McGrath RentCorp Stock

Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp Second Quarter 2026 Earnings Call. [Operator Instructions] This conference call is being recorded today, Wednesday, July 29th, 2026.

Before we begin, note that the matters the company management will be discussing today that are not statements of historical facts 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 risks and uncertainties that could cause our actual results to differ materially from those projected.

Important factors that could cause actual results to differ materially from the company's expectations are disclosed under 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 its Form 10-Q for the quarter ended June 30th, 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, Cloy. 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 2 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 as 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 4 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 had solid momentum. Mobile Modular Plus revenues were up 15% year-over-year. Site-related services revenues, while down slightly for the quarter, were higher for the first half. Looking at the market for new modular sales, overall demand and pipeline activity remained 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 nonresidential 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, who will 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.

Inventory 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 view them as positive indicators as we return 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.

Adjusted 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 was 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 build-outs. 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. Sales 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 $2.9 million to $56.4 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 was based on an effective tax rate of 27% compared to 27.3% 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 1.65:1.

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 Enviroplex, we continue to expect performance to be similar to 2024.

We now expect total revenue between $955 million and $985 million, adjusted EBITDA between $363 million and $375 million and gross rental equipment capital expenditures between $200 million 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.

[Operator Instructions] Our first question is coming from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. You noted shipments exceeded returns in each month of the quarter. Could you provide some color on the extent to which that was driven primarily by large commercial projects and specific end markets versus the regional expansion efforts or a broader improvement across the customer base? Also interested in your comments as to whether that trend has continued into July.

And the final part to the question, if I may, if not mistaken, I think Phil had mentioned inflection. So curious as to how you would characterize it. Is this the long-awaited inflection in utilization? Are we in the recovery and your thoughts there?

Sure, Ron, I'll start there, and then Keith can weigh in a little bit. Starting with the utilization trend, I'm excited about the sequential utilization improvement that we've had in modular here in the second quarter. As we mentioned, that's the first time in 4 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 getting a nice lift to our commercial utilization and partially offsetting some net returns in the education side.

And kind of jumping to your inflection, I think we feel good kind of the trend change. We may not see this move up every single quarter consistently, but we do believe we've turned 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?

Yes. Again, we'd emphasize these are very encouraging signs, but they're just the beginning of a 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.

And then obviously, continued weakness within Portable Storage. I mean, what is it beyond the end market weakness and the bifurcation in the market that is consistently being spoken to by your peers and reflected in the industry data. Is there anything else beyond end market weakness? Is there certain things happening in certain geographies or exposures, competitive dynamics? And then are there leading indicators we can look to, to suggest perhaps it improves in '27 versus remaining stuck in the current demand dynamics?

Sure. Ron, I can take that. 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 2 macro themes.

And I think you're really talking about needing improvement in the nonresidential construction, those small local project markets before we see any kind of meaningful move there. That would be a nice accelerator for portable storage and modular when it happens. We're not expecting that to take place this year.

Got it. And then can you remind us if you have either characterized or provided color around your exposure to those large long-duration projects, whether it be mega and also data center specific?

We haven't quantified that, Ron. I think what I would say there is we're -- they're a meaningful part of our new business volume and the bookings there, as we've talked about, have remained strong. 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 really 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, the opportunity to bring all of our rental products to that site. So got everything from modular buildings, modular kitchens, dormitories and electronic test equipment in the case of data centers. So it's important, meaningful part of the new business, small and the scale of the overall fleet and revenue mix.

Keith, anything you want to add there?

Yes. 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 projects 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 Bill has 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.

And if I may, I'll just [ pick and choose ] a question with a multiparter on the sales decline. Are you helping with how to think how much of that was the Enviroplex versus the Mobile Modular? And then I think you indicated it was primarily due to lower used sales several modular sales transactions that were expected in the year shifted into the second half. So any further color or context on the drivers there? And then what gives you confidence in that timing shift? Is there anything to read through with regards to broader demand? Is it sales activity tends to be more sensitive to project timing and customer CapEx decisions and rental? Anything you have to be mindful of give further context to that sales decline?

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 adding 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 the project, there are also other things that have to be done before we can 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 look 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 date 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. It's really just the size and scope of these sale projects that sometimes are difficult to predict given things outside of our scope on the site.

Yes. 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 did $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't 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're 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.

We'll take our next question from Scott Schneeberger with Oppenheimer.

I think I'll start in Mobile Modular in rental, your Slide 33, always one of attention for pricing. It looks like you have a spread of 39% from total portfolio on rent versus trailing 12 months of modulars on rent. So still very, very strong on that spread. Could you speak to that and to the spot pricing and maybe differentiate large and small projects in that?

Yes. 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 -- 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. They continue to be healthy, and we're very pleased about that.

I don't think there's anything unusual regarding mega project or small local markets. There are dynamics around term, size of project that can influence how we view 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.

Appreciate that. I'm going to crack at TRS -- I'm sorry, Phil, were you saying something?

No, go ahead, Scott.

Yes. I want to go over and dig into TRS because I think we saw acceleration from low teens now into high teens year-over-year, and that's against a tough comp revenue growth. So very impressive to see. I think if you could just elaborate on the trends there, the sustainability of the trends and a little bit of extra CapEx in that business. If there's a lot of sustainability, yes, I think it certainly justifies that CapEx and then some. So if you could just speak on that decision-making process and how hot that market is for you.

Yes, I'm happy to answer 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 good runway, feel good about the place in 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.

Yes. Good last point there, and certainly a nice opportunity for you long term. I'll just do one more. You've been buying back stock first quarter, second quarter at a decent clip. Just curious the rationale of buybacks and in consideration for M&A, obviously, you're doing geographical build-out with investment, which can impact margins. You can kind of bypass that on successful acquisitions. So just kind of curious on the strategy of the continued geographic expansion, organic versus M&A. And then just a little comment on buybacks.

Keith, you want to start with [indiscernible] and then I'll talk about geographic expansion and M&A.

Okay. Yes. 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 Modular 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. Phil can elaborate on that.

And then we look at the buyback as another tool in the toolkit. We don't telegraph by how much and when, but we've not purchased shares both in the first and second quarter. 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 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 utilize smart M&A as an accelerator.

The acquisition that we closed in the quarter is a great example of that, where we expanded our reach into the Midwest with small tuck-in modular acquisition. So 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 Modular Plus services that weren't being offered previously as well as expand -- expanding from that kind of commercial construction customer base, adding classrooms, portable 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. We work that regularly, but we feel good about where we're at in that process.

We'll take our next question from Daniel Moore with CJS Securities.

