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Edited Transcript of MGRC earnings conference call or presentation 2-May-17 9:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 McGrath RentCorp Earnings Call

LIVERMORE May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of McGrath RentCorp earnings conference call or presentation Tuesday, May 2, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph F. Hanna

McGrath Rentcorp - CEO, President and Director

* Keith E. Pratt

McGrath Rentcorp - CFO and EVP

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Conference Call Participants

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* Joe Gregory Box

KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst

* Marc Frye Riddick

Sidoti & Company, LLC - Research Analyst

* Scott Andrew Schneeberger

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp First Quarter 2017 Conference Call. (Operator Instructions) This conference is being recorded today, Tuesday, May 2, 2017.

Before I turn the conference over to Joe Hanna, McGrath RentCorp's President and Chief Executive Officer, I will read the company's safe harbor statement and provide a few other reminders. The matters that company management will be discussing today that are not truly historical are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, including statements regarding the company's expectations, beliefs, intentions or strategies regarding the future.

All forward-looking statements are based upon information currently available to the company, and the company assumes no obligation to update any such forward-looking statements. Forward-looking statements involved risks and uncertainties which could cause actual results to differ materially from those projected. These and other risks relating to the company's business are set forth in the documents filed with the Securities and Exchange Commission, including the company's most recent Form 10-K. In addition to the press release issued today, the company also filed with the SEC the earnings release on Form 8-K and Form 10-Q for the quarter.

I will now turn the call over to Joe Hanna. Please go ahead, sir.

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [2]

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Thank you, [Takia]. Good afternoon, and thank you for joining us on today's call. I'm Joe Hanna, McGrath Rentcorp's President and CEO; and with me is Keith Pratt, our Executive Vice President and CFO. This is my first earnings call while in the seat for the quarter as CEO, and I am pleased to be here today talking about our results and look forward to the opportunity again in future quarters. I'm going to give a summary of Q1 and some operational highlights, and then Keith will review the financial results. After that, we will open up the call to questions.

We were pleased with our first quarter performance as each of our rental businesses achieved higher operating profit and contributed to the company's 11% operating profit increase compared to a year ago. Mobile Modular, TRS-RenTelco and Adler Tank Rentals each contributed higher operating profit of approximately $0.5 million.

Mobile Modular rental revenues for the quarter increased 8% from a year ago, as fleet utilization, rental rates and equipment on rent all increased. Rental revenue growth was healthy across education and commercial markets as well as our Portable Storage business. Each of our modular regions California, Texas, Florida and the Mid-Atlantic achieved growth in rental revenues. We continue to invest in new modular rental equipment, primarily in regions outside California and for our Portable Storage business and grew the rental fleet by 5% year-over-year.

As a result of our ROIC work during 2016, we entered this year with a sharpened focus on the market segments, transactions and pricing that should improve long-term modular performance. While we are still early in this journey, we are encouraged by the progress so far in 2017.

TRS-RenTelco rental revenues for the quarter declined 6%, driven primarily by lower communications test equipment business activity in a continuing highly competitive environment. Communications test equipment rental revenues declined by 15%, but a 3% increase for general-purpose test equipment partially offset the decline. While average equipment utilization increased, average rental rates declined for the quarter, primarily due to the changes in business activity mix. As communications market demand has declined, we have reduced the amount of communications test equipment we own, while selectively investing in general purpose test equipment for growth opportunities. As a result of these actions, we delivered 9% higher first quarter operating profit year-over-year with 6% less average rental equipment and 14% lower depreciation expense.

I am very proud of the job our team has done in managing through the communications market cycle as it continues to trough.

Rental revenues for the quarter at Adler increased 1% from a year ago. Upstream oil and natural gas rental revenue declined from 11% to 6%. This was more than offset by growth in other markets. Outside of upstream oil and gas, improved market conditions in construction, refinery and industrial services all contributed to a 7% increase in total rental revenues at Adler. Average equipment on rent increased to $161 million from $155 million a year ago and average utilization improved, although rental rates continue to be pressured.

