Participants

Joseph Hanna; President, Chief Executive Officer, Director; McGrath RentCorp

Keith Pratt; Executive Vice President, Chief Financial Officer and Assistant Corporate Secretary; McGrath RentCorp

Scott Schneeberger; Analyst; Oppenheimer & Co. Inc.

Daniel Moore; Analyst; CJS Securities Inc

Steven Ramsey; Analyst; Thompson Research Group, LLC

Marc Riddick; Analyst; Sidoti & Company LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp first-quarter 2025 earnings call.
(Operator Instructions) This conference call is being recorded today, Thursday, April 24, 2025.
Before we begin, note that the matters 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 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 the 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 on Form 8-K and its Form 10-Q for the quarter ended March 31, 2025.
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. Please go ahead, sir.

Joseph Hanna

Thank you, Jess. Good afternoon, everyone. Thank you for joining us today for McGrath RentCorp's first-quarter 2025 earnings call.
I am pleased to report on our performance over the past quarter and to provide an update on our outlook for this year. I will also address current economic conditions and the possible effects of tariffs on the business.
First, I will review our quarterly results.
For the quarter, total company revenues increased 4% and adjusted EBITDA increased 3% compared to a year earlier. This performance was driven by continued progress from our modular strategic growth initiatives as well as some recovery at TRS.
Mobile Modular's rental revenues grew 3%. Both commercial and education rentals were positive. The commercial wins we experienced were geographically broad-based and in a wide variety of market verticals, including government, technology and healthcare.
We continue to win education business in both public and private schools across all our geographies. The Architecture Billings Index data and other macro indicators of construction-related demand continue to indicate some weakness and some project delays.
Our quote activity was up for the quarter, while new rental bookings were below the prior year due to the softer construction market. This reflects longer close cycles and some mix shift. Sales revenues were lower for the quarter, reflecting typical quarter-to-quarter variability.
Our new modular sales growth initiative continued to be on a positive trajectory as we see more acceptance of modular solutions for construction projects across many market segments. Mobile Modular Plus and site-related services performed well and saw healthy increases in the quarter, helping to offset lower units on rent.
Turning to our Portable Storage business. Rental revenues declined by 13%, in line with what we expected and reflecting ongoing commercial construction softness. We entered the year with a rental revenue run rate that was below the start of 2024, and it will take some time for it to recover.
At TRS-RenTelco, rental revenues grew slightly. We had an encouraging start to the year with broad-based improvement across multiple equipment categories. Our rental pipeline is up from the prior year and some previously delayed projects were started.
We have been effectively managing the fleet to maximize opportunities to sell unutilized equipment. Utilization improved substantially to end the quarter at 65%, up from 59% in the fourth quarter.
Now, let's look at how 2025 is unfolding amidst the uncertainty present in the broader economy. Overall, we expect the impact of tariffs in 2025 to be a limited headwind to the business.
As a reminder, we own our fleet, so the investments generating our revenue are substantially made.
Cost increases for materials we use to operate the business for repair and maintenance that are subject to tariffs are not significant cost drivers. And in some cases, we have purchased ahead, so the 2025 exposure is limited.
Our exposure to China tariffs is also limited. At TRS, only 4% of our current rental fleet was sourced from China. At portable storage, China is the primary source of new containers, but with current fleet utilization at 60%, we do not expect to make significant new equipment purchases in the near to medium term.
We shared on our fourth quarter call that the key driver for our performance in 2025 will be the demand conditions across all our business segments. At present, we have good activity levels in the field related to current projects.
As we look further ahead and into the second half of the year, we have concerns that in the overall market, some companies may be slowing new project starts due to uncertainty around the impact of tariffs, costs, overall economic growth and possible government spending cuts.
We have been very clear in past quarters that our strategic focus is on the modular business and on the implementation of our plans to be a solutions provider to our customers. None of that has changed nor will it change due to current economic uncertainty.
Our Mobile Modular Plus, site-related services and custom sales have been good revenue contributors since their launch, and we will continue to work on growing them. Our efforts at increasing revenue per unit are still yielding results, and we believe we have more room to continue that progress.
Our expansion into new geographies will continue as we invest to grow the top line responsibly. And finally, we have a robust M&A pipeline that should yield results in future quarters. In looking at the total company, McGrath has a resilient business model.
Our broad base of customers and the recurring rental revenues that they drive provide some stability if economic conditions soften. Additionally, if demand declines, we generally incur lower expenses to satisfy customer orders, and we can reduce rental equipment capital spending, which improves cash flow.
These dynamics were evident in 2020 as we navigated the COVID pandemic and enabled McGrath to finish 2020 in a healthy financial state despite the unprecedented market disruptions.
In closing, McGrath has successfully managed through all sorts of economic challenges for more than 40 years, always with a focus on returning value to our shareholders and on our company's sustainability. We have an experienced leadership team, management continuity and a long-tenured base of team members throughout the company.
While the exact economic impact of the current tariff and trade disruptions are not completely clear, I am confident we have the skill set to continue to manage through this latest economic challenge and execute our strategy effectively.
As always, we will be working diligently to maximize opportunities to keep the business strong and deliver results for our shareholders.
With that, I will turn the call over to Keith, who will take you through the financial details of our quarter and updated outlook for the full year.