I wanted to just go back to Enviroplex. Curious if any of those delayed sales have now been executed. And your prior comments would imply based on what we've seen in H1 that H2, I think, will be up slightly year-over-year. Just curious of your expectations for sales kind of Q3 and then the remainder of the year there.

Yes. 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, if 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 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 us down on that. But most likely, both quarters will show healthy Enviroplex sales.

Very helpful. And then I'm curious just from a sort of -- we've talked about large customers versus small and smaller geographies. But just looking from a geographic perspective, any regions that are either picking up faster or conversely slowing down a little bit? And maybe just a little bit more color about the success that you're having with your geographic or regional penetration strategy.

I'll take that. Daniel, just where I'd start is, obviously, we have more strength where we're entering the market, new to the market in that 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've 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 in our legacy markets, 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 small and 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 that 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. And 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.

Maybe just one more. Just you touched on it in the prepared remarks, but give a little bit more color or update on the traction you're seeing, both Mobile Modular Plus as well as site-related services? And how do we think about kind of incremental growth you can generate from both of those relative to the market over the next 2, 3, 5 years?

I think we're happy with the penetration that we're getting there. We talked about the quarter-over-quarter growth rate, particularly in Mobile Modular Plus still being strong and our cumulative growth rates in both those initiatives continue to be in -- 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 that 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, you'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, of course, Keith talked about just on the pricing churn over time, think about that opportunity to add those services happening over a similar time frame, right, multiyear as the fleet churns and things that have been out on rent for 3, 4, 5 years come back, and we're able to get those back out on rent with a new level of service offerings.

We'll take our next question from Steven Ramsey with Thompson Research Group.

I wanted to hear a bit more on modular shipments exceeding returns. Definitely good to see that. Maybe talk to how much of that is less units coming in versus more going out? And do you feel like the return headwind is behind you or at least sloping in the right direction?

Yes. I don't think it takes both sides of the equation, right? The shipments need to be growing and then return [indiscernible], I think we've seen a little bit of both. Historically, we talked about, if you think back 3-ish years ago, peak construction markets kind of lines up with our average term. We feel like that, that shift is in the process of happening in that last 4 months of consistently seeing shipments exceed returns is a nice indicator for us.

So again, you can have a larger churn 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.

On TRS, been talked about how good the results were and utilization hitting very high levels, and it looks like raising CapEx. Do you feel like the high utilization constrained the results that you potentially could have put up? And then this larger equipment base, is it contributing meaningfully in the second half? Or is this something that it rolls into the second half and helps 2027?

Yes. All good comments, Steven. 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.

And 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 see shifts in demand, and we had this 2 or 3 years ago when circumstances were very different, we have 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 pretty 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 a 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 in demand. And 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.

Okay. That's all great. And then one last one for me, sticking to TRS. Can you talk about pricing and how -- if that's a positive for 2026? And maybe just put into context the pricing environment of this good cycle versus prior good cycles.

I'll take that one, Steven. Pricing in the TRS world is very disciplined. It's typically a pretty tight range around percent of list. The possible lift that can come is in a high-demand environment 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 want to add there?

Yes. I'll just point out, Steven, you've probably seen we've got what we call the rate factor. That's a defined term we 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 communications 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 mix driven. And as Phil said, the pricing is generally pretty disciplined and stable.

[Operator Instructions] We'll move next to Marc Riddick with Sidoti.

So Keith, I really appreciate the tail end of the commentary there around the mix because that sort of delve into sort of where I was going to go [ mislead call it with ] one of my questions. But the TRS utilization commentary, it certainly seems to have indicated it was growing through the quarter sequentially, I guess, monthly, what have you. Is there sort of a general thought as to comfort levels as to -- and not necessarily a feeling, but maybe sort of you talk a little bit about comfort levels of utilization within TRS? And then I have a follow-up.

Yes. 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.

And then I know there's been a lot of questions, and I really appreciate all the color that you've already provided. Maybe one of the things you didn't touch on -- much on is on education. Maybe you could sort of give us a bit of an update as to what you're seeing there as to activity levels and projects maybe relative to historicals as well as how you're feeling about funding environments in key markets there.

Thanks, Marc I appreciate the question. The national level, education drivers, I would characterize 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, right? 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. But 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.

And then I know you touched a little bit on this as to the acquisition -- the smaller acquisition earlier in the year. Maybe touch a bit on just general views as to maybe what you're seeing out there currently, valuation levels and what -- how the pipeline looks as far as levels of attractiveness at this point.

I can take this. I think there's plenty of opportunities out there. What we always talk about is the 3 things that need to align, you need a willing seller, you need a high-quality assets in the business and you need the right valuation. And the 3 of those things don't line up in our world incredibly often, and you see that kind of in our history.

But we have an active pipeline, opportunities of all shapes and sizes that we're regularly working and meeting with. And we believe we're a buyer of choice and attractive acquirer. But again, you need all those 3 things to line up. We're not -- we're not in a hurry.

We're glad to grow organically and proven we can do that in all of our markets and where we find the right opportunity, it is a nice accelerator for us. So nothing's changed there. Good pipeline, good process. We've got the right playbooks around that, but we're not depending on it.

There appears to be no other questions. This concludes the Q&A portion of today's call. I would now like to turn the floor over to Mr. Hawkins for closing remarks.

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.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp First Quarter 2026 Earnings Call. [Operator Instructions] 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 risks and uncertainties that could cause our actual results to differ materially from those projected. Important factors that could cause actual results to differ materially from the company's expectations 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 its Form 10-Q for the quarter ended March 31, 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 from McGrath RentCorp's First Quarter 2026 Earnings Call. I'm 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 in TRS with too. 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, health care 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 ABI, and other macro indicators of construction-related demand remains 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, any 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 the broad spectrum of our equipment, and we benefited from project 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 we'll be ready to make adjustments as needed.

So 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 continue to demonstrate this in the first quarter. Capital spending increased to fund organic growth in new modular geographic markets and we increased investment in 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'm 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 a 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. Inventory 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 project supporting data center build-outs. Rental margins improved to 45% from 40% a year ago. Average utilization for the quarter was 66.1%, up from 61.6% a year ago, and was the highest first quarter level since 2021.

Sales revenues increased 1% to $8 million and gross margins were 55% compared to 47% 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 debt 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 million. For the full year, our outlook remains unchanged, and we expect total revenue between $945 million and $995 million, adjusted EBITDA between $360 million and $378 million, and gross rental equipment capital expenditures between $180 million 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.