Market conditions continue to be highly competitive, and our visibility is limited as a result of the shorter rental terms of typical Adler transactions.

Our fleet size was unchanged year-over-year, and we anticipate very limited new equipment purchases during 2017.

During the quarter, we continued our ROIC work to identify initiatives that should improve long-term company performance, and we invested selectively in new rental equipment for modular buildings, portable storage units and general-purpose test equipment. Most importantly, we've increased the focus of our teams on achieving more with the rental equipment assets that we already own and leveraging the market presence that we have established within each of our divisions.

In summary, while end-market conditions remain challenging for Adler Tank Rentals and to a lesser extent TRS-RenTelco, we are encouraged by our first quarter results, and we will be working hard to build upon this good start to the year.

I'd like to turn the call over to Keith now for his financial review.

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Keith E. Pratt, McGrath Rentcorp - CFO and EVP [3]

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Thank you, Joe. For the first quarter 2017, total revenues increased 1% to $94.8 million from $93.7 million for the same period in 2016. Net income increased 21% to $8 million from $6.6 million, and earnings per diluted share increased 22% to $0.33 from $0.27.

Reviewing the first quarter results for the company's Mobile Modular division compared to the first quarter of 2016, total revenues increased $3.2 million or 7% to $48.3 million on higher rental, rental-related services and sales revenues. Rental revenues increased $2.5 million or 8%, and rental margins increased to 55% from 53%.

Depreciation as a percentage of rents was flat at 16%, and other direct costs as a percentage of rents decreased to 29% from 31%. The combined result was that gross profit on rents increased $2.2 million or 13% to $18.7 million.

Sales revenues increased $0.3 million or 12% to $3 million on higher new and used equipment sales. Selling and administrative expenses increased 11% to $13.8 million, primarily as a result of increased salaries and employee benefit costs and higher allocated corporate expenses. The higher gross profit on rental revenues partly offset by lower gross profit on rental-related services revenues and higher selling and administrative expenses resulted in an increase in operating income of $0.5 million or 6% to $8.6 million.

Finally, average modular rental equipment for the quarter was $745 million, an increase of $35 million. Average fleet utilization for the first quarter increased to 76.8% from 76.1%.

Turning next to the first quarter results for the company's TRS-RenTelco division compared to the first quarter of 2016. Total revenues decreased $2.7 million or 10% to $25.3 million due to lower sales, rental and rental-related services revenues. Rental revenues decreased $1.2 million or 6%. However, rental margins increased to 42% from 38%, as depreciation as a percentage of rents decreased to 41% from 45% and other direct costs as a percentage of rents was flat at 17%. The net result was an increase in gross profit on rents of $0.4 million or 5% to $8.3 million.

Selling and administrative expenses decreased 2% to $5.7 million. The higher gross profit on rental revenues and lower selling and administrative expenses were partly offset by lower gross profit on rental-related and sales revenues. The net impact was a 9% increase in operating income to $5.7 million.

Finally, average electronics rental equipment at original cost for the quarter was $246 million, a decrease of $15 million. Average utilization for the first quarter increased to 62.2% from 59.6%.

Turning next to the first quarter results for the company's Adler Tanks division compared to the first quarter of 2016. Total revenue of $20.5 million was comparable to the same period in 2016 as higher rental, rental-related services revenues were offset by lower sales revenues. Rental revenues increased $0.1 million or 1%, and rental margins increased to 57% from 54%, as depreciation as a percentage of rents decreased to 27% from 28% and other direct costs as a percentage of rents decreased to 16% from 18%. The net result was an increase in gross profit on rents of $0.4 million or 6% to $8.2 million.

Selling and administrative expenses were $7.3 million, which was comparable to the same period in 2016. The higher gross profit on rental and rental-related services revenues, together with comparable selling and administrative expenses, resulted in an increase in operating income of $0.6 million or 36% to $2.3 million.