Keith Pratt

Thank you, Joe. Good afternoon, everyone.
As Joe highlighted, we delivered solid results in the first quarter, driven primarily by the performance of our Mobile Modular business.
Looking at the overall corporate results for the first quarter, total revenues increased 4% to $195.4 million and adjusted EBITDA increased 3% to $74.5 million.
Reviewing Mobile Modular's operating performance as compared to the first quarter of 2024, Mobile Modular had a strong quarter with adjusted EBITDA increasing 10% to $47.6 million. Total revenues increased 3% to $131.9 million.
3% higher rental revenues and 22% higher rental-related services revenues were partly offset by 11% lower sales revenues. Rental margins were 60%, up from 57% a year ago, primarily because of the rental revenue growth and lower inventory center costs.
Sales revenues decreased $2.8 million to $22.5 million as a result of lower new and used sales projects during the quarter. Average fleet utilization was 74.6% compared to 78.7% a year ago. First-quarter monthly revenue per unit on rent increased 8% to $831.
For new shipments over the last 12 months, the average monthly revenue per unit increased 12% to $1,194. There is still a positive pricing tailwind opportunity as our fleet churns. We continue to make progress with our modular services offerings.
Mobile Modular Plus revenues increased to $8.6 million from $7.2 million a year earlier, and site-related services increased to $4.1 million, up from $3.2 million. Turning to the review of Portable Storage in the first quarter.
Adjusted EBITDA for Portable Storage was $8.6 million, a decrease of 25% compared to the prior year. Weak demand conditions continued, primarily because of low commercial construction project activity.
Rental revenues for the quarter decreased 13% to $16.1 million, and rental margins were 84%, down from 87% a year earlier. Average rental equipment on rent decreased 10%, while average utilization for the quarter was 60.2% compared to 69.8% a year ago.
Turning, now, to a review of TRS-RenTelco.
Adjusted EBITDA was $17.9 million, a decrease of 3% compared to last year. Total revenues increased $1.3 million or 4% to $35 million.
Rental revenues for the quarter were up slightly at $25.5 million, which was the first quarterly increase since the first quarter of 2023. Average utilization for the quarter was 61.6% compared to 56.5% a year ago, reflecting improved demand conditions and our continued focus on fleet management. Rental margins were 40% compared to 36% a year ago.
Sales revenues increased 17% to $8 million with gross profit of $3.7 million. The remainder of my comments will be on a total company basis. First-quarter selling and administrative expenses increased 1% to $50.9 million.
Interest expense was $8.2 million, a decrease of $4.5 million as a result of lower average interest rates and lower average debt levels during the quarter. The first-quarter provision for income taxes was based on an effective tax rate of 24.6% compared to 23.6% a year earlier.
Turning to our year-to-date cash flow highlights. Net cash provided by operating activities was $54 million compared to $59 million in the prior year.
Rental equipment purchases were $12 million compared to $79 million in the prior year, consistent with lower fleet utilization and our plans to use available fleet to satisfy customer orders. Healthy cash generation allowed us to pay $12 million in shareholder dividends and reduced debt by $31 million.
At quarter end, we had net borrowings of $559 million, comprised of $175 million notes outstanding and $384 million under our credit facility, and the ratio of funded debt to the last 12 months actual adjusted EBITDA was 1.58:1.
While it is difficult to accurately assess the impacts of the tariff and trade policy developments, I will provide several additional comments on the potential impact on McGrath.
First, some comments on the demand outlook, starting with domestic revenues, which account for over 95% of our business. We are more cautious regarding the potential demand strength and upsides for the second half of this year.
There are certain examples of construction industry project delays and cancellations that are surfacing in the overall market. And if this becomes more widespread, it could negatively impact our modular and portable storage businesses.
Total McGrath international revenues have ranged between 2% and 4% over the past three years and occur in our TRS business. Tariffs may erode the economic attractiveness of some of our international transactions at TRS.
Next, some comments on capital spending. Given current utilization levels, we have less need to add new rental equipment this year. Some suppliers of rental equipment are beginning to contemplate tariff-driven price increases with some estimates in the 5% to 15% range. However, some of our spending on rental equipment for 2025 has already been secured, which should limit any negative tariff impact this year.
Lastly, operating costs incurred as we maintain our rental fleets may also experience some tariff-driven increases. We're still working to determine the scope and size of increases and how much can be passed along to customers or offset by efficiency and cost management initiatives at McGrath.
All of these comments are based on limited information and our views may change going forward. In summary, our business performance was solid in the first quarter and looks positive for the second quarter.
Based on what we know today, we currently expect tariff and trade policy disruptions to have a relatively limited impact on 2025 financial performance. Our primary concern is that the overall economic uncertainty could result in some delays or fewer rental and sales projects in the second half of the year.
So we have updated our full-year financial outlook to reflect this. We currently expect total revenue between $920 million and $960 million, adjusted EBITDA between $343 million and $355 million, gross rental equipment capital expenditures between $115 million and $125 million.
We are proud of McGrath's first-quarter performance, and we are fully focused on solid execution for the remainder of 2025.
That concludes our prepared remarks. Jess, you may now open the lines for questions.

