Mcgrath Rentcorp (MGRC) Q2 2026 earnings call transcript

Thank you, Chloe. Good afternoon, everyone, and thank you for joining us today for MCGRATH RENTCORP's second quarter 2026 earnings call. I am glad to be here to report on our performance over the past quarter and to provide an update on our outlook for this year. I will discuss current market demand conditions and share our progress on strategic growth initiatives.

First, our quarterly results. We were pleased to see rental operations revenues up 6% year over year, driven by continued momentum in our two largest rental businesses. Both Mobile Modular and TRS RENTELCO grew rental revenues and improved utilization sequentially during the quarter.

Offsetting these positive rental operations results were lower new equipment sales at Enviroplex and Mobile Modular, and several projects pushed to the second half of the year. As a result, total company revenues decreased 6%, and adjusted EBITDA decreased 4%. Focusing first on mobile modular, we saw growing momentum in our rental operations. Rental revenues grew 2% in the quarter and bookings increased 11% compared to a year ago. While demand conditions remain mixed, our larger commercial project opportunities continue to be strong, and activity in smaller local markets has been more stable. We are also having success in the geographic expansion markets where we added sales coverage and deployed capital.

I'm particularly encouraged by the positive operational trends in the modular business. Utilization improved sequentially for the first time since 2022. Units on rent have increased the last four months in a row, and we ended the quarter with more units on rent than at the beginning of the year. With this inflection and higher year-over-year bookings in the first half of 2026, I feel positive about the outlook for the second half of this year.

Our services expansion initiatives also have solid momentum. Mobile modular plus revenues were up 15% year-over-year. Site-related services revenues, while down slightly from the quarter, were higher for the first half. Looking at the market for new modular sales, overall demand and pipeline activity remain stable and similar to last year.

Turning to our portable storage business, rental revenues were flat. We continue to see challenging demand conditions in local commercial construction markets, which are a larger component of the mix for this business. Our team remains focused on getting more units out on rent through expanding sales coverage and targeting adjacent geographic markets.

Lastly, turning to TRS, rental revenues continued their impressive growth trajectory and were up 17%. Demand remained healthy across several key end markets, including data centers, aerospace and defense, and semiconductors. Our team is executing well in a strong market environment and is entering the second half of the year with solid momentum in the business.

Summing up, across the MCGRATH businesses, we delivered rental operations revenue growth in a mixed demand environment. I am pleased with our momentum going into the second half of the year. Our modular geographic and services expansion initiatives are providing us with several growth opportunities that are not dependent on recovery in the non-residential construction market. And our strong balance sheet gives us the flexibility to fund organic growth, support a steadily increasing dividend, and retain capacity for strategic M&A and share repurchases. I would like to thank our team for your dedication, deep expertise, and customer engagement that are truly competitive differentiators, and our customers and shareholders for your trust and investment in our company.

With that, I will turn the call over to Keith.

We'll take you through the financial details of our quarter and our updated outlook for the full year. Thank you, Phil, and good afternoon, everyone. As Phil highlighted, second quarter results reflected continuing growth in rental operations revenue, offset by lower sales revenue at EnviroPlex and Mobile Modular. Total revenues decreased 6% to $221 million, and adjusted EBITDA decreased 4% to $83 million. Reviewing Mobile Modular's operating performance as compared to the second quarter of 2025, total revenues for Mobile Modular decreased 4% to $150 million, and adjusted EBITDA decreased 4% to $51 million. Rental operations showed steady progress and saw 2% higher rental revenues, driven by growth from our commercial customer base, and 8% higher rental-related services revenues.

Infantry center costs increased by $2.1 million as we invested to prepare equipment to meet stronger demand and higher shipment levels in the second half. This expense compressed rental margins to 55%, down from 58% a year ago. Sales revenues decreased $9.3 million to $31.2 million, primarily due to lower new sales projects during the quarter, as several projects shifted to the second half of the year. Average fleet utilization was 70.1%, compared to 73.7% a year ago. Utilization modestly improved from 70% in the first quarter and ended the second quarter at 70.6%, as shipments exceeded returns during the quarter. While these were small incremental changes, we viewed them as positive indicators as we returned to growth in units on rent.