Finally, average rental equipment for the quarter was $307 million, a decrease of $1 million. Average utilization for the first quarter increased to 52.3% from 50.3%. On a consolidated basis, interest expense for the first quarter 2017 decreased $0.8 million or 22% to $2.8 million from the same period in 2016 as a result of the company's lower average debt levels and lower average interest rates and the expensing in 2016 of $0.5 million of prepaid debt issuance costs in conjunction with the company's 2016 new line of credit.

The first quarter provision for income taxes was based on an effective tax rate of 39.9% in 2017 compared to 39.5% in 2016. The first quarter effective tax rate included an $18,000 excess tax benefit related to the implementation of ASU 2016-09.

Next, I'd like to review our 2017 year-to-date cash flows highlights. Net cash provided by operating activities was $25.8 million, a decrease of $13.7 million compared to 2016. The decrease was primarily attributable to an $11 million income tax refund received in 2016 and by an increase in prepaid expenses in 2017. We invested $15.9 million for rental equipment purchases compared to $22.8 million for the same period in 2016.

Property, plant and equipment purchases increased $5 million to $5.8 million in 2017. Net borrowings decreased $2.4 million from $326.3 million at the end of 2016 to $323.8 million at the end of the first quarter 2017. Dividend payments to shareholders were $6.2 million.

At quarter end, the company had capacity to borrow an additional $248.1 million under its lines of credit, and the ratio of funded debt to the last 12 months actual adjusted EBITDA was 1.98:1. First quarter 2017 adjusted EBITDA increased $0.1 million to $36.3 million compared to the same period in 2016, with consolidated adjusted EBITDA margin at 38% in 2017 compared with 39% in 2016. Our definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income are included in our press release for the quarter.

Turning next to the 2017 financial outlook. The company reconfirms its expectation that total company operating profit will increase 3% to 5% above 2016 results.

That concludes the prepared remarks on our quarterly results. [Takia], you may now open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Joe Box with KeyBanc.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [2]

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So I want to dig into the difference between rental revenues and sales revenues. Obviously, the rental component was really good, put up the highest growth rate since 2Q '15. That was somewhat offset by the sales trends here. I guess, what I'm looking for is just any sort of color around the guidance that you guys gave before for rental revenues to be up 1% to 3% for the full year and then I think it was sales to be flattish year-over-year in '17. Does that still stand? Or are you going to update that?

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Keith E. Pratt, McGrath Rentcorp - CFO and EVP [3]

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Yes. Maybe I'll just take the comments of financial outlook right up front. And I think, Joe, when we start the year, and it's only about 9 weeks since we gave over full year outlook, obviously, it's our best judgment on what we think the business can accomplish. We've had a really good start to the year. We're really pleased with that. But if you look across the businesses, there's a few things to note. First of all, the majority of our earnings occur in the second half of the year. With 2 of our businesses, Adler and TRS, they are relatively short rental-term businesses. So we'll see a lot of turnover of transactions in the months ahead. And as you also know with the modular business, the education segment is very important to us; and really we know a lot more when we're through part of the education season, which is typically in the summer months. So when we look at the outlook, I want to make a few upfront comments. We're very pleased with the start to the year. We'll simply know a lot more when we're further into the year as to whether the outlook is going to be significantly different from what we had at the start of the year. It's a little too early in the year to make any adjustments. Rental revenue growth in the first quarter was broadly in line with the percentage range we indicated when we started the year. Sales were just slightly lower in the first quarter, and that was related to the electronics business having lower sales in Q1 compared to the first quarter of the year before. But really, the sales portion of the business can move around a lot quarter-to-quarter. And I don't think there is anything to panic about that it was a little bit lower in Q1, again, primarily in the electronics business. So I don't know if that's helpful, but that sort of framing how we've given our outlook and our recommendation and belief that we want to be a little further into the year before we make any changes if that's merited. But we are very pleased with the start to the year.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [4]

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That is helpful. Thanks, Keith. And then it looks like pretty good execution across the board on your other cost bucket, particularly in your Mobile Modular segment. Can you maybe just put some context around that type of improvement? Did you have any sort of new initiatives that you were pursuing? Were there any kind of onetime items? And maybe just any color or context on how we could see that trend as we kind of move into the season uptick?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [5]

