Welcome to the McGrath RentCorp First Quarter 2015 Conference Call. At this time, all conference participants are in a listen-only mode. [Operator Instructions] This conference is being recorded today, Thursday, April 30, 2015. Now, I would like to turn the conference over to Geoffrey Buscher of SBG Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. I am the Investor Relations Advisor to McGrath RentCorp and will be acting as moderator of the conference call today. Representatives on the call today from McGrath RentCorp are Dennis Kakures, President and CEO; and Keith Pratt, Senior Vice President and CFO. Please note that this call is being recorded and will be available for telephone replay for up to 7 days following the call by dialing 1-888-203-1112 for domestic callers and 1-719-457-0820 for international callers. The passcode for the call replay is 7197361. This call is also being webcast live over the internet and will be available for replay. We encourage you to visit the Investor Relations section of the company’s website at mgrc.com. A press release was sent out today at approximately 4:05 PM Eastern Time, or 1:05 PM Pacific Time. If you did not receive a copy but would like one, it is available online in the Investor Relations section of our website or you may call 1-206-652-9704 and one will be sent to you. Before getting started, let me remind everyone that the matters we 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 McGrath RentCorp’s expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements are based upon information currently available to McGrath RentCorp and McGrath RentCorp assumes no obligation to update any such forward-looking statements. Forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those projected. These and other risks relating to McGrath RentCorp’s business are set forth in the documents filed by McGrath RentCorp with the Securities and Exchange Commission, including the company’s most recent Form 10-K and Form 10-Q. I would now like to turn the call over to Keith Pratt.

Thank you, Geoffrey. In addition to the press release issued today, the company also filed with the SEC the earnings release on Form 8-K and the Form 10-Q for the quarter. For the first quarter 2015, total revenues increased 3% to $90.2 million from $87.6 million for the same period in 2014. Net income decreased 13% to $6.8 million from $7.9 million and earnings per diluted share decreased 13% to $0.26 from $0.30. Reviewing the first quarter results for the company’s mobile modular division compared to the first quarter of 2014, total revenues increased $5.2 million or 16% to $38.9 million due to higher rental and rental-related services revenues, partly offset by lower sales revenues. Gross profit on rents increased $3.1 million or 34% to $12.3 million. Rental revenues increased $4.9 million or 23% and rental margins increased to 47% from 43% as depreciation as a percentage of rents decreased to 17% from 18% and other direct costs as a percentage of rents decreased to 36% from 39%. Selling and administrative expenses increased 17% to $11.4 million, primarily as a result of increased employee headcount, salaries and benefit costs. The higher gross profit on rental and rental-related services revenues partly offset by higher selling and administrative expenses and lower gross profit on sales revenues resulted in an increase in operating income of $1.4 million or 47% to $4.3 million. Finally, average modular rental equipment for the quarter was $641 million, an increase of $70 million. Equipment additions supported growth across all regions and our portable storage business. Average utilization for the first quarter increased from 69.9% to 74.2%. Turning next to the first quarter results for the company’s TRS-RenTelco division, compared to the first quarter of 2014, total revenues decreased $1.5 million or 5% to $28.1 million, primarily due to…

Thank you, Keith. Now, let’s take a closer look at each rental business for the quarter. Modular division-wide rental revenues for the quarter increased $4.9 million or 23% to $26.4 million from a year ago. This is the eighth consecutive year-over-year quarterly rental revenue increase for our modular division. During the first quarter, we experienced a 21% increase in division-wide year-over-year first month’s rental revenue bookings for modular buildings, with a 44% increase in California and a 9% increase outside of the state. We’re also continuing to see rental rates rise for various sized products as demand exceeds readily available supply. Modular division average and ending utilization for the first quarter of 2015 reached 74.2% and 74.5%, respectively, an increase from 69.9% and 69.4% a year ago. This is the highest modular division first quarter average utilization level since 2009. Modular division income from operations for the quarter increased to $4.3 million or by 47% from a year ago. This strong increase in profit was driven primarily by higher rental revenues and rental revenue margin expansion. Gross margin on rental revenues increased to 47% for the quarter from 43% a year ago. Direct costs associated with readying equipment and inventory center operations as a percentage of rental revenues decreased to 36% from 39% for the same period a year ago. Although our year-over-year quarterly building preparation expenditures continue to be at a high level due to favorable market demand, we are now beginning to see the benefit of an increasing base of rental revenues on key metrics. During the quarter, modular division EBIT also benefited from higher profit on rental related services, offset by higher SG&A expenses and lower profit on equipment sales from last year’s quarter. The higher SG&A costs were primarily related to increased sales and operations staffing…

[Operator Instructions] We’ll take our first question from David Gold of Sidoti.

