McGrath RentCorp (MGRC) | The Buildout — AI Infrastructure
The Verdict
McGrath RentCorp is a diversified business-to-business rental company. Its Mobile Modular segment rents relocatable modular buildings, Portable Storage rents ISO shipping containers, TRS-RenTelco rents electronic test equipment used in data center commissioning, and Enviroplex manufactures portable classrooms for California schools. For the AI buildout, the relevant link is TRS-RenTelco's test equipment, with secondary exposure through modular structures on large data-center construction sites.
| Market Cap | — |
| Revenue (TTM) | $933M |
| Revenue Growth | −0.9% |
| EBITDA Margin (TTM) | 37.4% |
| Net Debt | $586M |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- TRS rental revenue accelerated from +13% y/y in Q1 to +17% in Q2; period-end utilization 68.9%, highest since Q1 2021.
- Mobile Modular bookings rose 11% y/y and shipments exceeded returns for four consecutive months, the first sequential utilization improvement since 2022.
- New-shipment monthly revenue per unit was about $1,252 in Q2 versus $922 on rent, roughly 36% above the on-rent fleet average.
- FY2026 gross rental capex guidance was raised to $200–220 million, partly to fund incremental TRS investment.
- Completed a $725 million credit facility in May 2026, up from $650 million, with maturity extended to 2031; first buybacks since 2020 at $27 million YTD through Q2.
What We’re Watching
- Mobile Modular average utilization of 70.1% in Q2 remains below 73.7% a year earlier; the inflection is early and management says it may not be linear.
- Enviroplex recognized only $8 million YTD versus $27 million a year earlier; the full-year mid-$40s million view requires a large H2 completion schedule.
- Portable Storage adjusted EBITDA fell 23% y/y in Q2; management expects no 2026 recovery and says the segment needs local nonresidential construction to improve.
- TRS rate factor improved to 4.52 from 4.22, but management says the move was largely mix, not pure pricing.
The underlying thesis is strengthening on the rental side: Mobile Modular's first sequential utilization improvement since 2022, 11% bookings growth, and TRS's 17% rental growth with raised capex all point to momentum in the two largest rental businesses. Reported top-line declines are mostly sales-project timing, not rental demand. The largest open question is whether the modular utilization turn sustains beyond large-project wins and geographic expansion to become broad-based.
Earnings Beat
McGrath RentCorp reported Q2 FY2026 revenue of $221.1 million, down 6% y/y, while gross margin expanded to 48.8% from 44.9% a year earlier. Net income was $33.7 million, or $1.37 diluted EPS, versus $36.0 million, or $1.46. Rental operations revenue grew 6% y/y, and TRS-RenTelco adjusted EBITDA rose 29% to $25 million.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $221M | $198M | $236M | −6.2% |
| Gross margin | 48.8% | 46.2% | 44.9% | +390bps |
| EBITDA | $82M | $71M | $84M | −2.2% |
| EPS | $1.38 | $1.09 | $1.46 | −6.0% |
| TRS-RenTelco rental revenue | $32 million | $29 million | n/a | +17% y/y |
It feels like we are still in the early to mid-innings of that data center build out.— Phil Hawkins, CEO, 2026-07-29
Management tone: Management's tone shifted from cautious in Q1 to more constructive in Q2 on the modular business. They directly stated utilization improved sequentially for the first time since 2022 and that they believe the trend has turned, while cautioning improvement may not be linear. Management remained candid about Portable Storage and the unquantified data-center exposure.
Management Guidance
Management narrowed FY2026 guidance with unchanged revenue and adjusted EBITDA midpoints: total revenue $955–985 million, adjusted EBITDA $363–375 million, and gross rental equipment capex raised to $200–220 million. Segment assumptions include continued Modular strength, stronger TRS to offset weaker Portable Storage, and Enviroplex expected similar to 2024.
Trajectory
Total revenue was $198.5 million in Q1 FY2026 and $221.1 million in Q2 FY2026; TTM revenue was $932.8 million, down 0.9% y/y. The top-line decline is being driven by lower new equipment sales—Enviroplex fell to $4.6 million from $19.9 million a year earlier and Mobile Modular sales revenue fell $9.3 million to $31.2 million—while rental operations grew 6% y/y. Gross margin expanded to 48.8% from 44.9% a year earlier, but operating margin compressed 200bps on a trailing basis as inventory center costs rose. TTM free cash flow conversion ran at 137% of net income.