Question and Answer Session

Operator

(Operator Instructions)
Scott Schneeberger, Oppenheimer.

Scott Schneeberger

Joe and Keith, I'll focus my first question in Mobile Modular. The education, you mentioned growth in rental revenue in both categories of commercial and education rentals.
On education, what are you seeing as far as order flow for the year? I know this is the time of year where you start to see it for activity later in the year. So just curious in that one category, what indications are you getting thus far?

Joseph Hanna

Sure. I can answer that, Scott. We -- bookings were just a little bit light for education in the first quarter. But in April, we're starting to see more orders. So the funding dynamics really haven't changed.
The demand situation really hasn't changed. And I would say that our education opportunities are really don't run concurrently or in conjunction with the general construction-related activity that you see in the market.
It's a separate entity because it relies on funding from local bond measures and state bonds and things like that. None of that's changed. We're expecting to have a good year in education, and the bookings are not yet fully realized yet.
So we'll see -- we'll have more to report in the next quarter on that.

Scott Schneeberger

All right. Thanks on that.
Could you speak a little bit to project size in the commercial category in Mobile Modular? I imagine the larger projects are where you're seeing the strength, smaller, maybe not so much.
But could you just frame that for us since we're seeing indications of a softer macro from third parties? And just wondering what you're seeing out there and speaking with your customers.

Joseph Hanna

Yes. I would say what you said is accurate, Scott. The larger projects that have been underway are pretty solid. It's the smaller ones that are more -- we're getting just more uncertainty from those folks. What's interesting is the activity level is good.
There's a lot of inquiries into projects. We're just seeing that some people may be hesitant to pull the trigger on some things, particularly as things go into the second half of the year. So that's where things stand.

Scott Schneeberger

So you see demand, you see a pipeline there. You just think that the hesitancy could occur in this environment potentially?

Joseph Hanna

Absolutely. The pipelines are really good. Activity is really good. Our quoting activity is good.
And, as we said in our prepared remarks, the order sizes are a little bit smaller. And that's due to some factors like mix shift as an example.
But overall activity is pretty good, right now.

Scott Schneeberger

Thanks.
And then, on pricing, on new shipments, over the last 12 months, your monthly revenue per unit, up 12% year-over-year, that's good. I know as recent as fourth quarter, it was up 15%, slight deceleration, but that number is up, I think, significantly versus a year ago.
I'm just looking at it was plus 9%. So I mean, all very nice numbers. You're still seeing that pricing lift.
Any -- I mean, we're seeing a slight deceleration. Any comment on that? My takeaway is it's pretty strong overall. So just if you could dig in a little bit on the pricing environment specifically.

