McGrath RentCorp Q1 Earnings Call Highlights

Key Points

• Q1 results: Total revenue rose 2% to $199 million while adjusted EBITDA fell 1% to $74 million, as gains in Mobile Modular and TRS‑RenTelco were offset by a sharp decline at Enviroplex and higher equipment‑preparation costs.
• TRS‑RenTelco outperformance: TRS revenue increased 11% to $39 million and adjusted EBITDA climbed 16% to $21 million, with utilization up to 66.1% and rental margins expanding to 45% driven by data‑center demand.
• Capital allocation and outlook: Operating cash flow dropped to $42 million while rental equipment purchases rose to $45 million, net borrowings were $546 million (funded debt/TTM EBITDA 1.51x), and management reaffirmed full‑year guidance of $945M–$995M revenue and $360M–$378M adjusted EBITDA.

McGrath RentCorp NASDAQ: MGRC reported first-quarter 2026 results that showed modest top-line growth and essentially flat profitability versus the prior-year period, as strength in Mobile Modular and TRS-RenTelco offset a sharp year-over-year decline at Enviroplex and higher equipment preparation costs.

Quarterly results: revenue up 2%, adjusted EBITDA down 1%

Chief Executive Officer Phil Hawkins said total company revenue increased 2% year over year, while adjusted EBITDA decreased 1%. Hawkins attributed the quarter’s performance to “continued progress from our modular strategic growth initiatives and strength at TRS-RenTelco,” while noting profitability headwinds from “higher equipment preparation expenses and lower sales at Enviroplex.”

Chief Financial Officer Keith Pratt provided additional detail, stating that total revenue increased 2% to $199 million and adjusted EBITDA decreased 1% to $74 million.

Mobile Modular: rental growth, lower utilization, and higher prep costs

Mobile Modular posted total revenue of $134 million, up 2% from the prior-year quarter, and adjusted EBITDA of $47 million, down 1%, Pratt said. Rental revenue increased 4%, driven by growth with commercial customers, and rental-related services revenue also rose 4% on higher Site Related Services projects. Sales revenue declined 7%.

Pratt said inventory center costs increased by $3.2 million as the company prepared equipment to support higher shipment levels, compressing rental margins to 56% from 60% a year earlier. Average fleet utilization declined to 70% from 74.6% last year, which Hawkins tied to “some challenging market conditions” and subdued macro indicators such as the Architecture Billings Index (ABI).

Despite softer utilization, management highlighted pricing and services momentum. Pratt said monthly revenue per unit on rent increased 7% to $889, while average monthly revenue per unit on new shipments over the last 12 months increased 1% to $1,208. “There is still a positive pricing tailwind opportunity as our fleet turns,” he said.

Services initiatives continued to expand. Pratt said Mobile Modular Plus revenue rose to $10.3 million from $8.6 million, and Site Related Services increased to $5.3 million from $4.1 million.

On end-market demand, Hawkins told analysts that growth in government, manufacturing, healthcare, and data center-related work was largely tied to what he described as “mega project” demand across multiple verticals. Education demand remained steady. Hawkins said that after adjusting for “abnormal demand we saw last year related to the Southern California wildfires,” first-quarter education bookings were “roughly flat year-over-year,” supported by modernization needs tied to aging school infrastructure.

Portable storage: steady demand, profitability pressured by costs and competition

Portable storage revenue increased 3% to $22 million, but adjusted EBITDA fell 17% to $7 million, Pratt said. Rental revenue increased 1% to $16.3 million, while rental margins declined to 80% from 84% in the prior-year quarter.

Pratt cited multiple pressures: higher inventory center costs tied to equipment preparation for shipment activity, and margin pressure in deliveries and pickups “in a very competitive environment.” He also said SG&A increased in part due to investments in sales coverage to support longer-term utilization improvement across the branch network. Utilization averaged 58.6% versus 60.2% a year earlier.

Hawkins said activity levels in portable storage remained “flattish,” and he did not point to meaningful near-term market improvement. “I don't think that we've seen significant green shoots that cause us to feel like that market's improving significantly,” he said, while emphasizing the company’s efforts to gain share through geographic expansion and services offerings.