[Operator Instructions] We'll take our first question from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. Can I just ask some follow-ups to start on demand trends in end markets. I think you called out strength across government, manufacturing, health care, data centers, which of these are the largest contributors? And how are the trends in terms of the momentum in each? And then for the education end market, I think you had indicated demand is steady. Has that changed at all in something visibility?

Thanks, Ron. I appreciate that. I think those modular products customer segment areas that we called out, government, manufacturing, health care, data center, the majority of that work would fall into what you would call the mega project category. So I wouldn't call out 1 of those buckets over another, other than that we're seeing that large project demand in several of those verticals, a piece of that being data centers.

On the education side of the business, we spend a lot of time internally drilling into our performance by market. And there's a lot of headlines out there about decreasing student populations. I think the important thing to remember there is there's still increasing demand for modernization work due to aging school infrastructure. And so when we look at Q1 adjusting out the abnormal demand we saw last year related to the Southern California wildfires. Our first quarter education bookings were roughly flat year-over-year, but kind of that steady demand level with those kind of 2 offsetting macro factors contributing to that.

Got it. And another on kind of macro commentary and potentially early signals. I think you indicated that the Middle East situation had no impact in Q1, but could increase uncertainty or delay projects. Have you seen any early signs of customer caution or changes in quoting, booking behavior since the quarter end? And then I think you also flagged a risk of higher energy prices impacting costs. where would that show up? Would that be in the equipment prep, delivery logistics or broader operating expenses?

Maybe I'll just start by saying we're actively monitor and manage these types of geopolitical events and the impact they have, both on our cost structure and our supply chain. We haven't seen any material impact, as I mentioned, in the first quarter or here in the early months of April. I think the place that you'd probably see that occur first if this is extended, would be in the fuel cost area or fuel exposure and even there, the majority of those costs were able to pass through the customers and we manage those pricing increases with real time through our pricing optimization tools. We haven't seen any further delays or customer questions at this point. I think it's still too early to see that, and we'll keep monitoring to understand that there's any longer-term downward pressure on demand.

I think Ron and the other thing to keep an eye on is just more broadly higher energy costs can be a driver for just broad-based inflation and ultimately, that cost and other things. It's just way too early to get any read, if that's going to be an issue and to what extent. And as Phil said, we'll be vigilant. We'll look to make adjustments if we need to. So very early days, but no impact at this point.

Got it. And then on the bookings strength macro indicators going back to demand, I think ABI and macro indicators remain subdued, but internal booking activity is improving. Can you kind of talk about how that reconciles internal strength versus weaker indicators? And then I think looking levels were higher, yet utilization declined revenue growth remained modest. Can you reconcile those dynamics as well? And if we should anticipate change in conversion, timing from bookings to shipments to revenue, et cetera.

Yes, I think I'll start with the booking question. There was a lot doubles and modulars are encouraging. There are several factors that helped us in the quarter. We talked about our sales -- growth of our sales teams. We have more sales reps in more markets. We closed several of the data center and other large industrial project opportunities that we've referenced and we continue to see growth in government opportunities.

So on the booking side. And as you know, close orders and then there's some period of time it can be months before those project sites are ready, and we're actually delivering. And so I think what you're seeing is the normal lead times and sales cycles between closing and delivering and billing projects. Keith, anything else you'd like to highlight there?

Yes, I think that answers it. I think the utilization comment as well just to reconcile that. I think Ronan, what we're seeing is good leading indicators in terms of the bookings and the activity levels, and we're actually shipping more, but offsetting that, we're still getting returns that are higher than the ships, and that's why you're seeing the utilization metrics under pressure as it has been for multiple quarters now in this overall softer macro environment, softer with fewer of the sort of local construction projects. So again, positive with new business. but not enough to offset the returns that occur in the normal course for projects that started in previous periods.

We'll take our next question from Scott Schneeberger with Oppenheimer.

Real nice quarter. You beat us top to bottom, and I love that you grew all the segments in rental revenue that was impressive in the quarter. It's -- and I guess, first, it would normally be a later question, but intriguing because of how infrequently you all make buybacks, but you did share repurchases in the quarter. I think it's been many, many years since the last time you did that. I guess, Keith, first question for you, care to elaborate on that? And is that something that we should expect to persist.

Yes. I'd say share repurchases are something we review on a regular basis. It's part of our capital allocation framework. As you know, we look at our capital requirements for organic investment, and that has been our primary use of capital over the years. We also, in recent years, are more active in M&A. So we have an active pipeline. We're constantly reviewing opportunities in that pipeline that have potential -- what potential size and timing they could have and all the normal things you would expect in terms of looking at dividend plans and other items.

So you're right, we haven't done any repurchasing since the COVID era back in 2020, when we look at where we are today and especially with leverage being a little bit lower, the business being extremely healthy and then some attractive opportunities in terms of where the equity markets we're trading in March. We felt it was a good time to be active. We'll continue to monitor opportunities in the market, and we have a very large authorization with over 1.8 million shares available and authorized for repurchase under the current plan. So this is a good tool in our capital allocation tool kit and 1 that we're absolutely willing to use under the right circumstances.

I appreciate that. In -- I want to ask, following up on Ronan's questions in modular and add portable storage to this question. What kind of trends are you seeing in April? You start to get a bit more of a seasonal uptick, and we're now largely through the month, you maintain the guidance for the total company, Dana will talk about TRS in a second. But -- how is the seasonal uptick occurring? Are you seeing what you want to see to anticipate a good year. I know you've guarded a little bit on the Middle East conflict but -- and what that could be, but not seeing it yet. So that aside, is it developing and shaping as you would have expected?

I'll take that one. I think everything we've seen so far through the month of April our activity levels is consistent with what we experienced in Q1. So solid bookings in Mobile Modular, still kind of flattish up portable storage and continued strength of TRS. So that's what we're seeing that helps us feel good about the guide for the rest of the year.

Appreciate that. The -- and real nice to see in modular the new shipments at plus 1, that's a good sign for the upcoming year. I want to ask about cadence of sales in modular -- it was a little lighter in the quarter on a year-over-year basis, and that was due to a comp year-over-year comp. How should we think about the cadence over the course of this year? And how impactful can sales be, I guess, case for you to the model on a quarterly basis and then pulling up and thinking about it on an annual basis.

