Welcome to the McGrath RentCorp Fourth Quarter 2018 Conference Call [Operator Instructions]. This conference call is being recorded today, Tuesday, February 26, 2019. Before we begin, note that the matters that the company management will be discussing today that are not statements of historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our 2019 total company operating profit outlook, as well as statements relating to the company’s expectations, strategies, prospects 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 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 of Form 8-K and the Form 10-K. Speaking today will be Joe Hanna, Chief Executive Officer and Keith Pratt, Chief Financial Officer. I will now turn the call over to Mr. Hanna. Go ahead, sir.

Thank you, Mariel. Good afternoon and thank you for joining us on today’s call. I will start the call with some comments on our fourth quarter and 2018 full year performance and then Keith will provide greater detail in his financial review and outlook comments. Our 2018 performance capped off another year of delivering impressive results for our shareholders. Our focus was clear, get more performance from the fleet we already own, deploy new capital for the right opportunities and sell underutilized inventory. Key to driving that performance were our employees, so I would like to personally thank for their spirit dedication and hard work, everyone helped us to achieve success in meeting our objectives for the year. For the fourth quarter, the company's 10% increase in rental revenue reflected growth across each of our divisions with particularly strong growth at mobile modular. The company's 31% operating profit increase was driven by $9 million increase in gross profit from rental revenues. At TRS-RenTelco and Adler, we had tough comps compared to 2017 seasonally strong finish. We finished 2018 on a solid note, and both businesses delivered in the fourth quarter with 5% and 27% operating profit increases respectively. The strength of the economy continued to be a tailwind, and we were well positioned to benefit from growth in the major industry segments and geographies where we operate. At mobile modular, we have been experiencing a good funding environment for public school construction, both to facilitate growth and modernize facilities. The public has been receptive to pass bonds and support local tax initiatives to bring older classrooms up to date. The average age of public school classrooms across the U.S. is over 40 years, and our modular classroom fleet is used extensively to help districts held students on temporary basis during…

Thank you, Joe. For the fourth quarter of 2018, total revenues increased 9% to $133.1 million from $122.2 million for the same period in 2017. The company's 31% operating profit increase for the quarter was driven by $9 million increase in gross profit from rental revenues. Net income decreased 79% to $24.2 million from $117.7 million, and earnings per diluted share decreased to $0.99 from $4.82. The fourth quarter of 2017 included a net income benefit of $102.5 million or $4.20 per diluted share associated with the enactment of the Tax Cuts and Jobs Act. The fourth quarter of 2018 includes a net income benefit associated with the lower U.S. federal tax rate of 21%, which contributed $0.18 to earnings per diluted share. Now, let's review rental divisions' performance compared to the fourth quarter of 2017. Mobile modular total revenues increased $8.5 million or 15% to $66 million on higher rental, rental related services and sales revenues. Rental revenues for the quarter increased 13% from a year ago, primarily driven by an 8% improvement in average rental rates and 5% higher average equipment on rent. Sales revenues increased $1.3 million or 18% on higher used equipment sales. Rental revenue growth continues to be healthy across our commercial and education markets, as well as in our portable storage business. Equipment preparation costs or other direct costs of rental operations decreased $2.6 million or 22% to $9.3 million. The decreased other direct costs in 2018 was partly attributable to $1.6 million impairment of rental assets deemed beyond economic repair in the Southern California region in 2017. Rental margins increased to 66% from 54%. The combined result of higher rental revenue and higher rental margin was a 37% increase in gross profit on rents. Finally, average modular rental equipment for the quarter was…

[Operator Instructions] Our first question comes from Scott Schneeberger from Oppenheimer. Your line is now open.

My first question is in Mobile Modular. I just curious to get a little bit more in-depth on the classroom business versus the construction business and just a general question on going a little deeper on both please?