Revenue per unit trends were favorable. Second quarter monthly revenue per unit on rent increased 7% to $902. For new shipments over the last 12 months, the average monthly revenue per unit increased 7% to $1,252. 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 $10.5 million from $9.2 million a year earlier. Site-related services revenues were $6 million, compared to $6.5 million in the prior year, but remained above 2025 on a year-to-date basis.

Turning to the review of portable storage. Total revenues for portable storage increased 1% to $24 million, and adjusted EBITDA was $8 million, a decrease of 23% compared to the prior year. Rental revenues were $17 million, flat compared to last year, and rental margins were 80%, down from 83% a year earlier. As Phil mentioned, demand conditions in small, local commercial construction markets remain challenging.

Ingested EBITDA was impacted by higher fleet preparation costs, pressure on rental-related services margins in a competitive environment, and investments in sales coverage to support future growth. Average utilization for the quarter is 58.3%, compared to 61.1% a year ago. Turning now to the review of TRS RENTELCO, TRS delivered another strong quarter, with total revenues up 17% to $43 million, and adjusted EBITDA up 29% to $25 million. Rental revenues increased 17% to $32 million, benefiting from improved demand conditions, including projects supporting data center bill guides. Rental margins improved to 48% from 44% a year ago. Average utilization for the quarter was 68.1%, up from 64.8% a year ago. TRS utilization ended the quarter at 68.9%, our highest utilization level since the first quarter of 2021.

Gales revenues increased 13% to $8.7 million, and gross margins were 66%, compared to 47% a year ago. Lastly, on EnviroPlex, compared to a very strong second quarter in 2025, EnviroPlex total sales revenue decreased to $4.6 million from $19.9 million, and adjusted EBITDA declined to a loss of $0.5 million from a profit of $4.3 million. The decline was primarily driven by project timing with several project completions shifting to the second half of the year. The remainder of my comments will be on a total company basis. Second quarter selling and administrative expenses increased million to million primarily due to investments to support our modular geographic expansion Interest expense was $7.1 million, a decrease of $0.7 million as a result of lower interest rates during the quarter.

The second quarter provision for income taxes is based on an effective tax rate of 27 percent, compared to 27.3 percent a year earlier. Turning to our year-to-date cash flow highlights, net cash provided by operating activities was $106 million, compared to $110 million last year. Rental equipment purchases were $124 million, compared to $50 million last year, as we increased investment in modular geographic expansion opportunities and to support higher demand at TRS. In addition to investments in new fleet, healthy cash generation allowed us to pay $25 million in shareholder dividends and to complete $27 million of share repurchases.

At quarter end, we had net borrowings of $590 million, and the ratio of funded debt to the last 12 months' actual adjusted EBITDA was 1.65 to 1. Lastly, we are updating our outlook for 2026. The midpoints for our revenue and adjusted EBITDA ranges are unchanged, while we tightened up the ranges now that we are halfway through the year.

We have also increased our gross rental equipment, CapEx, to support incremental investment in TRS. Relative to our original outlook, we continue to expect strength in the modular business.

Stronger than expected performance at TRS should offset weaker performance at portable storage. And at Enviroflex, we continue to expect performance to be similar to 2024. We now expect total revenue between $965 and $985 million, adjusted EBITDA between $363 and $375 million, and gross rental equipment capital expenditures between $200 and $220 million. As we enter the second half of the year, our focus remains on disciplined execution, prudent capital allocation, and delivering long-term shareholder value.

That concludes our prepared remarks. Chloe, you may now open the lines for questions.

Sure, and I'll start there, and then Keith can weigh in a little bit. So starting with the utilization trend, I'm excited about the sequential utilization improvement that we've had in modulars here in the second quarter. As we mentioned, that's the first time in four years. It's really being driven by more mega project wins, as you mentioned, commercial, and a combination of that with our geographic expansion initiatives. So that's giving a nice lift to our commercial utilization and partially offsetting some never terms in the education side. And kind of jumping to your inflection, I think we feel good that kind of the trends change. We may not see this move up every single quarter consistently, but we do believe we turn the corner on the trend on the modular side and have strong momentum entering the second half of the year.

