MCGRATH RENTCORP (MGRC)·Q3 2024 Earnings Summary

Executive Summary

• Q3 delivered solid top-line and operating performance: total revenues from continuing operations rose 10% to $266.8M and adjusted EBITDA increased 13% to $104.0M, driven by strong Modular rental and services; GAAP diluted EPS was $6.08, boosted by the $180M reverse-termination fee, while underlying diluted EPS ex-merger items was $1.87 .
• Modular was the highlight: rental revenues +9%, rental margins expanded to 62% (from 59%), monthly revenue per unit on rent +18% to $820; education (+10%) and commercial (+8%) rentals both grew, with pricing tailwinds expected to continue into 2025 .
• Portable Storage (-11% rental revenue; utilization 62.8%) and TRS-RenTelco (-10% rental revenue; utilization 57.3%) faced broad demand softness tied to slower commercial construction and industry-wide test/measurement downturn, partly offset by wired/data-center strength in TRS .
• Guidance reinstated: FY24 total revenue $910–$920M, adjusted EBITDA $345–$351M, rental capex $180–$190M; Q4 assumptions include Modular slightly up in rental, fewer site-related services, TRS and Portable Storage below Q3 levels; S&A (ex-merger costs) up sequentially and interest expense ~$10.5–$11M .
• Capital and leverage: termination fee proceeds used to reduce debt; funded debt/TTM adjusted EBITDA at 1.75x; broader “journey” net proceeds after total transaction costs and taxes ~$86M to be allocated across organic growth, M&A, dividends/buybacks, and debt paydown .

What Went Well and What Went Wrong

What Went Well

• Modular momentum: rental +9%, services +23%, sales +14%; rental margins expanded to 62% and monthly revenue per unit on rent rose 18% to $820, reflecting pricing discipline and add-on services (Mobile Modular Plus, site-related) .
• Balanced end-market strength: education rentals +10% and commercial +8%; robust quoting and bookings (double-digit increases), with broader commercial wins across government and technology verticals .
• Guidance reset and financial flexibility: FY24 guidance introduced post-merger termination; termination fee proceeds immediately reduced debt, leaving leverage comfortably at 1.75x and well below covenants (2.75x cap) .
  “Sometimes companies emerging from a terminated merger process are damaged. We are not.” — Joseph Hanna .

What Went Wrong

• Portable Storage softness: rental revenues -11% YoY, utilization fell to 62.8% (76.5% prior year); broad-based weakness tied to lower commercial construction activity and higher-than-planned returns; Q4 segment expected below Q3 .
• TRS-RenTelco downturn: rental revenues -10% YoY; rental margins compressed to 37% (40% prior year); ongoing semiconductor/wireless weakness with sales revenues -13% YoY despite stronger wired/data-center demand .
• Merger-related noise: while GAAP EPS benefitted from the $180M fee, total 2024 transaction costs reached $61M YTD (and ~$63M over the full “journey”), creating non-operating volatility; normalized diluted EPS was $1.87 in Q3 .

Financial Results

Segment revenue breakdown

KPIs and operating metrics

Note on estimates: S&P Global Wall Street consensus (revenue/EPS/EBITDA) was unavailable at the time of request; therefore, no estimate comparisons are shown.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “For the third quarter, total company revenues increased 10% and adjusted EBITDA increased 13%… Mobile Modular had a strong quarter with rental revenues growing 9% and sales revenues growing 14%.” — Joseph Hanna .
• “The proceeds received… resulted in a $104 million net income contribution during the quarter, or $4.21 per diluted share.” — Keith Pratt (context of the $180M termination fee and $39M transaction costs) .
• “We are back to normal quarterly earnings reporting… there is clearly uncertainty in the overall demand environment… Portable Storage and TRS may continue into 2025.” — Joseph Hanna .
• “We ended the quarter at 1.75… we are extremely comfortable… cap of 2.75.” — Keith Pratt on leverage .

Q&A Highlights

• Modular mix: education rentals +10% and commercial +8% YoY; pricing tailwinds expected into next year; quote volumes up double-digit (partly aided by Vesta) .
• Portable Storage trajectory: rental revenues declined sequentially through Q1–Q3; Q4 likely below Q3 despite maintaining pricing discipline; quoting, bookings, shipments all down on softer demand .
• TRS downturn duration: prolonged vs past cycles; wireless (towers) slow; wired communications strong; sequential trends in a “narrow band,” suggesting stabilization .
• Termination fee economics/use: broader “journey” net proceeds closer to $86M after lifetime transaction expenses and taxes; near-term use to debt paydown, then balanced allocation across organic/M&A/dividends/repurchases .
• SG&A and hiring: post-merger, pent-up hiring to fill open positions; SG&A higher in Q4 sequentially .

Estimates Context

• S&P Global Wall Street consensus (EPS, revenue, EBITDA) was unavailable at the time of request; therefore, estimate comparisons cannot be shown. The quarter’s GAAP EPS of $6.08 was heavily influenced by the $180M termination fee; underlying diluted EPS of $1.87 provides a cleaner run-rate marker for analysts revisiting models .
• Management’s FY24 guidance implies continued modular strength and segment softness in Portable Storage and TRS for Q4, which may prompt estimate adjustments that tilt higher for Modular and lower for the other segments, consistent with the qualitative outlook .

Key Takeaways for Investors

• Underlying performance solid: strip out the non-operating merger items and the business delivered $266.8M revenue, $104.0M adjusted EBITDA, and $1.87 diluted EPS; Modular is the core growth engine with pricing and service add-ons driving margin expansion .
• Segment divergence: stay overweight Modular, cautious on Portable Storage (rate-sensitive small projects) and TRS (semi/wireless cyclicality), while recognizing wired/data-center tailwinds in TRS .
• Pricing power intact: monthly revenue per unit and rental margins continue to rise in Modular; expect this tailwind as fleet churn and value-added services deepen penetration .
• Guidance reintroduced: FY24 revenue $910–$920M and adjusted EBITDA $345–$351M frame Q4 expectations; watch SG&A sequential uptick and segment seasonality mix .
• Balance sheet flexibility: $180M fee reduced debt; leverage at 1.75x TTM adjusted EBITDA supports organic growth, selective M&A (Modular/Portable Storage), and capital returns (dividend, increased repurchase authorization to 2M shares per Sept. release) .
• Near-term trading: focus on Q4 mix (Modular up slightly vs Q3; fewer site-related services; TRS/Portable Storage below Q3); monitor quote/bookings trajectory and any macro rate signals improving commercial construction starts .
• Medium-term thesis: multi-year Modular runway via geographic expansion, services, and custom sales; education modernization and select mega-projects underpin demand; cautious optimism if rates ease into 2025 .

Citations: 8-K earnings press release and financials ; Q3 2024 earnings call transcript ; Q2 press release and 8-K ; Q2 call ; Q1 8-K and call ; Merger termination press release .