Sure. It's actually 1 of the tougher parts of the business to give an answer against sales, we feel very good about our capabilities in the area as you know, we've described this as an initiative area. It's very complementary to a lot of our customer engagement on larger rental opportunities. So we feel good about it as a sort of plank of our activities and as an initiative area. The sales side of the business is not immune from some of those macro factors that impact rentals. We've seen examples where projects are planned and get delayed or there are issues in the field with permitting. So we often run into situations where we have a good visibility on future projects. but being really confident about which month or even which quarter we're going to see the revenue, that can be a lot more tricky. guidance range for the year, and you see that breadth of the range on revenue, that in part reflects a lot of possibilities on the sales side. It could be a flat year to last year or even down a bit. It could also be a very positive year and up from last year.

Really, at this point, it's a pretty wide spectrum of possibilities. And then when you look at it by quarter, I would say it's more typically more significant in the second half of the year. than the first half. And you can look from the outside, just as we look at the insights, look at past patterns as to how the sales have been recognized by quarter, but it is 1 of the trickier areas but it's part of the business that we're focused on. We have a good team. We see good long-term opportunity.

Great. And then last from me over to for the year. And it's a continuation of a lot of momentum. The question is how much more momentum should we anticipate -- or should we anticipate this level of sustained momentum going forward? And how long? Because you guys kind of are a data center story now. I know you don't share exact numbers of how much -- and it's actually hard to record for you, how much is data center related. But I know you're getting a lot in TRS. Does that mean that you have a long tail to this model, given the long tail we would expect of activity at data centers.

I'll take that one. Let me understand that everybody is looking more closely at TRS as they contribute to our performance in a more meaningful way. And we don't have a crystal ball on these things. But our team has been through many technology cycles, and they know how to manage them well. I think our view of demand, even though we had shorter rental terms in this space is pretty solid for the rest of the year. and thus, it still feels like early to mid-innings on the whole data center play. And so we feel good about the TRS demand through the end of this year.

We'll take our next question from Daniel Moore with CJS Securities.

I apologize if you had this in the slides, and I missed it, but of the 4% growth in Mobile Modular, can you just talk about kind of price versus volume and your outlook for growth for the next several quarters?

Sure. One way to look at that, Dan, is if you look at the 4% growth in rental revenues, you can also see in our -- both in the commentary today and in our Investor Relations pack, so the average unit on rent in the fleet, we're getting 7% more revenue per unit, and I referred to that in my prepared remarks. and you can see it in the supporting materials. So how do you get from a 4% rental revenue growth if you've had a 7% lift in the revenue per unit. And the answer is we had roughly 3% fewer units on rent. and that's how you sort of bridge those numbers. Those trends are fairly consistent with what we've seen in recent quarters. and I think they're positive. And certainly, the opportunity here is when we get to the point where units on rent are not declining, and they're flat. And at some point, we hope increasing, there will be even more horsepower in those dynamics.

And from a margin perspective, sticking with profit, 13% growth was impressive. Just talk about the drivers and the sustainability of continuing to sort of expand margins year-on-year for at least there embedded in your guidance for the remainder of this year?

Yes. I think the thing that we always work through over the course of the year are the expenses we incur to get units ready to ship from the modular fleet. So again, we mentioned just for Q1, we keep a very close eye on the gross margin on rental revenues at modules. That was compressed, but it was compressed, I think, for the right reason, which is we're busy getting equipment ready to go out on ramp. Some of those units went out in the first quarter. Others will go out in the months ahead. That's normal in the business. those expenses tend to be heavier, typically the first couple of quarters, even the first 3 quarters of the year depending on the ebb and flow of shipment activity.

If we look at it on a full year basis, margins, I would say, should be stable compared to last year. And the expense investment moderates, we get us some opportunity to expand slightly. But I characterize things that's fairly stable given that we're making the right investments in the fleet, and we're supporting higher levels of.

Appreciate it. And shifting to portable storage. Obviously, a lot of work has been done in penetrating newer geographies generated 1% growth in a flat to down market. I think you said April flattish. Are you seeing green shoots that would -- could indicate a return to growth in the next few quarters? And just talk about your confidence in the ability to continue to outpace the market.

Yes, I look at that flattish activity levels, slight increase on revenue is positive given the macro conditions and nonresidential construction and the higher commercial construction exposure that, that business has. I don't think that we've seen significant green shoots that cause us to feel like that market is improving significantly, and we're holding our own in the current environment, last couple of ABI prints are closer to 50%, but still below. And so we pay close attention to that. We use our geographic expansion, services offerings, all those things drive capture more than our fair share of the projects that are out there, but I wouldn't point to significant green shoots in the near term.

I would just add. And again, you could listen to this again in the prepared remarks. But just to acknowledge when we're in that flattish and relatively stable demand environment, it's certainly a positive compared to seeing reduced revenue and reduced shipments. On the other hand, when things are flat, it does create challenges in absorbing some of the normal expense increases in the cost structure that every business has to find and so we have a lot of work to do, and we're fully aware of it, trying to get the cost, manage them closely, manage them efficiently and during this flattish period, it does mean earning EBITDA flat adjusted EBITDA is going to fix some work. So we're focused on it, and it's an important part of the journey this year to do as well as we can. Certainly, if the demand environment edges in our favor at any point, that's going to really help a lot.

Understood. Last for me. Enviroplex sales obviously can be lumpy. Just are you seeing any kind of slowing in demand? Or was the decline in Q1 sales just a little bit more episodic.

Yes. Dan, I'll go back to some comments I made back in February and just say in Biriplexin 2026, I think performance in terms of revenue and adjusted EBITDA is likely to look a lot closer to 2024 when compared with the very, very strong 2025 that we have. So again, I would go back, look at 2024. And by the way, by historical standards, 2024 was actually a very good year. It was 2025 that was exceptional. So in a sense, it's created some very tough comps for us. It's not uncommon to start the year in that business. relatively modest amounts of revenue being recognized and not uncommon to have a loss in that part of the business in the early part of the year. If you look historically, that happens on a fairly regular basis.

So again, the results we had this year in Q1, they're fine, but compared to the very strong Q1 of last year and full year of last year, it looks a bit more challenged. But it's a good business. We have a great team there, great engagement with customers. It's a good part of the picture.

We'll take our next question from Steven Ramsey with Thompson Research Group.

I wanted to start with the bookings and modular good story and good elaboration in the Q&A, I wanted to hear about cross-selling in the bookings that you're seeing more recently, cross-selling of modular Plus, SRS and even storage, if there's -- how you would describe the cross-selling within bookings currently.