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Sure. This is Joe. Yes, we -- I believe we had flat performance there on that other cost bucket, DCROO. It's very volume driven, and we've had pretty consistent throughput in our facilities both on the modular side and electronics over the time period, and it's performed as expected. So we anticipate that we'll finish the year in a pretty good place with that other cost bucket, if that make sense.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [6]

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It does. And then just one last one for me. Just looking at TRS, can you maybe go back to the last 4G deployment cycle. What I'm really trying to understand is, what percentage of your TRS fleet was geared to that rollout? Was it incredibly meaningful to the business? Maybe what you're hearing from your customers relative to 5G? And how we should think about the overall electronics -- or I guess, the telecommunications component of the electronics business?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [7]

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Sure. Well, first thing is we had a very nice run with that part of the business several years ago during the 4G deployment. Right now what we know is that 5G development is in the standard setting stage with the carriers. They have not determined what all the correct protocols or signal protocols are going to be as they deploy this next technology. And until they do that, it just won't go to the field. We expect them get that straightened out over the next year. And we expect then for deployment of 5G to take place following that in the not too further future from then. And we should anticipate -- we're going to anticipate being able to take advantage of that deployment. It depends on how much signal testing that the carriers need to do. It may be less than what they've done in the past. It depends on the particular carriers, but we do anticipate increased revenues from that communication segment as 5G gets deployed. It's just going to be a year or 2 from now.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [8]

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Okay. That's perfect, and I guess maybe a follow-up to that. I mean, do you think that you that have the right equipment right now? Will you have to make a significant investment to do that? I mean is there an obsolescence factor with your existing fleet there?

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Keith E. Pratt, McGrath Rentcorp - CFO and EVP [9]

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Yes, Joe. This is Keith. Just to remind you that the electronics business is a little different from our other businesses in that we routinely cycle equipment through that business. We buy it. We typically keep it for a few years. We sell it into the used equipment market. And where we see new business opportunities, we continue to invest in the latest technology. So specifically to your question, and I think it's a very impressive accomplishment by our team at TRS, we certainly bought equipment to pursue the business opportunities during the big wireless network build-outs. Most of that equipment has either being sold off or is almost completely fully depreciated in the equipment pool. So if you look at just the year-over-year comparison, and Joe mentioned some of in his prepared remarks, in the first quarter of this year, we had a smaller equipment pool. We had lower depreciation expense, and despite lower rental revenues, we actually had an increase in profit. So I think it speaks to the fact in this business we know we have to manage through cycles. The wireless cycle that we went through a few years back was a very notable and large cycle. And we do this as bread-and-butter taking care of business at TRS.

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Operator [10]

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Our next question comes from Scott Schneeberger from Oppenheimer.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [11]

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That was some good coverage of TRS. So let's go over to Adler, could you speak to -- I thought I heard you say in prepared remarks, one of you, that rental -- the length of rental duration was down in Adler. Could you elaborate what -- maybe even put some quantified magnitude on that and discuss what's driving it?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [12]

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Sure. Scott, this is Joe. Actually, we didn't comment to that. Our terms have not changed overall, and so that's not really impacting our -- that part of the business right now.

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Keith E. Pratt, McGrath Rentcorp - CFO and EVP [13]

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I think the comment was that rental terms in Adler are just shorter, and so again the transactions turn over more quickly. And it somewhat limits our visibility as to, today, being able to say what will be on rent at the end of this year. We just don't have as much visibility for much of that business.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [14]

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And you're comparing that to historical, it's the visibility has become lesser or is it just a general comment?

