13% y/y; rental margins 36% vs 40% a year ago), while Portable Storage saw rental revenue +8% y/y but lower utilization (69.8% vs 80.8% y/y) amid higher returns .
• No financial guidance due to the pending WillScot Mobile Mini merger; a preliminary S‑4 was filed. Management expects to continue “business‑as‑usual” execution through close; estimates from S&P Global were unavailable, so beat/miss vs. consensus cannot be assessed .

What Went Well and What Went Wrong

• What Went Well

  • Mobile Modular strength: rental revenue +19%, sales revenue +49%, rental margins up to 57% (from 49% y/y), and segment Adjusted EBITDA +34% to $43.3M as strategy to expand modular solutions continues to gain traction .
  • Record rental backlog driven by education; CEO: “We finished the quarter with a rental backlog that is the highest in the company’s history… driven by our education segment” .
  • Value‑added services momentum: Mobile Modular Plus and Site Related Services grew 26% and 31% respectively; management emphasized customers value turnkey solutions (inside and outside the asset) .

• What Went Wrong

  • TRS‑RenTelco softness persisted with rental revenues -13% and rental margins down to 36% (from 40%), reflecting continued semiconductor market weakness; management is reducing fleet and capex to align with demand .
  • Portable Storage utilization fell to 69.8% (from 80.8% y/y) due to higher returns and slightly muted construction activity, though rental revenue still rose 8% and margins improved to 87% (from 85%) .
  • Higher interest expense ($12.7M vs. $7.5M y/y) from rate environment and higher average debt; $9.4M of merger transaction expenses also pressured GAAP results .

Financial Results

Company-level performance versus prior quarters and prior year:

Notes:

• Q1 EPS included $0.28 from a $9.3M gain on sale of a property .
• Q4 2023 press release with full EPS/margin detail was not furnished in available sources; revenue and Adjusted EBITDA are from management’s prepared remarks .

Segment breakdown – revenues and Adjusted EBITDA (Q1 2024 vs. Q1 2023):

Key KPIs (segment operating metrics):

Additional segment profitability commentary:

• Mobile Modular rental margins rose to 57% (from 49% y/y) on pricing and services mix .
• Portable Storage rental margins improved to 87% (from 85% y/y) .
• TRS rental margins decreased to 36% (from 40% y/y) on weaker semi‑related demand .

Other P&L/Cash flow items:

• Selling and administrative expense was $59.8M, including $9.4M in merger transaction costs (vs. $14.1M acquisition/divestiture costs in Q1 2023) .
• Net cash provided by operating activities was $59.4M (vs. $35.7M), with rental equipment purchases of $78.6M; dividends paid $12.0M .
• Funded debt/TTM Adjusted EBITDA was 2.43x; notes payable totaled $798.6M at quarter‑end .

Guidance Changes

Management explicitly stated they “will not be providing any financial guidance or future outlook” during the merger process .

Earnings Call Themes & Trends

Management Commentary

• Strategic focus and backlog: “We finished the quarter with a rental backlog that is the highest in the company's history… a positive sign as we now have many units under contract that are already scheduled for shipment.” – Joe Hanna, CEO .
• Execution in Mobile Modular: “Mobile Modular was the highlight… rental revenue increasing 19%… custom modular solutions initiative… positioned… for projects larger and more complex in scope.” – Joe Hanna .
• Profitability drivers: “Rental revenues increased by 19%, while inventory center costs decreased 6% and depreciation expense increased 14%, resulting in rental margins of 57%, up from 49% a year ago.” – Keith Pratt, CFO .
• Education capex: “Education market conditions have been good… most activations… in the summer months. So we really have to front‑load the CapEx to meet demand…” – Keith Pratt .
• TRS cycle response: “We reduced purchases of new rental equipment and sold fleet… reduced our fleet size… confident in our ability to manage the portfolio effectively through cycles.” – Joe Hanna .

Q&A Highlights

• Modular organic growth: CFO quantified Mobile Modular rental revenue organic growth at ~12% (ex‑Vesta extra month) in Q1 .
• Pricing and services mix: Rising revenue per unit reflects higher asset costs and increased attachment of Mobile Modular Plus/services; Vesta data inclusion timing (Nov 2023) explains some metric mix .
• Education backlog/capex timing: Backlog strength is education‑driven; capex is pulled forward mainly to support summer activations .
• Portable Storage utilization: Utilization down y/y due to higher returns and softer bookings; Q1 is seasonally softest .
• TRS visibility: Semiconductor‑related demand remains weak with limited forward visibility; no notable 4G‑to‑5G uptick .
• Property sale: $9.3M gain came from a property previously used by divested Adler Tank Rentals; proceeds redeployed into modular .

Estimates Context

• Wall Street consensus (S&P Global) for Q1 2024 revenue/EPS/EBITDA was unavailable due to data access limits during this session; therefore, we cannot assess beat/miss versus consensus. Management did note non‑recurring items (e.g., $0.28 EPS from property sale; $9.4M merger transaction costs excluded from Adjusted EBITDA) that would have impacted GAAP vs. non‑GAAP comparisons if estimates were available .

Key Takeaways for Investors

• Mobile Modular momentum remains the core driver: pricing, services attachment, and record education backlog underpin revenue and margin trajectory through summer installations .
• Expect near‑term choppiness in Portable Storage utilization despite stable close ratios; pricing and margin discipline appear intact (87% rental margins) .
• TRS remains cyclical and weak; management is actively rightsizing the fleet and curtailing capex to protect returns until semi demand recovers .
• GAAP EPS benefitted from a property sale; adjusted results better reflect operating momentum, but higher interest expense and transaction costs are headwinds during the merger period .
• No guidance while the WillScot Mobile Mini transaction advances; preliminary S‑4 filed. Stock narrative likely centers on: execution into summer education season, cadence of backlog conversion, and regulatory progress on the merger .
• Dividend remains a steady capital return lever ($0.475 per share in Q1), supported by healthy operating cash flow .