Keith, anything you'd like to add there?

Yeah, again, we'd emphasize these are very encouraging signs, but they're just the beginning of the turn. I think Phil is spot on with saying we want to build on this, but it's small shifts, and we hope to build on that as we go forward. I don't think it will necessarily be linear every single month, but it's definitely a shift in the trend that we've seen over a number of quarters and over a number of years.

Sure. I think the consistent themes for portable storage are all around that smaller local market project dynamic, That we've been talking about for several quarters, and combined with industry utilization being lower, so a highly competitive market, lots of people trying to get units out on rent, so nothing's changed there. There's not any regional dynamics or differences that I would call out as material. It's really those two macro themes, and I think you're really talking about needing improvement in the non-residential construction. And those small local project markets before we see any kind of meaningful move there.

That would be a nice accelerator for portable sewer van modules when it happens. We're not expecting that to take place this year.

Yeah, we haven't quantified that, Ronan, but I think what I would say there is they're a meaningful part of our new business volume. And the bookings there, as we've talked about, have remained strong. The thing I'd like to highlight is those projects really play directly to our strengths. The deep experience of our team, capabilities of our operating infrastructure, and the scale of our modular solutions offerings. There's only very few competitors that can bring all that together in the way we can.

The other opportunity with those mega projects, data centers in particular, is an opportunity to bring all of our rental products to that site. So we've got everything from modular buildings, modular kitchens, dormitories, and electronic test equipment in the case of data centers. So it's an important, meaningful part of the new business, small on the scale of the overall fleet and revenue mix.

Keith, anything you want to add there? Yeah, I think that's a good summary. And Ronan, as we track the data, you'll see in our IR pack, we've got a good view of the different end markets that we serve. We just don't have mega project or even data centers as an identified item. Sometimes it's captured in our systems as another project with a large contractor that we have a relationship with and frequently do projects with. So, again, I think Phil's characterized it appropriately. It's a strong part of the new business flow, but we have a big fleet, and so it takes a lot to move the needle on that big fleet.

Sure. Absolutely. I'll jump in and sort of get the topic started. Really what we ran into are things that we often see in this part of the business, and these are new sales projects at EnviroPlex or on the modular side of the business. And frequently we'll run into site readiness issues. This could be the customer has to get a permit. It could be they're dealing with issues that have to be completed before we start, like foundation work, things like that. And then at the end of a project, there are also other things that have to be done before we complete the project. An example would be the local utility putting a power hookup at the site.

So these are things we run into. I would say when we looked at this quarter, we had several of those that impacted projects that were a little larger and caused them to shift. In some cases, the shift is just a matter of weeks. In others, it's several months. But these are all projects that we have under contract. We're going to complete them. And I think the cadence by quarter was maybe a little different from what we've seen in the past and a little bit different maybe from what we expected. But nothing highly unusual in terms of the factors that caused the delays. That would be the sort of overall comment. Phil, I don't know if there's anything you'd like to add.

I think you described it well. Maybe I'll just add these aren't projects canceling and falling out of the pipeline, just completion dates shifting from when we originally expected it. There's really nothing in the underlying market demand that we're worried about. We really see that as being solid, consistent with where it was a year ago. And I'm sure just the size and scope of these sale projects that sometimes are difficult to predict, given things outside of our scope on the site.

Yeah, we did foreshadow, Ronan, that Enviroplex would have a lower sales year. We commented on that back in February. And again, just to calibrate things, Enviroplex had a very strong revenue year in 2025. They had $57 million in revenue. We commented we thought this year would be much closer to 2024 when they did $46 million. We've still got that same view. If you look year to date we just haven recognized a lot of those sales For Enviroplex we recognized 8 million year to date A year ago it was 27 million year to date So a big part of the difference this year is the timing around those Enviroplex sales There will be less of them for the full year and they definitely more weighted to the second half And then with modulars sort of similar comments but not as big of a shift in the numbers John Aucotton Got it Thank you very much both of you for all of that I appreciate it I pass it on now Thank you We'll take our next question from Scott Schneeberger with Oppenheimer.