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Keith E. Pratt, McGrath Rentcorp - CFO and EVP [15]

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No, I think it's always been generally that way.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [16]

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Okay. I'm just wondering if there is any incremental. Upstream shrunk as a percent of the business year-over-year, but I would guess that there was probably signs of a pickup in this first quarter just since there was a lot more drilling activity. Could you comment on what you're seeing, I mean, obviously rates are low across the business, but -- in Adler. But could you comment specifically on could we see an uptick in upstream? Any indication in the first quarter? Or is that just something you're deemphasizing, so even if so you're not going to try and run with it?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [17]

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Yes, Scott. This is Joe. Of course, increases in drilling activity and completions are something that we are interested in. And I will tell you that at the well head these days, there is a difference in terms of how these guys operate from a few years ago. They are more efficient. They turn their equipment faster, and there are typically less tanks used in these -- when they're completing a well at this point. So the opportunity isn't as big as it used to be. Now having said that, do we want to take advantage of those opportunities? Absolutely. With increased rig counts as we've seen in the past, could we see improvement in our upstream E&P part of the business? Yes, we could. Would be like that? Yes, we would. So that's how I would sum that particular question up. Does that answer it fine for you?

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [18]

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Yes. No, that was exactly it, Joe. I'll just throw in 1 more on Adler, if I could. Could you say -- you mentioned, visibility is not great. But if you could just comment a little bit about rental rate and is it across the board soft? Or is it just maybe still in upstream and that's enough to cause your whole segment to be affected? Just what you are seeing? And downstream too, any business comment that you want to take us a little bit deeper on?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [19]

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Sure, I can comment on the pricing. I mean, what's happening right now in that business because there is an overhang of equipment the -- folks like us and our competitors we are finding ourselves needing to deploy that equipment into other industry verticals. And because there is an overhang of equipment right now, it's causing rate pressure in virtually all parts of the business. And so until that turns around, we anticipate that, that rate pressure will continue. The downstream part of the business, actually for us was up year-over-year. And so we are encouraged by those initial results, and we anticipate that despite that pricing pressure there is opportunity to continue to deploy equipment into that non-upstream part of the E&P segment. And so, we're actively working that.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [20]

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And then I'm going to shift over to modular for one. You mentioned, improvements across all geographies, could you just kind of take us to each one, with particular interest on California, of course, and maybe comment on education versus construction end markets? And just a sense of what you're seeing in each of the geographies?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [21]

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Sure. Well, we are seeing strength across all of the regions and geographies both in education and commercial. In California, in particular, the presence of good bond monies for education in the market right now are presenting opportunities for us for modernization and also for growth projects. So the pipeline there looks very favorable for us. Due to the general economic conditions in California, construction work is also strong and we're deploying appropriate amounts of equipment into sectors that are outside of education. In moving to Texas, the exploration and production market there, as well as all the downstream markets in that state, are doing pretty well for us also. There are a lot of preplanned plant expansion and activity -- new plant activity in that whole Texas, Louisiana area. And we anticipate good activity from there for the next foreseeable future. Mid-Atlantic, better bond money is available for education based on school enrollment growth and a fairly good construction market also up and down the eastern seaboard. And I would say the same for Florida, good education growth based on student population, and it's a pretty strong construction market there too. So I mean, we're seeing very nice strength in all the market segments and a lot of the industry verticals that we play in right now.

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Operator [22]

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Our next question comes from Marc Riddick with Sidoti.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [23]

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So I wanted to -- since you already did a great job covering some of things that I was thinking about, I wanted sort of shift over toward the Portable Storage side of things and wanted to get, I guess, maybe a similar type of update of what you're seeing there. We're now up to, I guess, if I remember correctly, 9% of revenue, and I wanted to get a sense of what type of mix you're seeing and some of the opportunities and the pricing that you're seeing in that area?

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Keith E. Pratt, McGrath Rentcorp - CFO and EVP [24]

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Sure, Mark, I can answer that. We're very pleased with how that business continues to grow. We have not expanded geographically over the last year but have focused primarily on expanding markets that we are already present in. That's been a real push for us. Rents are up 17%, and our EBIT grew very nicely year-over-year. And so we're very pleased, and we're seeing in Q1 we're up in virtually all of the markets that we're operating in. So we've executed very well there, and we're very happy with our progress.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [25]

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Okay, great. And I wanted to touch base a little bit on -- and you've touched on the funding obviously in California and what the visibility -- what some of the pipeline that you're expecting there. I was wanting to get a sense of maybe some of the feedback that you may be getting on the local level and maybe get a sense of how much visibility you may have on some of more local ordinances, if you will, that might give you sort of a starting point as to when you would expect to see more activity there?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [26]

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Mark, just to clarify, when you say at the local level, are you speaking about local bond monies as opposed at the state level?