Keith Pratt

Sure. Well, I think you've summed it up. I think we're doing very well in this area. As you know, pricing can be influenced by many factors, the type of unit, the region you are in, the length of the contract.
And what you're looking at is a very aggregated number, but it does indicate a couple of things.
One is that number has increased over time on new shipments. It reflects healthy movement in base unit pricing and in addition, adding more services to the contracts. Those are things Joe's talked about extensively.
We've been working on for the last couple of years. I think every year, we're making more progress in that area, and it will continue to be a focus.
So that's really positive. And then the other thing that we've noted in the past is newer units are going out at a rate that is well above the legacy installed base average unit on rent number.
And so, there -- we absolutely believe there's a positive pricing tailwind there that over time, as the fleet churns, there's an opportunity to get more revenue per unit from our fleet, and that's something we're very focused on.

Scott Schneeberger

Brilliant. And Keith, would you agree? I think the difference between new shipments over the last 12 months, monthly revenue per unit versus your total fleet units on rent, monthly revenue per unit, it's over 40% higher, the recent deliveries.
So even if you made no more deliveries going forward, you would still have an implied double-digit pricing lift on conversion. Is that an accurate way to talk about that?

Keith Pratt

Yes. I think that's a reasonable way to look at it. There's a big gap. It is over 40% and churn causes us to reset pricing. And in that way, churn gives us a revenue lift.
And I think it's only fair to point out, as we noted in the prepared remarks, I mean, the offset here is fewer units on rent, and we have seen some pressure. You'll see our utilization has drifted slightly lower, and that reflects 4% lower units on rent in the first quarter.
So making really nice progress on the revenue per unit. The headwind is that in the current more sluggish commercial construction environment, we're seeing fewer units on rent. And again, that's something we've been dealing with now for multiple quarters, and we've commented on last year as well as this year.
So that's just the one challenge area that I think many players are dealing with, but we're very pleased with what we're accomplishing in terms of revenue per unit on rent and with the revenue for new shipments.

Scott Schneeberger

Understood. I'm going to spin over to TRS and then move on. A nice step-up in rental revenue, I think, the first time in a couple of years.
Can you just elaborate on what you're seeing with regard to the demand trends and what you're hearing? Is this a potential hiccup or head fake? Or do you feel that there's maybe something behind this?

Joseph Hanna

Yes. I don't think it's a blip or anything. One of the things that we commented on in prior quarters was the weakness in the semiconductor and computer part of the business.
That was actually up very nicely in the quarter. And the reason is that customers are telling us that the projects that have been delayed are actually starting.
And so we're really glad to see that, and we think that trend will continue.

Scott Schneeberger

And then just be remiss if I didn't ask on the guidance overall. I mean just you trimmed it slightly. And I heard a lot of cautionary discussion about uncertainty in the back half of the year. It doesn't sound like you have much direct exposure to tariffs. It doesn't sound like that's a concern.
And with your utilization levels, you don't need to tap market spending CapEx right now. So it's really just your customers that you're worried about. Is this a get ahead of it cut? Or is this because you're hearing a lot from your customers about, hey, yes, we're really nervous. And is that what's prompting it?

Keith Pratt

Yes. It's a really good question, Scott. And probably the way to answer it is we're dealing here with a very fluid situation. There's a lot we don't know. But the way I would frame it is as follows.
If we looked at the world in February, we felt pretty good about our start to the year. You may recall, we had good quoting activity in the month of January all across the business.
And here we are, it's April and particularly in the last handful of weeks, both the speculation around tariff policy and then some of the announcements and then some of the churning, all of that we're concerned about creating more uncertainty.
And when we look at where we're finding our data, a lot of this is in the trade press. It's some things you can go out and find and read.
It's not so much directly our business experiencing really any cancellations that we're aware of and really no major delays that any different from what we've seen over the last year or so. I think the difference is we are concerned that customers who are planning things, they may take longer to take action.
And as you appreciate in any rental business, it makes a difference to us whether a rental project begins in June or gets pushed to September because it limits how much rental revenue we're going to earn this year on that transaction.
And in a similar vein, if we take a sales project where there may be a lot of work that goes into the planning of that project and a lot of back and forth with the customer, we know those projects, especially the larger ones, take many months to bring to fruition.
So if we lose a few months in this early part of the year with people hesitating or holding back, then projects we might have thought would happen in September, October of this year, they might get pushed into the first quarter of next year.
So all of that could have some impact on our results. As you can tell from the shift in the guide, it's a very minor shift, but it's more an acknowledgment on our part that the journey this year is just a little bit more uncertain and probably a little bit more challenging than what we thought a couple of months ago.
That's really the net of it.