The Model
The model projects FY+1 revenue of $978 million and EBITDA of $371 million (37.9% margin), rising to FY+2 revenue of $1,040 million and EBITDA of $405 million (38.9% margin). The near-term path is anchored by the rental core's 6% y/y growth in Q2 and raised FY2026 capex; the FY+2 step would require the Mobile Modular utilization turn and TRS data-center demand to continue.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $944M | $978M | $1.0B |
| YoY Growth | — | +3.6% | +6.3% |
| EBITDA | $351M | $371M | $405M |
| EBITDA Margin | 37.2% | 37.9% | 38.9% |
Projections are the median of 5 independent model runs. The model’s revenue sits 3.2% above analyst consensus.
Management narrowed FY2026 guidance with unchanged revenue and adjusted EBITDA midpoints: total revenue $955–985 million, adjusted EBITDA $363–375 million, and gross rental equipment capex raised to $200–220 million. Segment assumptions include continued Modular strength, stronger TRS to offset weaker Portable Storage, and Enviroplex expected similar to 2024.
What Could Go Right — and Wrong
- Mobile Modular utilization sustains and rises toward prior-year levels, converting the pricing tailwind into rental revenue growth.
- TRS data-center demand persists and the unquantified maintenance/refresh cycle materializes, extending growth beyond the current build-out.
- Enviroplex and Mobile Modular H2 sales projects complete on schedule, validating the timing-not-cancellations explanation.
- Portable Storage finds a floor through local nonresidential construction recovery, removing the main company-level drag.
- Management begins disclosing data-center or mega-project revenue, making the exposure legible.
- The Mobile Modular inflection reverses if returns again overwhelm shipments, returning the largest segment to multi-year utilization decline.
- TRS demand normalizes early; management says rate factor gains are largely mix, so margins could compress.
- Enviroplex H2 completion slips again, leaving full-year revenue well below the mid-$40s million target.
- Portable Storage deteriorates further, pushing margins below breakeven and requiring more TRS offset.
- Inventory center and fleet preparation costs combine with supplier concentration to compress Mobile Modular margins beyond current levels.
Looking Ahead
The next twelve months turn on execution in the second half of FY2026 and into FY2027. Management has pointed to H2-weighted Enviroplex and modular sales completions, continued Mobile Modular rental momentum, and TRS incremental capex deployment. The longer-dated data-center maintenance and refresh opportunity remains unquantified.
- Late October 2026Q3 FY2026 results — Tests H2-weighted sales completions and Mobile Modular units-on-rent persistence.
- H2 2026Delayed sales completions — Enviroplex and Mobile Modular contracted projects must complete; no cancellations.
- 2H 2026Mobile Modular utilization — Whether units-on-rent growth and sequential utilization gains continue.
- 2H 2026 and beyondTRS capex deployment — Sustained TRS rental growth and data-center demand persistence.
- No timing committedM&A pipeline — Selective tuck-in acquisitions with cross-sell potential.
- OngoingShare repurchases — Use of remaining 1.75 million share authorization.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $911M | $944M | $933M | +3.7% |
| Gross Margin | 46.8% | 46.0% | 46.8% | 73bps |
| EBITDA | $342M | $351M | $2.6B | +2.5% |
| EBITDA Margin | 37.6% | 37.2% | 37.4% | 43bps |
| Net Income | $232M | $156M | $153M | -32.5% |
| Free Cash Flow | $143M | $211M | $470M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)46.8%
- EBITDA Margin (TTM)37.4%
- Net Margin (TTM)16.4%
- ROIC10.3%
- FCF Conversion60.1%
- SBC / Revenue1.2%
The Company
McGrath RentCorp is a diversified business-to-business rental company headquartered in Livermore, California. Its four reportable segments are Mobile Modular (relocatable modular buildings), Portable Storage (ISO-certified steel shipping and office containers), TRS-RenTelco (electronic test equipment), and Enviroplex (portable classrooms for California schools). The AI buildout link runs through TRS-RenTelco's test equipment used in data center build-out, commissioning, and maintenance, plus Mobile Modular structures on large data-center construction sites.
The company operates major inventory centers across California, Texas, Florida, Georgia, Virginia, and North Carolina, plus TRS-RenTelco's leased facility in Grapevine, Texas and Enviroplex's manufacturing facility in Stockton, California. It primarily rents equipment, with sales occurring in the normal course of business; management allocates capital around rental equipment purchases and employee headcount.
Business Segments
Competitive Landscape
The provided 10-K, 10-Q, and earnings-call extracts do not name competitors directly and do not provide competitive-positioning detail. TRS-RenTelco is described as a high-velocity electronic test equipment rental business, but no competitor comparison is documented in the source material.
Supply Chain
McGrath RentCorp sits as a rental intermediary: it buys modular units and electronic test equipment from concentrated suppliers and rents them to commercial, education, and data-center-related customers. Only Enviroplex manufactures its own classrooms.
More on MGRC: Earnings recap