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [27]

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No, no, I'm thinking more as far as the projects themselves, not just the funding, but as far as the timing of the projects, what's more conceptual as opposed to what's more shovel-ready to go?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [28]

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Sure. Yes. Well, what we have right now are school districts who are in a very vigorous planning mode right now. There is all this money that's on the sidelines at this point. The local bond measures that were passed in 2014, that money is in the market. We have the 2016 local bond measures that really have not hit the market yet. And the state, on prop 51, has not even sold bonds yet for that initiative and don't plan to do till the fall. So that has not stopped school districts at this point. They're planning, and they are working with us right now on future projects that we know are around the corner, and they are both modernization and growth oriented.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [29]

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Okay, great. So I guess, that was kind of where I was going with that is that sort of -- it seems as though that's generally along the lines of is or -- maybe I shouldn't go that far, but is that generally along the lines what you would have been expecting to see at this point as far as that planning process and kind of where they are in their relation to how they're communicating with you? And is that sort of in line with what you're originally expecting?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [30]

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Yes, it is actually. Things are progressing just as we had thought.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [31]

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Okay. Great, great. And switching gears, you mentioned, as far as the -- and you gave a nice feed on the regional opportunities and some of the funding measures that are there, are there sort of -- are there any regions that you would expect to sort of target or focus as far as expanding on the mobile -- on the modular side that might present opportunities, maybe more so on the construction side as opposed to education, that might be sort of top of mind or prioritized from those opportunities?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [32]

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I'm going to interpret that question as is there geographic expansion in the wings? Is that what you're asking?

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [33]

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Right. Outside of just the education opportunities, I guess, if there's sort of expansion priorities around maybe that was focused a little bit more on the construction side?

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [34]

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So okay, I understand the question now. We are -- the most important thing that we're working right now is our return on invested capital. And before we were looking at geographic expansion, we're going to get the appropriate returns for the fleet that we already have. And so our focus is on that initiative before we look at moving into another open geography at this point.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [35]

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Okay, great.

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Keith E. Pratt, McGrath Rentcorp - CFO and EVP [36]

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And just to be clear, Mark, the new capital that we have invested in modulars most of that is directed in modular regions outside of California, so primarily Mid-Atlantic, Texas, Florida, as well as some general investment in the Portable Storage business across multiple geographies.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [37]

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Okay, great. And if I remember correctly, I guess, my last one is on the leverage levels and is sort of comfort level around that. If I recall, you ending the quarter at about 2x, I guess, I think it was...

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Keith E. Pratt, McGrath Rentcorp - CFO and EVP [38]

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Yes, 1.98.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [39]

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Okay. I just wanted to see if there was an update as to your overall comfort level on the leverage levels?

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Keith E. Pratt, McGrath Rentcorp - CFO and EVP [40]

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Yes, we are very comfortable with leverage and debt levels. If you go back a year ago, we had just completed a very substantial buyback during 2015, our debt and leverage upticked slightly likely by year-end '15. And then as you saw over the course of 2016, we reduced both total debt and leverage levels over the course of the year. And in a sense that gives dry powder as we enter into 2017 and gives us a lot of flexibility as we operate the business.

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Operator [41]

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I'm showing no further questions at this time. I would like to turn the call back over to management for closing remarks.

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Joseph F. Hanna, McGrath Rentcorp - CEO, President and Director [42]

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Thank you. I'd like to thank everyone for joining us on the call today and for your continuing interest in our company. We would be pleased to welcome you to our Annual Shareholder Meeting here in Livermore on June 7. And we look forward to speaking with you again in early August to review our second quarter results.

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Operator [43]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.