Scott Schneeberger

Thanks. Appreciate that answer. I'll turn it over, guys. Thanks very much.

Operator

Daniel Moore, CJS Securities.

Daniel Moore

I want to just go in through and see which we're not covered yet. So TRS, great to see uptick year over year in Q1.
Is that sustainable given your modestly more cautious outlook overall? Do you expect that maybe things to revert a little bit back given in H2 from a year-over-year perspective? Any color there?

Joseph Hanna

Yes. I think -- yes, go ahead, Keith. Do you want to take this one?

Keith Pratt

Yes, sure. Just a couple of thoughts, Dan. And here's the way I'd paint the picture with our journey so far. And in all of this, what I'd really stress is it's April, and so there's still a long way to go.
But I think in looking at that business, if we looked at how things went in January to February to March and even into this quarter or month-to-date in April, there has been a really nice solid progression with the business momentum.
And as we shared in some of our disclosure, pretty broad-based as well. It's not relying on one single thing. So that is really, really encouraging.
And I think under normal circumstances, we'd look at that business, and you'll recall back in February, that's a business where we just thought adjusted EBITDA this year is probably going to be comparable to what it was last year. Absent all of this turbulence that we're going through, I'd be feeling like that business can do better for 2025 than we thought.
However, when we look at where we are today, I just think we're curbing our enthusiasm just a little despite those really good things that have happened in the first 3.5 months and just acknowledging that, well, second half of the year could just throw a couple of unexpected or unknown impacts on us.
So there's just a little bit of caution there. But that's a great example where we're going to be tracking that one. We may have a different view in July, but we're trying to give us or trying to give you a sense of our thinking as it stands today. Great start, really also starting nicely in the second quarter.
Second half of the year, there's more unknowns. And just as a reminder, that is a business which churns very quickly, shorter rentals, shorter terms.
So the business is recreating itself every few months. And so really, second half of the year, it's just too early to tell. We'll know more in July.

Daniel Moore

That's great color. Very helpful.
I'll jump over to Portable Storage. Given the lingering pressure on revenue, you've done -- if we look at the back half of last year, a remarkable job maintaining margins this quarter, a little bit more pressure.
So help me think about how do you expect to be able to hold the line on margins for the next few quarters, more thinking more year-over-year rather than Q1 as a comp? Or does it get more difficult if the conditions in revenue deteriorate further?

Keith Pratt

Yes. And again, just big picture on that part of the business, as we pointed out, and Joe said it in his remarks, we started this year with a much lower run rate than we had at the beginning of 2024.
So that's the big challenge area. I think Q1 played out as we expected. I think if you look at the detail in terms of margins, you'll see some pressure on rental-related services.
That's an area where -- we've looked at it hard. We see some people in the industry are using not rental rate on the unit, but delivery fees and other items to sharpen their pencil on completing transactions. I think we're looking at ways to recover some of the lost margin there ourselves.
We can do things -- some things operationally, but looking to protect the overall rental rate pricing as best we can and be smart about how we handle the delivery and pickup side of things as well. So looking at the big picture, I don't think there's going to be more margin pressure there.
I think we're pricing smartly in this environment, and we're looking at the delivery side and the pickup side to be efficient and smart about how we minimize any loss of margin in that area. So what you've seen is probably in line with what we're going to see for the next couple of quarters. We'll be working hard to try and improve upon it, but it's going to be gradual.

Daniel Moore

Helpful. In that vein, are you looking to step up sales or divestments of portable storage units given -- or you intend to hold on to what we have now? How do you think about managing utilization going forward? And is there a market for them, right now?

Keith Pratt

Yes. Sure. Well, a couple of things I'd point out. Number one, we've got a really high-quality fleet. A lot of the fleet originated is what in the industry we call one trippers, mostly from China.
And so they are great pieces of equipment, and they have a very long useful life. So the real distinction here is it's an asset class that should age gracefully.
And so there's no pressing need to take urgent action in the next 6 months or this year. Very different from our electronics business where you've got all the technology changes that mean you have to actively manage that fleet. So there's -- just to give you a really contrasting way to look at it.
And just as in electronics, where we saw some challenges, our team did a really fantastic job over multiple quarters of shrinking the fleet while they continue to do well in the market winning business. It's different in portable storage.
We probably have more units than we need across multiple geographies, but we're working hard to put them to work. It may take more than a year, but that's not a reason to sell fleet today and then in a couple of years, need to buy it all back.
And another example of an area where we have some insulation from tariff risk because we own the fleet, and we have some spare capacity.
So that's where we stand today, and that's how we're looking at it.