Yes. I think that's 1 of the things that we talk about that's leading to those price movements that Keith Tom spoke about earlier is the addition, further penetration of those services and there's really a couple of things going on there. One, we -- our sales team continues to be more effective at adding those services in, educating the customers on what we have to offer there. but also continuing to add services that we -- that our customers find value in. And so we look at both of those things as long-term flywheels that have lots of room to run. And you can see in the investor deck, we've got really solid growth rates in both modular Plus which are the services that building and then site-related services, the other things we can do for our customer around the site during the project.

Our sales teams also work closely together between the modular and the portable storage side. We're always looking for opportunities to leverage as many products as possible on the job side. So I don't think there's anything new or different numbers there, but further penetration and addition of services is an ongoing trend.

And then I wanted to think about this bookings growth amidst units coming back off of rent kind of a multiyear headwind of units coming off of rent. Do you think we crossed the river on that in 2026? Or do you see a pathway that maybe that shapes up in '27.

Yes, it's a tough one. We're watching it very closely. I think if you look at the change in units on rent, the decline was a little less in Q1 than maybe the last few quarters. I think the short answer is we're not 100% sure when that crossover will come. What we can work on is the front end, which is work with customers, win projects, continue to try and drive success in the market. the returns, as you can appreciate, we don't control when a customer finishes up a project and it's time to return things. But at some point, logically, if demand is as healthy as it was a few years ago, you would think those 2 things start to balance it between shipment and returns.

Hard to tell if we'll see it by the end of this year. We'd certainly like it to be the case. but we're not making strong assumptions that there's a big shift there in the near term.

Fair enough. Okay. And I wanted to think about TRS demand rising utilization rising, yet the fleet size still in that 22,000 unit range the past 5 quarters. Do you feel like -- or does the CapEx guide embed an increase in units in the TRS fleet for 2026.

Yes. All good observations. I mean the first thing I would acknowledge is we've got an outstanding team in that business. They actually did a wonderful job when they went through a part of the cycle where demand was decreasing, and they very heartfully reduce the size of the equipment pool. They successfully sold used equipment at very strong margins. really did a wonderful job in difficult business conditions. The nice thing is the business conditions have not shifted, we had a very good year last year. We followed that with a very good start to this year. As was discussed earlier on the call, we're getting some benefit from data center-related work.

So where we stand today is the -- that team is doing an excellent job running the business. Utilization, as I mentioned, was the best first quarter utilization since 2021 and we're more than happy now to add capital. We actually ended the quarter and you can see these details in the 10-Q, but we ended the quarter with utilization at TRS above 68%. So when we're at that kind of a level, that's very high fo that business on any kind of historical more capital to work. And if the healthy demand continues, that's what we're going to be doing.

And you're correct in saying that once we increased the gross CapEx guide for this year, is, in fact, we saw the probability that this good opportunity at TRS would continue, and we would want to deploy more capital into that business.

Ramsey, I'd also just add to that. I'd pay more attention, like Keith was saying, to the actual dollars of CapEx and fleet size -- units in that business is the high variability in cost per unit. So if demand is growing and the more expensive equipment, you're not going to see it in the units, but you'll see it in the size of the inventory and the CapEx numbers that I think you're seeing that.

Okay. And then last 1 for me, TRS serving data centers. I guess first quick 1 there. Is more rental happening for this activity than your customers owning this equipment? And then secondly, is the margin profile serving data centers is it comparable or superior to the segment results.

I'll start with the work that we're doing in data centers is the same work that we're doing on smaller scale for the other customers that we work with every day. So there's nothing you need happening in the data center environment, just that there's a whole lot more of it happening all at 1 time. So it's a -- it's a volume play versus there's not anything really strange and unique happening in that. We're just able to provide that to more customers and they need more equipment at once. So no changes in the rent versus buy model there that we can see. It's just there's more rental needs than they were before because of the size of these facilities.

The thing I would say on margin, and Keith, you can add your comments here. I think we're still in the early days where there's getting the equipment, getting the data center up and running, high priority, things are happening fast. And so there may be less focus on price and more focus on speed of delivery and getting things up and running. I think that goes through a natural cycle. And so there may be some moves that we'll see there. In the early days, we tend to -- maybe get a little better rates early on, but there will be a natural shift there that we would see in a normal technology cycle. Keith, anything you want to cover there?

Yes, I think you've hit the important point, Phil. Again, I don't know that there's a big difference in the rent versus own decision. I mean people usually ramp it project-based work and making sure they have access to good quality equipment that's reliable, well calibrated things like that. I think from a margin point of view, on a transaction basis, there's really not a lot of difference. We're pretty consistent in how we look at that across the business. and the opportunity, and you see some of that in the numbers for the quarter is as the business is achieving, number one, a larger volume of business, there's some benefit to scale. and then the very effective management of the equipment pool where we're getting more utilization of the equipment that we own. Those factors on a total division basis are very helpful in terms of progressing with margins over time.

[Operator Instructions] We'll take our next question from Marc Riddick with Sidoti.

And certainly, a lot has been covered already. I did want to touch a little bit on where you're seeing progress thus far in some of the growth opportunities and initiatives that you've undertaken. Maybe you could talk a little bit about sort of where you are as far as the geographic footprint as well as sales efforts and sort of how we might sort of see that evolve through the year.

Yes, I'll take that one, Mark. I think Keith talked a little bit about the sales dynamic a little earlier and we talked about Mold Modular Plus site-related services. So maybe that geographic expansion is a good place to spend a little more time -- this is really 1 of our high priority strategic growth drivers. And I'm really pleased with the progress we've made in this area. We did a nice job adding to the team last year. We're getting some good traction with customers in the markets that we've entered. We don't typically share specific market information for competitive reasons. But let me give you a couple of flavors of the way that we go about this work. it could be adding a new sales rep or doing an acquisition in a state that we didn't have a sales presence, maybe didn't even have rental fleet coded for that market before. So that's 1 option, or it could be adding a sales presence in an adjacent metro market that broadens our sales coverage and brings additional opportunities to deploy existing fleet from 1 of our larger facilities.

And so we've used both of those methods successfully -- since we started this initiative coming out of early 2025 to increase our sales footprint and serve our customers in more parts of the country, and we're happy with the progress so far.

Excellent. And then I did want to touch on -- I think in your prepared remarks, you made commentary around rental-related services, competitive pressures and margin challenges that I guess maybe more focusing on the competitive landscape, I guess, maybe if you could touch a little bit about what you're seeing there that might be a little different or what we should be looking at as similar as on the rental related services side?

Yes. Thanks, Mark. It's a good topic. And again, the comments were just around the portable storage business. And so I sort of begin by saying always in this business -- it's very difficult to make much money on the delivery of units and the pickup of units. It's just a part of the business that's not really significant from a profit generation point of view. And in some instances, we've seen in the past, it's an area where it is lost. And so as the market is much more competitive in recent year or recent quarters, we've seen some of the smaller players much more willing to sharpen their pencil and what they charge for a delivery or pickup.