TRS-RenTelco: double-digit rental growth and margin expansion

TRS-RenTelco delivered the strongest performance among the operating divisions. Pratt said TRS revenue increased 11% to $39 million and adjusted EBITDA rose 16% to $21 million. Rental revenue increased 13% to $29 million, which management attributed to improved demand conditions and projects supporting data center build-outs.

Rental margins improved to 45% from 40% a year earlier, and utilization increased to 66.1% from 61.6%—the “highest first quarter level since 2021,” Pratt said. Sales revenue increased 1% to $8 million, and gross margin on sales rose to 55% from 47% a year earlier.

Asked about the durability of the data center-driven opportunity, Hawkins said the company views it as “early to mid-innings on the whole data center play,” adding that while TRS rental terms are shorter, demand visibility for the rest of the year looked “pretty solid.”

Management also discussed fleet investment. Pratt said one reason the company increased its gross capital expenditure outlook for 2026 was the expectation that TRS demand would continue and the company would “deploy more capital into that business.” Hawkins noted that unit counts can be less informative than dollars invested because equipment costs vary widely based on product mix.

Enviroplex: difficult comparisons after an exceptional 2025

Enviroplex results declined sharply year over year. Pratt said total sales revenue fell 51% to $3.7 million, and adjusted EBITDA swung to a loss of $1.1 million from a profit of $0.4 million a year earlier.

Pratt told analysts that 2026 results in the business were likely to resemble 2024 more than 2025, emphasizing that 2025 was “exceptional” and created tough comparisons. He added that it is “not uncommon” for Enviroplex to start the year with modest revenue recognition and, at times, a loss in the early part of the year.

Cash flow, balance sheet, and capital allocation

On a consolidated basis, Pratt said first-quarter SG&A increased $2.6 million to $53.5 million, primarily from higher salary and benefit costs. Interest expense decreased $1.7 million to $6.5 million due to lower average debt levels and lower interest rates. The effective tax rate was 26.7%, compared with 24.6% in the prior-year quarter.

Operating cash flow totaled $42 million, down from $54 million in the prior-year quarter. Rental equipment purchases were $45 million, up from $12 million last year, reflecting increased investment in modular geographic expansion and higher TRS demand. Pratt said the company also paid $12 million in dividends and completed $12 million in share repurchases during the quarter.

At quarter end, Pratt said net borrowings were $546 million and funded debt to the last 12 months of adjusted EBITDA was 1.51x.

Repurchases were a focus of analyst questions, given limited activity in recent years. Pratt said the company was active in March and that buybacks are evaluated within its broader capital allocation framework alongside organic investment, M&A, and dividends. He said the company had “over 1.8 million shares available and authorized for repurchase under the current plan.”

Outlook unchanged; monitoring geopolitical and cost risks

McGrath maintained its full-year 2026 guidance. Pratt said the company continues to expect:

• Total revenue: $945 million to $995 million
• Adjusted EBITDA: $360 million to $378 million
• Gross rental equipment capital expenditures: $180 million to $200 million

Hawkins said recent Middle East developments had no material impact in the first quarter or early April, but could increase uncertainty and potentially cause project delays as the year progresses. He said the most immediate impact could be higher fuel costs, though he noted the company can pass through much of that expense to customers and manages pricing “real time through our pricing optimization tools.” Pratt added that sustained higher energy costs could also contribute to broader inflation in materials and other costs, though he said it was “way too early” to assess any impact.

When asked about April trends, Hawkins said activity levels were consistent with the first quarter: “Solid bookings with Mobile Modular, still kind of flattish in portable storage, and continued strength at TRS,” which supported management’s confidence in its full-year guide.

About McGrath RentCorp NASDAQ: MGRC

McGrath RentCorp, through its subsidiaries, provides rental, sales, and servicing of equipment for commercial, industrial, environmental, and residential markets. The company operates primarily through two segments—mobile storage and water management—offering flexible solutions for customers requiring on-site storage, water transport, treatment, and dewatering services.

In its mobile storage segment, McGrath RentCorp supplies portable storage containers and modular office units to sectors including construction, retail, government, and disaster restoration.

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