Scott, the funding environment for the classroom part of our business has been good in 2018, and it continued that trend into Q4. We experienced healthy bookings levels in Q4 for classrooms in virtually all of the markets that we operate in and it appears as though this year school districts are placing orders a little bit earlier than normal. And we experienced some of that in Q4 and that's actually spillover into Q1. So, we feel very good about that market or that part of our business and over on the construction side were still seeing very good demand there. The associated builders and contractors have recently reported 67% of contractors are expecting sales increases in 2019 and we have not seen any indicators that it would be different from that so far in our pipeline. So across the business, it appears to be healthy.

You mentioned new geographies. Could you expand a little bit on where you're going in the financial impact of the move?

We’re going to expand in the south central part of the U.S. We will announce specific locations in the near future. And as far as a drag on our performance, obviously, when we are opening up the location, there is slight upside down there as we get operations moving, but it's not significant and really won’t affect our results. We're only opening really three locations and so, we don't expect that to materially move things in 2019.

Yes, there can be a little bit of a drag first year, but again it's all built into the plans we built and the outlook comments that we've made for the full. And I think it positions us very well going forward.

Just a couple more from me guys. One being, TRS rental revenue growth, nice acceleration in fourth quarter, could you speak little bit to the end market dynamics a little bit more and discussion of 5G consideration?

Sure, 5G is we all hear the news its different carriers are announcing different programs with 5G. It really hasn't made it onto the towers yet. Most of the 5G work through backhaul and bandwidth expansions, up through the networks and into the towers, but not so much tower work at this point. That 5G bandwidth expansion work, we're actually -- we're capturing work from that. And so, that helped with our communications rental. And also over on the GP side, robust demand in aerospace and defense and semiconductor industry has also helped us there, and we're experiencing healthy growth. Utilization for our GP equipment recently was at 75%, which is really healthy for us and we're actively buying equipment to meet demand, and it's gone out on rent.

And Scott, I would add if you look at the 8% growth in rental revenues, as I remarked in my comments, that's comprised of 9% growth on the general-purpose side, 4% growth on the communications. A portion of that 9% growth from the general-purpose side, we believe is tried to R&D work related to device design for 5G. So, it's not so much in the network build out, but it's more devices and equipments that are being designed and the use of general-purpose equipment. So, we are seeing that as a positive in that part of the business.

My last one, you may have probably already answered, but I think to maybe more to it. The guidance for next year looks good. Rental revenue growth guidance 6% to 9% and then operating profit guidance of 5% to 10%, so not a lot of operating leverage there, looks like it's versus our model more in G&A than anywhere else. So I guess, Keith, could you elaborate on -- is that cushion? Is that some of the geographies expansion pending? Or is there something else in there that's affecting that the G&A I guess and just to leverage overall?

Sure, let me make a couple of comments. The first comment I would make is. In our business, here we are in February, it's very difficult to give full year guidance as you can imagine. And I think we put a lot more information as there for you to work with some other companies. And keep in mind that in our Adler and TRS-RenTelco businesses, the rental terms of short and that business is turning over a lot. So, we certainly have plans and ambitions for the year, but there is a limited amount we can see today and sort of be sure of. And then the comment I would make in trying to assess the profile for the full year and in particular the rental growth for the full year. Keep in mind that last year, 60% of our EBIT occurred in the second half of the year. So really the second half is a very important part of the year, and starting the year in February, we just don't have as much information on that. So that influences how we position the guidance. I think relating to the operating leverage. You are right, we're making some investments in the SG&A area, if you look at the range we've given and take the midpoint of that range and just look at where the increase are occurring, I'll give you sort of three broad categories that are driving the increase, about 30% of the increase is really just related to normal salary and benefits increases for the existing workforce and that's fairly typical inflationary pressures that I think a lot of companies faced year-over-year, about 40% of the increase is related to hiring, both related to the kind of expansion initiatives that Joe described. And also in some of the support functions where our teams are supporting a larger and growing business, and then the remaining 30% or so, I would call it miscellaneous items. Some of it's in the IT arena and marketing facilities, rent and again, other aspects of supporting a business that has become larger and it is continuing to grow. So, as with every year, we start the year with an initial view. Our goal is to work hard and accomplish as much as we can in 2019.