Yeah, Scott, I'll jump in and take a crack at it. I think you're correct with the observations. There's still a good spread between the average revenue per unit on rent and then what we're seeing with shipments over the last 12 months. And that's, you know, we view that as a good thing for the business, a sort of positive tailwind over time.

A couple of things at play, I would say spot pricing. It kind of varies around the country. It varies by type of product. It varies by length of contract. All those things go into the mix. It's a fairly complicated algorithm when you look at understanding pricing at a very granular level. But the way we would characterize pricing that we've been experiencing is overall fairly stable. There are some pluses and minuses in different categories in different regions, and that's typical in the business, but overall relatively stable. And then the services piece is really something we've been working to grow over the last few years, And that's giving us more revenue opportunity per unit. We're being successful in achieving that with the new shipments.

And it's gradually working its way into the installed base of rental units. So all those trends are things we've seen for many quarters. And they continue to be healthy. And we're very pleased about that. I don't think there's anything unusual regarding megaproject or small local markets. There are dynamics around terms, size of project that can influence how we view, you know, the pricing that's appropriate, but those are all normal things we and I think others take into consideration when they look at new business.

Okay, thanks. Appreciate that.

No, go ahead, Scott.

Yeah, I've got the answer to that, Scott. We really see that demand remaining strong across several end markets, and there's no immediate sign of slowing. Data centers remain a meaningful contributor to that growth. It feels like we're still in the early to mid-innings of that data center build-out. We ended utilization higher, but our equipment levels are still lower than they've been over the last several years, so there's opportunity to add CapEx and participate in that growth. We don't have a crystal ball for any of this, but our teams are very familiar in managing these technology cycles. We know the things to watch for, and they manage them well.

So we believe we've got a good runway, feel good about the place and the cycle we're in.

And maybe the thing I'll just add specific to TRS and data centers is we still don't have a good feel for what the ongoing maintenance requirements will be for electronic test equipment As these things are installed and there's some type of maintenance and refresh process over time. So nothing there that gives us any concern.

Keith, do you want to start with Mike, and then I'll talk about geographic expansion in M&A?

Okay, yeah. Scott, it's an important topic and one that we're frequently reviewing, which is capital allocation opportunities and which we should fund. I think the good news is leverage at 1.65 at the end of June. We have a lot of flexibility, and we still want to be prudent. You're seeing the focus on organic investment. We have good opportunities at Modulars and TRS, and we're funding them, and at the same time trying to manage utilization very carefully, but still in light of market conditions. It's obviously a different story in each line of business. So that's the first comment. We did one small tuck-in. You may recall we commented on it on the April call. That deal was closed back on April 1st.

We're going to continue to work the pipeline, so we can elaborate on that. And then we look at the buyback as another tool in the toolkit. We don't telegraph on much and when, but we've now purchased shares both in the first and second quarter. However, we've purchased a total of 250,000 shares year to date, and we're in a position to do more. Our authorization, which was put in place in September of 24, was for 2 million shares. We've still got 1.75 million shares available under that authorization for repurchase. So clearly another tool in the toolkit, the dividend. We've got a good track record of a healthy dividend and an ability to increase it steadily as the business continues to grow and be profitable.

I'll just add, relative to geographic expansion, we're executing well there. You can see that in the rental momentum that we have. That's one of the drivers of that. We do that primarily organically through CapEx, as Keith mentioned, but we are able to use smart NMAs and accelerator. The acquisition that we closed to being a quarter is one example of that, where we expanded our reach into the Midwest with a small tuck-in modular acquisition. It provides us additional density, a facility that we can leverage to further scale in that part of the country, And we'll be able to add value to the existing customer base by providing those modular plus services that weren't being offered previously, as well as expanding from that kind of commercial construction customer base to adding classrooms for the storage, larger commercial complexes, product offerings that they didn't have in their toolkit.