I wanted to ask a little bit on mobile modular, couple of things there. But really I’m curious as I guess by now we’re in the midst of the stronger bookings season, if you can speak a little bit toward visibility for this season, say versus last year, based on the demand and the interest that you’re seeing out there?

Is this for education or generally across the business?

For education?

If you look at education, we’ve had another favorable year in Florida as well as in the Mid-Atlantic and in Northern California, more favorable than past year or two with respect to educational bookings. Southern California still has lagged behind, we have not seen a meaningful lift in Southern California as compared to past years before the great recession, while there’s is some uptick there. But primarily the educational markets are doing well outside of California and better in Northern California, but with limited lift in southern California.

So the booking lift that you’re seeing there and is that more on the construction side of things and industrial?

The booking lift that you see when you look at both outside the state and within California, the commercial side has remained very healthy, in particular in the Texas market as well as in the California market. So those have been very healthy verticals, both, res and non-res. And then as I mentioned on the educational side of things, Southern California is slowly but surely getting better, but it is not anywhere close to its performance level of pre-great recession.

I guess I’m getting at though is if we look at the 44% increase in California, what’s driving that?

The biggest part is commercial, but also with some favorable educational bookings in particular in the northern part of the state. And mind you, that is without a statewide facilities bond money available. So that’s moving forward on its own.

And then as we look at Adler and little bit of a tougher head ahead of from the next few months, is there anything you can do, the way of, I guess, way back when there were some talk of some fungibility of the tanks, and I was curious if there’s anything there or because of the possibly short-term nature, doesn’t that make sense to shift them around?

We got, for the most part, we’ve got equipment where we needed, although there are always some interregional transfer of equipment. I think the key for us in the Adler business in the window we are in currently, is to really create greater operational efficiency market by market, build out the newest ones for critical mass. And also in terms of the oversupply of the 21K tanks, sell where you can and take out that depreciation expense. And we’ve been making some progress there, although small, but it’s certainly a focal point for our different regional sales teams and that’s the way to take some cost out of the business until markets get better for that multi-purpose product, which is used in all of our verticals.

And then how is the Portable Storage expansion plans there this year?

Portable Storage, we won’t mention the two new markets, but we’ve targeted two additional geographies this year to expand into and we are very pleased with the performance of that business. It’s nicely profitable. We are building critical mass, we compete very well in the markets that we are in and we’re just trying to grow it prudently and responsibly.

[Operator Instructions] And we’ll move to our next question from Scott Schneeberger of Oppenheimer.

It’s [Daniel] in for Scott. I want to ask a few questions on TRS, you alluded to on the communications side it might be a turn in the second quarter. Can you take us a little deeper there and what you’re seeing that gives you confidence in that, please?

It’s primarily related to service providers and the contracts that they typically let in a given year or either new networks or enhancing upgrading existing networks. That business activity has been fairly slow towards the second half of 2014 and was slow again to start the year, but everything that we are hearing at this juncture is that that should get better starting in the second quarter.

And on the general test equipment, it seems like that could have a turn here, what’s your visibility, what’s the end markets driving this potential turn?

Certainly the semiconductor industry as well as the other electronics devices, aerospace and defense are also factors in all that. And last year was a challenging year in those market verticals in general-purpose test equipment as a whole and we’ve seen a much better activity at the start of this year, I’m not ready to [indiscernible] yet, but it’s certainly positive thus far over the first four months.

And then a final one from me, on the cost adjustments, you alluded to you identified, can you take us a little deeper there, please?

The way I would think about it is we’ve looked at all divisions and just tried to see are there any improvements we can make against the plans we had at the beginning of the year. And if you look at, for example, in our guidance ranges, when we gave you the various cost categories, depreciation, direct cost of other operations which is really preparing equipment for rental and also the SG&A, we’re really trying to manage towards the lower end of those ranges of the cost in each case. And again, any and all opportunities have been looked that across the businesses. I would say an important area is hiring, we had a number of areas where we are adding new positions, we’re just being very selective there, really taking a second look at where we need to add and the timing of when we will make those additions. That’s really the way to think about it. And on the depreciation side, again, a second look over where we are adding equipment, being really sure that it’s the right thing to do and where we can in some of the businesses looking for opportunities to sell used rental equipment and that all helps with the depreciation expense. So really combing through the plans in all areas.