As you know, we try to preserve very disciplined pricing on the monthly rental charge. And even on the deliveries pick up, we don't really pressure there, but the industry environment is very competitive. And I would say it's harder to cover your costs now than it was 2 or 3 years ago. That's the reality. And if you look specifically at our numbers in the first quarter. I would say there were a few, I'd kind of call it elements of noise in the numbers that worked a little bit against us. So we'll be working hard to do as well as we can in that area, but it is an area where everybody struggles with making any money. And for us, getting to breakeven would be great. But that's the journey from where we are currently, given the market conditions.

Okay. Great. And then last 1 for me. I did want to circle back on the share repurchase activity, and that certainly was kind of jumped out a little bit. Can you talk a little bit -- you talked about already as far as the thought process behind -- can you talk a little bit about the timing that we saw there? Was that sort of throughout the quarter, ending of the quarter in the quarter? Is there sort of a pacing there that we should be aware of?

March. So there's some additional information in the 10-Q, but we were active in the month of March. And as I mentioned earlier, we review this capital allocation opportunity on a routine basis. And when we look at all the other capital allocation decisions we're making, this is 1 that we want to consider carefully, and we're very well positioned in terms of our debt capacity and our availability to act and we have a large authorization. We still have a remaining authorization in excess of 1.8 million shares. So that's an area we active in March. We may act again on an ongoing basis, but we don't telegraph our intentions ahead of time. But we'll give you the activity in that area.

[Operator Instructions] There appear to be no other questions. This concludes the Q&A portion of today's call. I'd like to now turn the floor over to Mr. Hawkins for closing remarks.

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 July to review our second quarter results.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp Fourth Quarter 2025 Earnings Call. [Operator Instructions] This conference call is being recorded today, Wednesday, February 25, 2026.

Before we begin, note that the matters the company management will be discussing today that are not statements of historical facts or 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 risks and uncertainties that could cause our actual results to differ materially from those projected.

Important factors that could cause actual results to differ materially from the company's expectations are disclosed under Risk Factors in the company's Form 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 earnings release form on Form 8-K and its Form 10-K in the year ended December 31, 2025.

Speaking today will be Joe Hanna, Chief Executive Officer; Phil Hawkins, Chief Operating Officer; and Keith Pratt, Chief Financial Officer.

I will now turn the call over to Mr. Hanna. Go ahead, sir.

Thank you, Stephanie, and good afternoon, everyone. We appreciate you joining us for McGrath Bancorp's Fourth Quarter and Full Year 2025 Earnings Call. .

This is a particularly meaningful call for me personally, I will be my final earnings call as CEO of McGrath. As many of you saw in our February 5 press release, I will retire as CEO effective April 3, but remain a Director on the McGrath Board. I want to start by expressing my deep gratitude to our customers, our team members, our Board and our shareholders. It's been an honor to lead this organization. I'm very proud of our company culture, our reputation with customers and the growth we have realized over the past 9 years. Our Board invested considerable time developing a thoughtful CEO succession plan and is confident that Phil Hawkins is the best leader to succeed me, given his industry stature and experience at McGrath since 2004, most recently as Chief Operating Officer.

Phil is a seasoned industry professional who embodies the core values of our company, and his experience will enable him to continue the execution of the company's strategy and maintain its positive growth trajectory. I've had the pleasure of working with Bill for over 20 years, and I could not be happier to have Phil succeed me as CEO.

For today's call, I will cover our fourth quarter and full year 2025 results. Phil will then provide comments on our business outlook and plans for 2026. Keith will share the financial details including our financial outlook for 2026. And then we'll open the call for questions. I should also highlight that our Board of Directors today announced our company's quarterly cash dividend for the quarter ending March 31, 2026.

This will be McGrath's 35th consecutive annual dividend increase. Now for the fourth quarter 2025 total company revenues rose 5%, driven by rental operations revenue growth across all 3 of our rental businesses. Adjusted EBITDA increased 14% from a year ago. I am pleased with this performance, which was driven by strong results at Mobile Modular and TRS-RenTelco.

Across the company, our rental businesses performed well in a mixed demand environment. At Mobile Modular, activity was steady, portable storage showed continued stabilization and TRS maintained the healthy momentum we saw throughout the year.

Looking first at our Mobile Modular business. Rental revenues increased 2%. Our Mobile Modular Plus offerings and our geographic expansion efforts gave us opportunities to grow in a slow nonresidential construction market. We continue to benefit from the shift in demand towards mega projects which helped to offset lower demand across other nonresidential construction categories.

Sales of new modular units were down in the fourth quarter and for the full year as a challenging nonresidential construction market presented fewer opportunities. In contrast, our Enviroplex business had a very strong fourth quarter and full year with healthy education demand, growing revenues with high gross margins.

Turning to portable storage. We continue to realize gradual top line improvement, while broader commercial construction remain soft. We benefited from seasonal retail business and geographic expansion progress. In the quarter, rental revenues increased 3% year-over-year.

Finally, TRS-Rentelco, rental revenue grew by an impressive 13% in the fourth quarter. This business completed a notable year of recovery ending with sustained utilization in the low to mid-60s and healthy demand across both general purpose and communications segments.

As I reflect on 2025, our company had a strong fourth quarter, which played an important role in delivering a solid full year result in a mixed environment. Over the course of 2025, weakness in nonresidential construction created headwinds for the company, but our strategic initiatives made a positive contribution and helped offset those pressures as well as the performance at TRS and Enviroplex, which bolstered our overall results.

I want to thank each of our team members for your accomplishments and steadfast commitment to delivering the highest quality service to our customers. Our culture at McGrath is a driving force behind our growth, and it shines through in every customer interaction.

Phil, over to you to comment on our business outlook and our 2026 plans.

Thank you, Joe, and good afternoon, everyone. I appreciate the opportunity to join the call today and to share more perspective on the business. I'd like to start by saying McGrath has been my home for more than 20 years, and I've had the opportunity to work across nearly every part of the organization. I worked closely with both Joe and Keith with a shared focus on disciplined execution and building long-term shareholder value.

Joe is behind an impressive legacy of leadership and service commitment that he is thoroughly in great throughout our company. It is a great honor to succeed Joe as CEO and to continue leading our capable team.

As CEO, I look forward to building upon that foundation, continuing to strengthen our market positions and leading a graph to capture long-term opportunities that lie ahead of us while delivering value for our shareholders.