So we have an active pipeline of those types and other types of opportunities, and we work that regularly, but we're good about where we're at in that process.

Yeah, I would say, as I mentioned a moment ago, some of those delays, I think it's a matter of weeks, others a few months. But those are, in the case of EnviroPlex, those are all contracted projects. And usually when a customer has decided to do something on the construction side, they actually want to get it done as quickly as possible. So we and our customers are very aligned. This particular year, I think we'll see for EnviroPlex, just to make the math work that I outlined earlier, they hit a revenue number somewhere in the neighborhood of mid-40s. They have a lot of business to get completed in the second half. I don't want to really get into handicapping how much in Q3 versus Q4.

Several of the things that were a little late to finish in the second quarter, it is a matter of moving from June to July, but there's other projects that will take a little longer to get completed. So I would say EnviroPlex is likely to have a very strong second half, whether some of those projects are completed in Q3 versus Q4. I want to be a little careful about pinning a sign on that, but most likely both quarters will show healthy EnviroPlex sales.

I'll take that. But, Damon, just where I'd start is obviously we have more strength where we're entering the market, new to the market, didn't have fleet. We're able to participate in all the opportunities there. We're not depending on market growth. We're able to grow even though the overall construction market may be contracting a little bit from a square footage standpoint. So those geographies that we talked about where we're small and growing, Pacific Northwest, Midwest, Northeast would be examples where there's relative strength for us, not an indication of whether those markets are performing better overall. And then the other dynamic you have is, you know, in our legacy markets, just where we've been longer, we have larger fleets.

And so those places, even though the markets may be as healthy as the new geographic markets, we just have much more inventory to deploy, and we're more impacted by the slowdown in those smaller local construction projects. But there's no markets that I would call out where we're extremely strong in one region of the country versus another. The exception would be obviously wherever you see these large data centers. Mega projects, those tend to be in the Midwest, South, but you see those all over the country. So where those are happening, there's obviously pockets of strength. But in general, I wouldn't call anything out geographically unique beyond our own internal geographic expansion initiative.

I think we happy with the penetration that we getting there We talked about the quarter over quarter growth rate particularly the Mobile Modular Plus still being strong and our cumulative growth rates in both those initiatives continue to be strong So we feel good about our ability to continue to penetrate with the existing offerings, so increasing the amount of the current product offerings, furniture, holding tanks, those kinds of things. As the fleet churns, we have opportunity to sell in the new orders where the old fleet that's on rent didn't have that opportunity. So one level is increased penetration. At the same time, services and offerings to that mobile modular plus lineup that give us more ways to add value to the customer and increase revenue to the order.

So more recently, we've seen things like cell phone service, janitorial services, air care, filter replacement type programs that are adding those capabilities. So we see lots of opportunities, still opportunity to move the needle on penetration, and still opportunity to move the needle on services that we're offering. And then if you think back to Keith's, of course, Keith talked about just on the pricing churn over time. Think about that opportunity to add those services happening over a similar timeframe, right, multi-year as the fleet churns and things that have been out on rent for three, four, five years come back, And we're able to get those back out on RENTCORP with a new level of service offerings.

Yeah, I don't think it takes both sides of the equation, right? The shipments need to be growing and returns to the year. So I think we've seen a little bit of both. Historically, we talked about, if you think back three-ish years ago, peak construction markets, you know, kind of lines up with our average term. We feel like that shift is in the process of happening in that last four months of consistently seeing shipment succeed returns is a nice indicator for us. So, I mean, you can have a large return from a single customer that might throw that off in a month or a quarter. But we do feel like kind of the worst is behind us in terms of the lower shipment levels combined with higher return levels.

And then we've got a trend here that's going to give us some solid momentum going forward.

Yeah, all good comments, Stephen. A couple of things. First of all, I don't think we were constrained in the second quarter. We've got a really good team. They're just very nimble in how they react to market opportunities. They've been doing a remarkable job here for many quarters of capitalizing on a healthy demand environment and at the same time managing the fleet assets very effectively from a return on capital point of view. So that's the first comment I would make. Given the healthy demand, and Phil mentioned earlier, we think the outlook is positive for this business. We're happy to add more capital. It is also a business that when we, you know, see shifts in demand, and we had this two or three years ago, when circumstances were very different, we had the ability to very thoughtfully reduce the size of the fleet and turn it into cash.

