McGrath RentCorp Q3 Earnings Call Highlights

Key Points

• Q3 revenue rose 7% to $275 million and adjusted EBITDA increased 10% to $106 million, supported by 6% growth in rental operations despite weaker modular equipment sales.
• TRS-RenTelco was the strongest performer, with revenue up 23% and rental revenue up 26%, driven by AI infrastructure, data center, aerospace and defense demand; utilization reached a 20-year high of 71.9% at quarter-end.
• McGrath lowered its 2026 revenue outlook to $945 million–$960 million because modular sales projects are taking longer to complete, while raising planned gross rental-equipment capital expenditures to $270 million–$290 million.

McGrath RentCorp NASDAQ: MGRC reported third-quarter growth in rental operations, led by continued momentum in its Mobile Modular and TRS-RenTelco businesses, while lowering its full-year revenue outlook to reflect slower-than-expected completion of new modular equipment sales projects.

Total third-quarter revenue increased 7% year over year to $275 million, while adjusted EBITDA rose 10% to $106 million. Chief Executive Officer Phil Hawkins said rental operations revenue increased 6%, supported by demand for larger commercial projects, geographic expansion activity and technology-related infrastructure investment.

“While this isn't an easy operating environment, we made meaningful progress against our most compelling growth opportunities during the quarter,” Hawkins said. He cited Mobile Modular's participation in data center, manufacturing and infrastructure projects, along with TRS-RenTelco's work supporting AI infrastructure and data center build-outs.

Mobile Modular rental growth offsets weaker sales activity

Mobile Modular revenue declined 1% to $180 million, while adjusted EBITDA fell 3% to $63 million. Rental revenue, however, rose 4%, driven by commercial customers and the company's geographic expansion initiative.

Average fleet utilization was 70.2%, compared with 72.6% a year earlier, but improved from 70.1% in the second quarter. Monthly revenue per unit on rent increased 8% to $932, while the average monthly revenue per unit for new shipments during the past 12 months rose 7% to $1,271.

Rental margins declined to 56% from 58% in the prior-year quarter, reflecting a $2.3 million increase in inventory center costs associated with preparing existing fleet for shipment. Chief Financial Officer Keith Pratt said approximately two-thirds of the increase related to preparing company-owned equipment for deployment, while about one-third reflected re-rented equipment supporting the company's MM Plus services offering.

New modular equipment sales revenue decreased $5.3 million to $47.1 million. Management said the company had a healthy midyear backlog of secured projects, but projects took longer than expected to reach completion.

Pratt said the delays were primarily customer-related, including permitting, site readiness and subcontractor coordination on larger construction projects. He said McGrath had product available and was prepared to serve customers, but project completion timelines extended beyond expectations.

Hawkins said bookings at Mobile Modular increased more than 20% during the quarter. He added that more than 80% of year-to-date modular capital expenditures had been placed on contracts with initial average terms exceeding 30 months.

Portable Storage remains pressured by local construction demand

Portable Storage revenue decreased 3% to $24 million, and adjusted EBITDA declined 20% to $7 million. Rental revenue fell 3% to $17 million, while rental margins edged down to 80% from 81% a year earlier.

The segment continued to face challenging conditions in smaller local commercial construction projects. Average utilization was 59.1%, down from 61.4% a year ago but up from 58.3% in the second quarter.

Hawkins said conditions in smaller local projects have remained stable but have not increased meaningfully. The company is seeking to improve Portable Storage utilization through equipment sales and redeploying fleet into new markets, though management said progress will likely be gradual until demand improves.

TRS-RenTelco reaches record utilization

TRS-RenTelco posted the strongest growth among McGrath's rental businesses. Total revenue rose 23% to $45 million, adjusted EBITDA increased 27% to $26 million, and rental revenue climbed 26% to $35 million.

Rental margins improved to 48% from 43% a year earlier. Average utilization reached 69.9%, compared with 64.8% in the prior-year period, and ended the quarter at 71.9%, the highest level in the past 20 years, according to Pratt.

Management attributed the strength in part to demand associated with AI infrastructure and data center projects. Hawkins said the opportunity spans the supply chain, from semiconductor research and development through field testing and verification as equipment is installed in new data centers. Aerospace and defense, including satellite-related activity, also contributed to demand.

Pratt characterized TRS pricing as stable, saying higher rental rate factors were primarily driven by a greater mix of communications equipment, which has shorter useful lives and higher rental rates than general-purpose equipment. The company increased capital investment in TRS to support demand.

Hawkins cautioned that current utilization is not a level the company expects to sustain indefinitely. He said management views utilization in the mid-60% range as healthy over the long term, while increased equipment availability and eventual normalization of demand could moderate current levels.

Capital spending outlook increases as revenue outlook narrows

McGrath increased its gross rental equipment capital expenditure outlook to a range of $270 million to $290 million, compared with an initial midpoint of $190 million in February. Pratt said the majority of the increase from the beginning-of-year outlook is being directed toward TRS, though Mobile Modular also received incremental investment for geographic expansion and larger projects.

Year-to-date rental equipment purchases totaled $219 million, compared with $92 million a year earlier. Net cash provided by operating activities was $178 million, compared with $175 million in the prior-year period.

The company paid $37 million in shareholder dividends and repurchased $34 million of shares year to date. At quarter-end, net borrowings were $618 million, and funded debt was 1.68 times the last 12 months of adjusted EBITDA.

For 2026, McGrath now expects:

• Total revenue of $945 million to $960 million.
• Adjusted EBITDA of $365 million to $373 million.
• Gross rental equipment capital expenditures of $270 million to $290 million.

Pratt said the revised revenue range reflects lower expected new modular equipment sales, while the adjusted EBITDA midpoint remains unchanged due to the strength of rental operations. Management said it continues to evaluate acquisition opportunities but will pursue transactions only at valuations it considers appropriate.

About McGrath RentCorp (NASDAQ:MGRC)

McGrath RentCorp was a business-to-business rental company that provided modular buildings, portable storage, electronic test equipment and related products. Its modular building offerings served customers needing temporary or permanent space, including classrooms, offices, healthcare facilities and other commercial or institutional applications.

Through brands such as Mobile Modular, the company rented relocatable buildings and portable storage units, while its TRS-RenTelco business provided electronic test and measurement equipment to telecommunications, electronics, aerospace, defense and other industrial customers.

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