[Operator Instructions] And we’ll take our next question from Joe Box with KeyBanc.

So when you look at the rate degradation within Adler, can you maybe give us a feel for how much of that is upstream versus just pricing pressure bleeding into some of your other markets?

It’s mostly upstream with that as somewhat of the oversupply being the cotangent into the others. But E&P firms, as you know, upstream, they are doing everything that they can possibly do to economize, rationalize their expenses, renegotiate contracts, do whatever they can to get their cost down. And we’re certainly right in the middle of that and these rate adjustments have been fairly significant in the upstream market. And of course, that oversupply is there and it’s going to impact other verticals, not as severely but certainly to some degree.

And does everyone else have fungible tanks now, I know that wasn’t the case earlier in the cycle, but are we looking at a lot of those new tanks being potentially applied to downstream or construction markets?

Well, it really depends on – people buying smooth wall interior tanks that can be cleaned appropriately to be served in more sensitive containment situations. So it’s really a function of, you can buy the low cost version that’s corrugated, that’s difficult to clean, that’s more of just strictly oil or gas field tank or you can buy the – pay more money and buy the better one that’s really multi-purpose as we have in our fleet. So it really comes – I’m sure there are some of that that’s into the other markets now, although our competitors historically have purchased more of the corrugated type, but personally I don’t know the mix of all of their purchases over the past few years, but there is no question that is more of that smooth wall multi-purpose equipment in the market, I’m just not certain to what degree.

And then just for my own purposes, what would the difference in cost be, do you know, so smooth wall versus oil and gas?

You could have a 20%, anywhere from 15% to probably 20% price delta in buying that for new equipment.

So I’m trying to get a handle on the drought in California and I really can’t tell if that’s a good thing or a bad thing for Adler. Do you have any early reads on that?

Actually drought is not good for the Adler business. They like rainfall and rainfall creates, especially for construction sites, creates run off that needs to be contained. So anything to do with Mother Nature and rain is very good for that business. So when there is no rain, it’s not nearly as good, especially given that time of year when we would typically get rain.

And then Dennis, as you recognize with some of your assets fit together, but we’re arguably six years into the cycle and it just seems like the different units haven’t really been able to get on the same page. I think it’s also potentially debatable that there’s been a lot of leverage or even synergy across some of the units. I’m just curious when you sit down with the Board, are you guys having portfolio discussions?

We consistently look at the businesses we have, we consistently look at other good rental businesses and we’re very selective. Here are the dynamics that’s having – I’d love to have everything hitting on the same eight cylinders every year. That’d be fabulous. But let’s look at what transpired here since the great recession, we had a modular business that we lost 80% or 70% of its EBIT, about $1 of EPS on a company that was about $1.60 in EPS, that business is coming back in a very significant manner today and we’ve hit some headwinds in our other businesses that have performed well, but we added the Adler business in December of 2008, that was another complete new division that’s providing very nice earnings quarterly. So one of the trade-offs here is when you have four different rental products, Portable Storage, electronic test equipment, modular buildings and liquid and solid containment, yeah, sometimes it’s hard to get them on the same page at the same time that diversity also provides us safety and protection in being just in one vertical that might be – or one product that might be much more cyclical in some fashion. We like our specialty rental company that we’ve built and granted, we’re trying to get everything on the same page, but if the modular business does what it is supposed to do, we will have cycles with our other businesses, but those are good rental businesses. That’s the least of which is portable storage that’s growing very nicely, very good margins and great opportunity. So we’ve ebbed and flowed here, but there is no certainly on our product with respect to the businesses that we’re in today and we like what we have.

As we have no further questions, I would like to turn the conference back over to management for any additional or closing remarks.

I want to thank everybody for being on the call today. We greatly appreciate it. We’ll look forward to chatting with everyone again on our Q2 earnings call towards the end of July. Thank you all so much.

And that does conclude today’s conference. Thank you for your participation. You may now disconnect.