And again, if you look at the history of the last 12 quarters, you can see this business has that ability to reduce fleet size and turn it into cash fairly quickly, and we've done it before. But right now, we're at a very different part of the cycle. There's opportunity. We're managing the fleet extremely well from the utilization point of view, and we're absolutely at that level in many product categories where it makes sense to invest more capital And keep in pace with the group growth and demand. And, you know, that should be a positive certainly for the rest of the year and hopefully beyond. But that's the way I talk about it. This is a high velocity business.

And we have the team and the systems to manage that business very effectively.

I'll take that one, Stephen. I think pricing in the TRS world is very disciplined. It's typically a pretty tight range around percent of lists. The possible lift that can come is in a high-demand buyer like this, where manufacturers are increasing list prices. That could give opportunities for a little bit of pricing improvement as the list price of equipment goes up. But we compete on price. We have to be in the zone. But this is not as dynamic a pricing environment as you see in our other businesses.

Keith, anything else you'd like to add there?

Yeah, I'll just point out, Stephen, you've probably seen we've got what we call the rate factor. That's a defined term we've provided across each of our rental segments. That rate factor was up nicely at TRS RENTELCO, 4.52 compared to 4.22 a year ago. However, the primary reason for the increase is just the mix of business that we're doing. Essentially, it's shifting a little bit more towards the communication side. Those communications products in general have a shorter, useful life. So when we look at the cash we have to receive, it's a higher amount of cash per month, given our view that the equipment will have a shorter, useful life compared to some of the general products, general purpose products that we have.

So the headline I would give you is our metric looks better. It's largely mixed driven. And as Phil said, you know, the pricing is generally pretty disciplined and stable.

Thanks, Pete.

Hey, Mark. So, Keith, I really appreciated the tail end of the commentary there around the mix, because that sort of delves into sort of where I was going to initially go with one of my questions. But the TRS utilization commentary, it certainly seems to have indicated it was going through the quarter sequentially, I guess, and monthly, what have you.

Yeah, again, we try to manage that very carefully, balancing having equipment available for customers for the next order versus high utilization and strong return on invested capital. Those are things we're always calibrating in the business. I think we're comfortable where we are, but we're absolutely at that point where it makes sense to add more capital in certain product categories where the demand is strong. And our view is that strength will continue for many months. So that's where we're at. And again, we've got a good team. They look at it very closely. This business has a lot of SKUs, so there are a lot of different items that we hold in inventory, and we're constantly evaluating.

Should we add to one SKU, or should we sell off at another? That's all part and parcel of being in this business, and our team does a really good job.

Thanks, Mark. I appreciate the question. The national level education drivers are characterized as neutral. You've got decreasing public school enrollment that we've been talking about being offset by increasing modernization opportunities and our geographic expansion efforts. We're entering into new markets where we have classroom opportunities. When we look at 2026, our education bookings were not as strong as they were last year. When we continue to view education as an attractive long-term vertical, we like our market position there. It just isn't likely to be the growth driver for us in the near term, right? That's all coming from the commercial side of the business, and that's more than offsetting what we're seeing on the education side.

I can take this. I think there's plenty of opportunities out there. What we always talk about is the three things that need to align. You need a willing seller, you need a high quality assets in business, and you need the right valuation. And the three of those things don't line up in our world incredibly often. And you see that kind of in our history. We have an active pipeline, opportunities of all shapes and sizes that we're regularly working, meeting with, and we believe we're a buyer of choice, an attractive acquirer. But again, you need all those three things to line up. We're not in a hurry. We're glad to grow organically. We can do that in all of our markets, and before we find the right opportunity, it's a nice accelerator for us.

Nothing's changed there. Good pipeline, good process. We've got the right playbooks around that, but we're not dependent on it.

I'd 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 October to review our third quarter results.