Joseph Hanna

Yeah. I'll just add in there, too. We're happy to sell units if we have the opportunity.
So where utilization is low, we'll sell fleet if we need to or have the chance to do it.

Daniel Moore

Makes sense. One or two more. You're already leaning into refurbishing more existing units rather than acquiring new ones.
And it sounds -- in your prepared remarks, it certainly sounds like you're continuing to move in that direction. Is that something you likely accelerate?
The CapEx guide ticked a little bit lower, but how are you thinking that beyond the next quarter or two?

Keith Pratt

Yeah. I think similar to what we said in February, it's a good way for us to meet demand. It's our preferred way from a free cash flow point of view. It's a very smart way to operate the business.
So no real change in our general approach there from what we said back in February.

Daniel Moore

Helpful. Last one, similar to Scott's question, you gave great color, so maybe it's beating dead horse. But you mentioned a limited impact from tariffs.
And then, you also mentioned if the weakness becomes more widespread, it could -- I guess the question is, if it does, would that likely drag on lower end of guidance? Or are you already contemplating some incremental weakness in the revised ranges?

Keith Pratt

Yes. Again, I'll go back to all the comments that we made earlier. We tried to step you through all the moving parts of demand, reminding everyone that we're primarily domestic and where the cost impact could be.
There could be a little bit in CapEx. But on the other hand, this is not a big CapEx year for us given where utilization is at.
And then, on the operating expense side, there's certainly rumblings of paying a bit more for certain grades of steel or certain types of lumber. But again, that's limited impact, I think, in 2025. Some of those materials we have on hand or we've placed orders for, I think any impact comes later in the year.
And really, the big picture here is just a little bit more caution or concern that customers may move more slowly in their decision-making and their initiation of projects given this backdrop of macro uncertainty. Hopefully, there's very little of it.
We'd be delighted and we'd love to have a great year. But again, our view today compared to two months ago, there is a bit more caution. It's an issue for the second half of the year, not the first half of the year.

Daniel Moore

No. That frames it well. Thanks, again, for the color.

Operator

Steven Ramsey, Thompson Research Group.

Steven Ramsey

Good evening.
Maybe, to start with on Mobile Modular Plus, it continues to be strong and the growth on a percentage basis outpacing revenue per unit and new shipment growth rate.
Can you talk about operational progress here that the sales team is making and market acceptance and customers wanting more of what you're offering?

Joseph Hanna

Sure. Yeah. Our customers like our offerings. We're very flexible with them in terms of the different offerings that we give them, because we don't actually own the equipment and we can -- we re-rent it, and we are able to get them specifically what they need for each of their applications. So the acceptance is good.
We're doing a much better job with our sales team in terms of integrating those offerings in with each of our rentals. It's a priority in the business, and we're making traction with that as each quarter progresses.
So I've been very pleased with how things are going, and we're going to continue on that trajectory.

Steven Ramsey

Okay. That's helpful. And then thinking about the market slower local projects, but then bigger projects being better at least relative to local.
How are sales -- how is the sales team adapting its approach to capture that opportunity? And does it heighten the focus even to grow Modular Plus or site related in this environment?

Joseph Hanna

Yes, absolutely. I mean we're -- fortunately, we have folks that are in close proximity to our customers. So if it's a large project, we're all over it. If it's a smaller project, we're also all over it.
So I don't see any problems there with getting the sales force motivated to go after either one of those types of projects.
So we've got all our folks who are highly motivated to make their commissions, and they're out there knocking on the doors and in front of the customer. So I think we're doing a pretty good job of that.

Steven Ramsey

Okay. That's helpful. And then on modular RRS reflects modular units going on and off rent, but site-related services is mostly tied to units starting a contract, if my understanding there is correct.
But can you talk about how site-related is growing at such a strong rate despite the volume headwind in the modular segment?

Joseph Hanna

Yeah. Our site-related services actually can be a pretty substantial part of a project. And so right now, they're more lumpy as we continue to get traction there. But we're -- you could have a $1 million sale project that has $1 million with site-related services that accompany it.
So that is, as you said, it's correctly is revenues that we recognize in our rental-related services line.
And actually, some of those site-related services could be on a dismantle. A lot of them are when the project goes in, but sometimes there's things that need to happen when a project comes out.
And so, we can book revenues for those for the ending of the project, too.