Now let's look at the year ahead. The key drivers of our performance in 2026 will be continued progress from our modular growth initiatives and building on the market recovery at TRS. I'll discuss those further after I outlined the overall demand environment for our businesses. In the modulars business, uncertain market conditions persist, nonresidential construction indicators such as the Architectural Billings Index, or ABI, remains soft. While we do not expect meaningful improvement in the environment this year, we have proven our ability to grow in these conditions.

At Mobile Modular, we started 2026 with lower utilization, but with some solid momentum driven by the ongoing success of our services and geographic expansion initiatives. In our commercial business, mega projects, such as large industrial projects, data centers and government work. remain active. Our fleet size and modification capabilities provide a competitive advantage in these opportunities and these strengths are helping our pipeline and bookings.

In education, we expect a stable market this year. Overall, our education markets and modernization backlogs are healthy. The modular business remains our largest long-term growth opportunity.

Turning to portable storage. We remain hopeful that the market demand has stabilized. While industry utilization remains low, our order activity has showed some positive momentum and we are starting 2026 with a slightly higher rental revenue run rate than at the beginning of 2025.

At the same time, profitability remains a key challenge in this highly competitive market. We are laser-focused on improving sales effectiveness to get more units out on rent while protecting margin. We will continue to invest in growing our presence in existing markets, expanding into new locations aligned with demand and pursuing tuck-in acquisitions that support our growth. PRS is entering 2026 with good momentum. We see continued strength in aerospace and defense, data centers and semiconductor segments. Our 2026 performance will be accomplished through a strong leadership team with deep technical expertise and the ability to deploy capital effectively.

In summary, across the graph, we are entering 2026 in a healthy position. We are confident our strategy is sound, and we have the right team to execute.

With that, I will turn the call over to Keith, who will take you through the financial details of the quarter and our outlook for 2026.

Thank you, Phil, and good afternoon, everyone. Before I give the financial details and outlook for 2026, I want to recognize Joe for his leadership and many years of service to McGrath. Joe has played a critical role in shaping the company's strategy, driving results and positioning the business for long-term success.

I also want to congratulate Phil on his well-deserved appointment to CEO. Phil and I have worked closely together. He brings deep strategic, operational and financial knowledge of the business. and I'm confident he will provide strong leadership as we continue to execute our strategy. So now on to the financial highlights.

As Joe mentioned, we delivered strong results in the fourth quarter, driven by increased revenue across each of our businesses and the strong adjusted EBITDA performance at Mobile Modular and TRS-RenTelco.

Looking at the overall corporate results for the fourth quarter. Total revenues increased 5% to $257 million with rental operations increasing 6% and sales revenues increasing 5% during the quarter. Adjusted EBITDA increased 14% to $105 million.

Reviewing Mobile Modular's operating performance as compared to the fourth quarter of 2024, Mobile Modular had a good quarter, with adjusted EBITDA increasing 13% and to $68.7 million. Total revenues increased 2% to $175.8 million. The business saw a 2% higher rental revenue and 10% higher rental-related services revenues, primarily due to higher site-related services projects, which were partially offset by 1% lower sales revenues.

Total gross profit grew 9% for the quarter, driven by a higher mix of used equipment sales, which have higher margins than new sales. Rental-related services also delivered growth and at higher margins than a year ago. Average fleet utilization was 71.3% compared to 76% a year earlier. Consistent with the challenging demand environment experienced throughout the year, fourth quarter returns of rental units were higher than new shipments.

Fourth quarter monthly revenue per unit on rent increased 6% year-over-year to $874. For new shipments over the last 12 months, the average monthly revenue per unit decreased 3% to $1,169.

We continue to make progress with our modular services offerings. Mobile Modular Plus revenues increased to $10.5 million from $8.4 million a year earlier, and site-related services increased to $10 million, up from $6.9 million. Overall, Mobile Modular had a good quarter as we continue to make progress with our modular solutions growth strategy.

Turning to the review of portable storage. Adjusted EBITDA for portable storage was $9.6 million, a decrease of 3% compared to the prior year. partly driven by lower margin on our delivery and pickup services and reflecting a very competitive market.

Rental revenues for the quarter increased 3% to $17.3 million benefiting from some incremental seasonal retail business, while commercial construction activity remains soft. Average utilization for the quarter was 61.2% and which was comparable to a year ago. Quarterly utilization was relatively steady throughout the year and provided an indication that demand conditions are showing signs of stabilization.

Turning now to the review of TRS-RenTelco. Adjusted EBITDA was $23.1 million, an increase of 21% compared to last year. TRS had another strong quarter with total revenues up 19% to $40.6 million, driven by higher rental and sales revenues. Rental revenues increased 13% to $28.7 million as the industry continued to experience improved demand conditions.

Demand was robust throughout the quarter with a modest seasonal slowdown at year-end. Average utilization for the quarter was 64.5%, up from 59.1% a year ago and rental margins improved to 44% from 40% a year ago.

Sales revenues were notably strong in the quarter, increasing 42% to $10.3 million and with gross margins at 64% compared to 58% a year ago.

The remainder of my comments will be on a total company basis. Fourth quarter selling and administrative expenses increased $2.7 million to $54.4 million. Interest expense was $6.5 million, a decrease of $2.4 million as the result of the lower average interest rates and lower average debt levels during the quarter. The fourth quarter provision for income taxes was based on an effective tax rate of 26.4% and compared to 25% a year earlier.

Turning to our full year cash flows -- cash flow highlights. Net cash provided by operating activities was $256 million compared to $374 million in the prior year. The decrease was primarily attributed to the absence of the nonrecurring $180 million merger termination payment received from Wills Scott in 2024, net of $63 million McGrath merger costs.

Rental equipment purchases were $143 million compared to $191 million in the prior year. In addition, to investments in new fleet, healthy cash generation allowed us to pay $48 million in shareholder dividends. At quarter end, we had net borrowings of $515 million, and the ratio of funded debt to the last 12 months actual adjusted EBITDA was [ 1.42 to 1 ]. Finally, our 2026 financial outlook. For the full year, we currently expect total revenue between $945 million and $995 million. Adjusted EBITDA between $360 million and $378 million, gross rental equipment capital expenditures between $180 million and $200 million.

Our current outlook for each of our businesses is as follows: we continue to see solid opportunities at Mobile Modular, where we have multiple growth initiatives in progress and we expect this business to grow adjusted EBITDA in 2026. Given current utilization levels, we have equipment available to meet demand in most established markets. We expect to spend approximately $5 million to $8 million higher operating expenses in 2026, preparing available fleet to meet customer orders.

