McGrath RentCorp (MGRC) Earnings

Management highlights

### Overall Quarterly Performance - Total company rental operations revenues grew 6% YoY, driven by momentum in the two largest rental businesses (Mobile Modular and TRS Rentalco), offset by lower new equipment sales at EnviroPlex and Mobile Modular due to project delays shifting to H2 2026, leading to an overall 6% decline in total revenue and 4% decline in adjusted adjusted EBITDA. - For the first half of 2026, Mobile Modular bookings are up 11% YoY, and the segment ended Q2 with more units on rent than at the start of the year, marking an inflection in utilization trends after years of declines. ### Market Demand by Segment - Mobile Modular: Demand is mixed, with large commercial mega projects and data center opportunities remaining strong, offsetting weaker near-term demand from the education vertical. New modular sales demand and pipeline activity remains stable relative to 2025. - Portable Storage: Demand remains challenged in small local commercial construction markets, with high industry-wide competition for rental placements driving utilization and margin pressure. - TRS Rentalco: Demand remains healthy across key end markets including data centers, aerospace and defense, and semiconductors, with strong momentum entering H2 2026. ### Strategic Initiatives - Mobile Modular is expanding geographic coverage into new regions (Pacific Northwest, Midwest, Northeast) and growing add-on service offerings (Mobile Modular Plus, site services, and new ancillary services like janitorial, air care, and cell service) to drive growth independent of a broader non-residential construction recovery. Mobile Modular Plus revenues grew 15% YoY in Q2. - The company maintains a strong balance sheet (net debt to LTM adjusted EBITDA of 1.65x) with flexibility to fund organic growth, steadily increase dividends, pursue strategic M&A, and execute share repurchases. - Small tuck-in M&A is used as an accelerator for geographic expansion, most recently a closed April 2026 acquisition that expanded Midwest modular density and added service capabilities to the acquired base. ### Capital Return and Cash Flow - Year-to-date, the company generated $106 million in operating cash flow, spent $124 million on rental equipment purchases, paid $25 million in shareholder dividends, and completed $27 million in share repurchases (250,000 shares year-to-date).

Guidance

- Management maintained the midpoints of the full-year 2026 revenue and adjusted EBITDA guidance ranges, tightening the ranges after the first half of the year. - Full-year 2026 total revenue is now guided between $955 and $985 million, with adjusted EBITDA between $363 and $375 million. Stronger-than-expected performance at TRS Rentalco is expected to offset weaker performance at Portable Storage, and full-year EnviroPlex performance is expected to be similar to 2024 levels. - Gross rental equipment capital expenditure guidance was increased to $200 million to $220 million, to fund incremental investment to meet strong demand at TRS Rentalco and support Mobile Modular geographic expansion.

Segment performance

1. Mobile Modular: Total revenues decreased 4% year-over-year to $150 million, contributing 67.9% of total company revenue; adjusted EBITDA decreased 4% to $51 million. Rental revenues grew 2%, rental-related services revenues grew 8%, while sales revenues decreased $9.3 million to $31.2 million due to project timing shifts. Quarterly average fleet utilization was 70.1% (down from 73.7% YoY), improving slightly sequentially to 70.6% at quarter-end. Monthly revenue per unit increased 7% to $902, and average monthly revenue per unit for new shipments over 12 months increased 7% to $1,252. Mobile Modular Plus revenues grew 15% YoY to $10.5 million. Rental margins compressed to 55% from 58% YoY due to higher inventory preparation costs. 2. Portable Storage: Total revenues increased 1% YoY to $24 million, contributing 10.9% of total company revenue; adjusted EBITDA decreased 23% to $8 million. Rental revenues were flat at $17 million, with rental margins down to 80% from 83% YoY. Quarterly average utilization was 58.3%, down from 61.1% YoY. Higher fleet preparation costs, competitive margin pressure, and sales expansion investments drove the EBITDA decline. 3. TRS Rentalco: Total revenues grew 17% YoY to $43 million, contributing 19.5% of total company revenue; adjusted EBITDA grew 29% to $25 million. Rental revenues increased 17% to $32 million, with rental margins improving to 48% from 44% YoY. Quarterly average utilization was 68.1% (up from 64.8% YoY), reaching 68.9% at quarter-end (the highest level since Q1 2021). Sales revenues grew 13% to $8.7 million, with gross margins rising to 66% from 47% YoY. 4. EnviroPlex: Total sales revenue decreased to $4.6 million from $19.9 million YoY, contributing 2.1% of total company revenue; adjusted EBITDA shifted to a $0.5 million loss from a $4.3 million profit YoY. The decline was driven entirely by project timing shifts moving completions to the second half of 2026. Total company revenues for Q2 2026 decreased 6% YoY to $221 million, with adjusted EBITDA down 4% to $83 million.

Risks & headwinds

- Non-residential construction market weakness, particularly in small local commercial construction segments, continues to pressure Portable Storage utilization, margins, and revenue growth. - Modular utilization recovery is not expected to be linear, and sequential improvement is still early-stage after years of declining trends. - Large sales project timelines are dependent on external customer factors (permitting, site preparation, utility hookups) outside of McGrath's control, which can cause unexpected quarterly revenue volatility even for contracted projects. - M&A depends on alignment of willing sellers, high-quality assets, and acceptable valuations, which do not align frequently, creating uncertainty around the timing and size of acquisition-driven growth.

Analyst Q&A

• Q: What drove the first sequential Mobile Modular utilization improvement in four years, is this a long-awaited inflection for the segment, and has the trend continued into July? /

  A: The improvement was driven by a combination of strong wins for large commercial mega projects and progress on the company's geographic expansion initiatives. This combination offset higher returns from the weaker education vertical. Management characterized the shift as a clear change in trend after years of declines, noting they have turned the corner on modular utilization, but emphasized that improvement will not be linear quarter-over-quarter, and the shift is still in the early stages. /

• Q: Beyond end market weakness, what additional factors are pressuring Portable Storage, and are there leading indicators for a 2027 improvement? /

  A: The core pressure remains exactly the macro themes the company has highlighted for multiple quarters: weak demand from small local non-residential construction projects, and high industry-wide competition as elevated fleet utilization leads more providers to aggressively seek rental placements. No material new regional or competitive dynamics were called out. Management noted a broader recovery in non-residential construction will be required to drive improvement in the segment. /

• Q: What is driving the large spread between overall portfolio revenue per unit and revenue per unit for new shipments, and how is pricing trending for large versus small projects? /

  A: The ongoing spread is expected and creates a lasting positive pricing tailwind for the business as the existing rental fleet churns over time. Higher pricing on new shipments is partially driven by the growth of add-on services, which increase revenue per unit, and this mix shift gradually feeds into the overall installed fleet base. Pricing varies by region, product type, and contract length, but there are no unusual dynamics between large mega projects and small local projects relative to historical norms. /

• Q: What is the company's capital allocation strategy for organic expansion, M&A, and share buybacks? /

  A: With low leverage of 1.65x net debt to adjusted EBITDA, the company has ample flexibility to prioritize organic investment in high-opportunity areas like Mobile Modular geographic expansion and TRS fleet growth first. Organic expansion is primarily funded via CapEx, with small tuck-in M&A used as an accelerator for geographic growth, and the company maintains an active pipeline of M&A opportunities. Share repurchases are a flexible tool that the company has utilized year-to-date, with capacity for additional buybacks depending on market conditions and other opportunities.