Steven Ramsey

Okay. And then, when you think about customer hesitation or general customer sentiment and how it impacts the balance of the year potentially being negative, do you expect this lowered sentiment to bring down the potential growth rate of the Modular Plus and the site-related revenue through the balance of the year?
Are those two revenue components being moderated? Or would you say it's in other parts of the business?

Keith Pratt

Yeah. It's a good question. And here's the way I'd think about it. This is all about how many new activations we get.
So if we were to experience customers moving more slowly or more deliberately and the pacing of new shipments slowing down relative to maybe what we saw a year ago or two years ago, I think that makes it more challenging to grow things like MM Plus and site-related services. And to some extent, we've already been there.
If you look back at the last few quarters, the construction industry backdrop has been one with some challenges. So the issue is, does it incrementally become a little tougher? It could.
And if it did, it would make growing those items a little bit harder. But I think it's important to zoom out and say these are longer-term initiatives.
And the battle is neither won or lost at December 31 of this year. It's really a multiyear journey where these are things we do because we think they provide value to customers.
We think that we can do them well, and we think we're on a journey that's going to be a positive one over the long haul. So that's the way we think about it internally, okay?

Steven Ramsey

That's helpful. And then last one for me. You talked about geographic expansion being a priority. Maybe can you clarify some of the nuances for that in 2025, your priorities between geographic focus, customer focus, product between storage and modular?
And then, maybe, high level, how much of that is organic driven versus M&A driven?

Joseph Hanna

Sure. It's a good question. Our geographic expansion opportunity and focus this year is important. We're not going to see a whole lot of revenue gains this year because we're putting some of that infrastructure in place.
But when you populate markets with new sales reps and additional sales power and infrastructure, that's something that is important to us.
It's a focus, and we'll see some results this year, but more in future years as we continue to get traction there. So -- and most of that is the geographic expansion. I mean, most of our -- that we can control, of course, is organic.
But if we can backfill or add or further densify a market by doing an M&A transaction, we'll absolutely do that. So I would say they're both important to us, and we're excited to see progress this year in both of those categories.

Steven Ramsey

Thank you for all the color.

Operator

Marc Riddick, Sidoti.

Marc Riddick

So I wanted to follow up on that because in your prepared remarks, you had made some mention or commentary around some of the -- around acquisition pipeline. Maybe you can talk a little bit about how that's going and maybe how you might be looking at that and tie that into cash usage.
I mean with the -- it's a good time to have a lower debt level, of course, you're now below 1.6x on leverage. So maybe you could marry those two and talk about the types of opportunities that may have come to fruition over the last few months and maybe what drove that?

Joseph Hanna

Yeah. There are some larger opportunities that are out there. We are -- we have dialogue and relationships with folks in the industry that we think would be good potential transactions for us not only on the larger side, but also in terms of our tuck-in activity, too.
So we're out in the market. We're talking to people.
We have a pipeline of folks that are -- that we're talking to that are showing interest. We hope to close some of those in 2025. And so it's been an active market and one where we want to be at the table to add to our rental revenues and add to our offerings that we have.
So an important part of the business for us. And Marc, you touched on it.
Our leverage is really appropriate for us to do smart M&A, and we have some dry powder to do that. So we're really happy about that.

Marc Riddick

Excellent. And then, last one for me. I was curious as to maybe where you -- comfort level as to talent that do you see yourself needing to do much in the way of hiring? How comfortable are you with talent levels? Are there any areas that you would like to add to or maybe we should be keeping an eye out for?

Joseph Hanna

Sure. I mean we've been hiring. We put off a number of hires last year due to the merger, the pending merger. When that was terminated, we started right back in again, and we have not had problems hiring people. So the market has been pretty good.
We're getting the talent that we need, and we're very pleased with the quality and type of candidates that are available out there. So it's been a good opportunity for us.

Marc Riddick

It's encouraging to hear. Thank you very much.

Joseph Hanna

Thank you, Marc.

Operator

(Operator Instructions) 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.

Joseph Hanna

I'd like to thank everyone for joining us on the call, today, and for your continuing interest in the company.

Operator

Thank you, sir.
Ladies and gentlemen, that concludes today's conference call.
We thank you for your participation. You may disconnect at any time.