McGrath RentCorp

Ladies and gentlemen, thank you for standing by. Welcome to the McGrath Brink Corp First Quarter 2026 Earnings Call. At this time, all conference participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press the star key followed by the 1 key on your telephone. This conference is being recorded today, Wednesday, April 29, 2026. Before we begin, note that the matters the company management will be discussing today that are not statements of historical fact 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, backlog, or targets. These forward-looking statements are not guarantees of future performance and involve significant risk and uncertainties that could cause our actual results to differ materially from those predicted. Important factors that can cause actual results to differ materially from the company's expectation are disclosed under the risk factors in the company's Form 10-K and other SEC filings. Forward-looking statements are made only as of 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 is Form 10-Q for the quarter ended March 31st, 2026. Speaking today will be Phil Hawkins, Chief Executive Officer, and Keith Pratt, Chief Financial Officer. I will now turn the call over to Mr. Hawkins. Go ahead, sir.

Thank you, Stephanie. Good afternoon, everyone, and thank you for joining us today for McGrath Ring Corp's first quarter 2026 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 the Middle East conflict on the business. First, our quarterly results. Total company revenues increased 2% and adjusted EBITDA decreased 1% compared to the prior year first quarter. This performance was driven by continued progress from our modular strategic growth initiatives and strength at TRS Rintelco. We delivered rental revenue growth in each of our businesses despite some challenging market conditions. Higher equipment preparation expenses and lower sales at Enviroplex were headwinds to profitability for the quarter. Yet we still managed to deliver adjusted EBITDA essentially flat with last year. At Mobile Modular, rental revenues grew 4%. Our commercial market segments were the primary drivers of our growth. These included government, manufacturing, healthcare, and data center projects. Education demand levels remained steady. As we prepared existing units to meet demand, our operating expenses increased. These higher costs supported increased shipments in the first quarter and beyond. Architecture Billings Index, or AVI, and other macro indicators of construction-related demand remained subdued. Despite this, our quote and booking levels were higher than a year ago, with our geographic expansion efforts and additional sales coverage contributing to these positive trends. Our services expansion initiatives, mobile modular plus and site-related services saw solid increases in the quarter, helping to offset lower utilization. Modular equipment sales were lower in the quarter, reflecting quarter-to-quarter sales revenue fluctuations. Turning to our portable storage business, rental revenues increased slightly with steady demand, while higher costs compressed profitability for the quarter. At TRS, Rental revenues continued their recent growth trajectory and were up 13%. Demand continued to be strong across a broad spectrum of our equipment, and we benefited from projects supporting build out of new data centers. Overall, I'm pleased with our start to the year. Turning to the broader macro environment, recent developments in the Middle East had no material impact in the first quarter. This could change as the year progresses and may increase uncertainty or result in customers delaying projects. additionally higher energy prices for an extended period may start to impact operating costs as always we remain vigilant and will be ready to make adjustments as needed summing up i believe mcgrath remains well positioned improved first quarter rental revenues across all divisions despite some challenging market demand conditions our strong balance sheet gives us the flexibility to fund organic growth opportunities support a steadily increasing dividend, and retain capacity for strategic M&A and share repurchases. We continued to demonstrate this in the first quarter. Capital spending increased to fund organic growth in new modular geographic markets, and we increased investment at TRS to support strong market demand. We also worked on a small modular acquisition, which we closed in early April. In addition, we completed share repurchases during the quarter. I am confident we have the right team and discipline in place to drive shareholder value in the years ahead. I would like to thank our team for your engagement in delivering these results and our customers and shareholders for your trust in our company. With that, I will turn the call over to Keith, who will take you through the financial details of our quarter and our outlook for the full year.

Thank you, Phil, and good afternoon, everyone. As Phil highlighted, first quarter results demonstrated steady progress with rental revenue growth in each of our divisions. Looking at the overall corporate results for the first quarter, total revenues increased 2% to $199 million, and adjusted EBITDA decreased 1% to $74 million. Reviewing Mobile Modular's operating performance as compared to the first quarter of 2025, Total revenues for mobile modular increased 2% to $134 million, and adjusted EBITDA decreased 1% to $47 million. The business saw 4% higher rental revenues driven by growth from our commercial customer base and 4% higher rental-related services revenues due to higher site-related services projects The growth in rental operations was partly offset by 7% lower sales revenues. Infantry center costs increased by $3.2 million as we prepared equipment to support higher shipment levels. This expense compressed rental margins to 56% down from 60% a year ago. Sales revenues decreased $1.6 million to $20.9 million as a result of lower new and used sales projects during the quarter. Average fleet utilization was 70% compared to 74.6% a year ago, consistent with the challenging demand environment. First quarter monthly revenue per unit on rent increased 7% to $889. For new shipments over the last 12 months, the average monthly revenue per unit increased 1% to $1,208. 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 10.3 million from 8.6 million a year earlier, and site-related services increased to 5.3 million, up from 4.1 million. Turning to the review of portable storage in the first quarter, Total revenues for portable storage increased 3% to $22 million, and adjusted EBITDA was $7 million, a decrease of 17% compared to the prior year. Rental revenues for the quarter increased 1% to $16.3 million, and rental margins were 80%, down from 84% a year earlier. Adjusted EBITDA was lower as a result of several cost and margin pressures in the quarter. Inventory center costs increased as we prepared equipment to support higher shipment levels. Rental-related services margins for deliveries and pickups were pressured in a very competitive environment. SG&A expense increased in part because we invested in sales coverage to support longer-term utilization improvement across the current branch network. Average utilization for the quarter was 58.6% compared to 60.2% a year ago. Turning now to the review of TRS-Rentelco, TRS had a strong quarter with total revenues up 11% to $39 million and adjusted EBITDA up 16% to $21 million. Rental revenues increased 13% to $29 million as the industry continued to experience improved demand conditions and the business benefited from projects supporting data center build-outs. Rental margins improved to 45% from 40 percent a year ago. Average utilization for the quarter was 66.1 percent, up from 61.6 percent a year ago, and with the highest first quarter level since 2021. Sales revenues increased 1 percent to $8 million, and gross margins were 55 percent compared to 47 percent a year ago. Lastly, on Enviroplex, compared to a very strong first quarter in 2025, Enviroplex total sales revenue decreased 51% to $3.7 million, and adjusted EBITDA declined to a loss of $1.1 million from a profit of $0.4 million. The remainder of my comments will be on a total company basis. First quarter selling and administrative expenses increased $2.6 million to $53.5 million, primarily due to higher salaries and benefit costs. Interest expense was $6.5 million, a decrease of $1.7 million as a result of lower average death levels and lower interest rates during the quarter. The first quarter provision for income taxes was based on an effective tax rate of 26.7% compared to 24.6% a year earlier. Turning to our year-to-date cash flow highlights, net cash provided by operating activities was $42 million compared to $54 million in the prior year. Rental equipment purchases were $45 million compared to $12 million in the prior 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 $12 million in shareholder dividends and to complete $12 million of share repurchases. At quarter end, we had net borrowings of $546 million, and the ratio of funded debt to the last 12 months actual adjusted EBITDA was 1.51 to 1. For the full year, our outlook remains unchanged, and we expect total revenue between $945 and $995 million, adjusted EBITDA between $360 and $378 million, and gross rental equipment capital expenditures between $180 and $200 million. We are encouraged by the progress made during the first quarter, and we are fully focused on solid execution for the remainder of 2026. That concludes our prepared remarks. Stephanie, you may now open the lines for questions.