[Operator Instructions] Your next question comes from Marc Riddick from Sidoti. Your line is now open.

I was wondering if you could share a little bit and then forgive me, I sort of back and forth a little bit. I did want to follow up on the progress around the testing equipment that you're seeing? And I'm sorry I didn't hear the mix as far as the general purpose versus the rest as far as the growth of the quarter, but I did hear the plans on investing more in the general purpose testing area. And I was wondering if you could sort of give a little bit more color on what we might see there? And if that might be front end loaded during the year, what we might expected to see on that front?

Sure, Marc, just a recap. Rental revenues for the quarter at TRS-RenTelco were up 8%. And when you break that into the two major segments, the general purpose and then the communications, general purpose was up 9% overall and communications up 4%. So, we've been talking on these calls not for probably over a year that we saw opportunities in the general purpose arena. We've invested and grown the size of the fleet there and we've been successful in putting a lot of equipment out on rent and we are very pleased with the progress. And there is -- I mentioned a moment ago, there is a portion of that growth that we can also try to R&D work for devices that are tied into the whole 5G network evolution. So, there is some benefit there. And then on the communications side, we continue to look for opportunities and some of what we're deploying or helping deploy are really the feeder networks and more fiber going into the networks that will support the wireless 5G as it supports over time.

And then, I wanted to switch gears a little bit and follow-up on. I guess Portable Storage, I was curious as to whether or not Portable Storage growth in the quarter was in line or above or below that the pace of Mobile Modulators growth because if I remember correctly your sort of approaching about it being close to 10% of those revenues, correct?

Yes, I’m assuming your speaking about Portable Storage total revenues being 10% of progress of McGrath Rentcorp revenue. I’m assuming that what you mean they are not vary yet, but I would say that the business is growing very nicely. And as a matter of fact in Q4, Portable Storage rents were up 12.5% and so, it's right in line with our expectations, and right in line with what we've been experiencing during the year. And so, they are doing quite well.

And Marc, the storage as a percentage of total McGrath Rentcorp revenues was 8% of the total for the year.

And that I was wondering, it seems as though the opportunities are broad base. But I also wondering, if there were any particular geographies that, maybe we should be thinking about as if there were any problematic or leading the way as a little bit more as far as geographic mix, if those anything that we shouldn’t be thinking about that there.

Marc, are you referring to Portable Storage or one of modulars or another business?

I'm sorry on Mobile Modular.

Sure. Yes, the business activity has been good in all of the geographies that we operate in. Our Texas region, we saw a small dip in utilization, but that was due to returns. And our bookings have been very, very healthy, all through the year. And so, aside from just that, we consider to be a kind of a small blip there. We're operating at with good metrics and in all of the locations that we are in.

And then I guess you mentioned, there is the strength of the economy and being helpful in the funding environment certainly. So wondering, if you could -- was there any commentary or any thoughts that we should be looking at that as far as maybe what you're seeing within contraction?

Well, we hear, and when we look at data, I mean, we try to make our decision based on as much information as we can, and then we listen to our customers. The information that we see and things that we hear, right now, are that perhaps construction activity could slow in the last half of 2019. That's what we're hearing in Q4. But now that we've actually entered Q1, we're hearing a lot, a lot of confidence from the indicators that we're getting from the data from associated builders and contractors and economic activity. I mean we're going to announce the GDP growth here on the 28th and we're expecting that to be not quite as high as it was in the fourth quarter, but still very good. And we're not actually hearing from our customers that there is any planned slowdown in activity. And that goes across the industry segments that we operate in including oil and gas, and the refinery work and our school districts and our construction for non-residential and residential. I mean it's pretty good across the board.

Ladies and gentlemen, that appears to be the last question. Let me now turn the call back over to Mr. Hanna for any closing remarks.

I would like to thank everyone for joining us on the call today and for your continuing interest in our company. We look forward to speaking with you again in late April to review our first quarter of 2019 results.

Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation. You may now disconnect.