Last year, we increased the size of our sales team to broaden our geographic coverage. And as we enter 2026, we see good momentum in several new regional markets where we will invest capital in new rental equipment to support demand. At portable storage, we see some signs of more stable demand in a very competitive environment. Until utilization improves, we expect it will be challenging to grow adjusted EBITDA and 2026 performance is expected to be comparable to 2025.

TRS, market conditions improved last year, and we expect to see more growth in 2026. As a result, TRS should contribute higher adjusted EBITDA again this year, given recent high utilization levels and our growth outlook for the business, we expect to increase capital investment in TRS in 2026.

Our Enviroplex business which sells new modular classroom units had a very strong 2025 with strong revenue growth and higher gross margins than a year earlier. For 2026, we expect revenues, margins and adjusted EBITDA to be in a more normalized level and closer to 2024 levels.

Our 2026 outlook also includes the following expectations for the company: rental equipment depreciation expense of $85 million to $89 million. direct cost of rental operations of $122 million to $126 million, SG&A expense of $225 million to $229 million, and interest expense of approximately $26 million to $29 million.

In summary, we remain committed to building long-term shareholder value through Sims strategic focus disciplined capital application and consistent execution.

I will now turn the call over to Joe.

Thank you, Keith. Before we open the call for questions, this company has been a major part of my life for 22 years, and I'm incredibly proud of what we've built together. I'm excited about where McGrath is headed. We have the right strategy, the right teams and the right leadership.

I would like to specifically call out the executive team and thank them for their support during my tenure. To our team members, thank you for your dedication. To our customers, thank you for your trust. To our shareholders, thank you for your investment in our company.

Stephanie, you may now open the lines for questions.

[Operator Instructions] We'll take our first question from Scott Schneeberger with Oppenheimer.

It's Daniel on for Scott. First off, congrats to Joe and Phil and best of luck going forward to both of you. Jumping into the questions. historically, you guys have guided the initial guide pretty conservatively out of the gate. How do you see the drivers this year that could potentially take you above that guidance range?

Daniel, it's Keith. Let me make a couple of comments. I think the first thing is it's always hard to develop the financial outlook. And I always, at this time of the year, reflected a couple of things. First of all, the calendar. It's still very early in the year.

And if you look at our business, typically, the second half of the year is the biggest contributor to our financial performance. So we really have to be humble at the start and say there's a lot we don't know, especially about the second half. I think right now, in particular, the macro presents some challenges. We've talked at length about the nonres construction market, some of the challenges there. We're not assuming a change in those conditions this year. And obviously, I outlined looking across our businesses, there's a little bit of a different outlook in the context for each business.

If you look at what things can present upside in our year, it's really looking at each of the businesses and each of the initiatives we have underway and saying we do more, we made greater progress than is reflected in the initial guide, that's not an easy thing to do. Our team did a phenomenal job last year, particularly right through the fourth quarter. But that gives you some context. We have a lot to work with. It's early in the year. We are clear on strategy, and we have a team that knows how to execute, but it's still not an easy environment.

And one other thing I will say, when you look at the revenue range being quite wide, what would push you to the upper end, it's really the sales activity in our Mobile Modular business. That's an area where if you look at the details of last year, we actually took a step back we didn't sell as much on the new equipment side, even though our used equipment sales were up a bit. But if we look at that part of the business, we have a good team. We have a lot of good opportunities we see in the market. We think it's a great long-term opportunity. But it's very hard to predict exactly where that can land. So we're assuming some growth there. If we do well, it could be pushing us more towards the upper end. On the other hand, if it's a difficult year, it could push us lower within our range from a revenue point of view.

Got it. That's a helpful overview. Switching gears to your initiatives in Mobile Modular. We saw a real nice acceleration in the growth there for both Mobile Module Plus and site-related services, I mean, despite being in a pretty tough environment now, could you speak to the accelerated momentum you've seen for those offerings?

Thanks. This is Phil. We're happy with the progress we're making in capturing additional profitability on every project with these service offerings. Our product and service offerings come with the building, that's Mobile Modular Plus and our construction services outside the building. site-related services continue to grow at double-digit rates. We have several customers, many customers that see value in having one provider provide those activities while our units are on the job side and before units get there.

Got it. And switching to TRS. Rental revenue growth really accelerated nicely in the quarter. Could you please elaborate on what drove that acceleration? And what type of visibility do you have to sustain this momentum into '26?

Sure. We were very happy with how TRS performed. We are -- we actually -- you know there's 2 different components to the rental business there. One is our general purpose fleet and the other is our communications fleet. The general purpose fleet saw growth in aerospace and defense and semiconductor business, which is just a recovery of more projects that we're seeing in that customer base.

And then over on the communications fleet, we're seeing a nice demand from data centers. And if you think about a data center, all the different connections the testing that has to be done, it's very intensive and requires considerable amounts of test equipment to get those facilities up and running. And so we're the company that people go to when they need that equipment and it worked out very nicely for us during the year and especially in Q4.

Yes. One thing I'd add is in that business, we typically see some slowdown in activity as we get to the period from Thanksgiving to year-end. And this year, business remains strong with really very little drop-off in activity through December 31. There was a little bit of a dip right at the end, but I would characterize that as a very healthy, very consistent fourth quarter and finish to the year. And a good example of where things really broke in our favor in that business for the final quarter of the year. .

We'll take our next question from Manav Patni with Barclays.

This is Ronan and Kennedy on for Manav. Congratulations to both Joe and Phil. -- the CEO transition, it sounds like it was thoughtful, should be smooth to seamless. So you spoke of strategic continuity and continued discipline execution. Are there any areas, whether it's portfolio management or mix, M&A appetite, capital returns where your approach may differ even if subtly for Joe's once you step into the CEO role?

Thanks, Ronan. I think Joe, Keith and I have worked closely together along with other members of our leadership team to craft our current strategy and refresh that over the last several years. And those strategic initiatives are in progress. We're happy with the products we're making, and I don't expect any near-term changes.

Got it. And beyond the performance of TRS and Enviroplex, total company basis 4.25, which specific strategic initiatives were most impactful in offsetting the nonresi headwinds and which do you anticipate will be most impactful for '26?

I would say geographic expansion, the additional salespeople, we added into the market in 2025 that we talked about on prior calls, momentum we have in those markets coming into 2026 or one of the biggest drivers in offsetting the impact that we're seeing to some of the more challenged areas of the commercial market.

Appreciate it. And then with the mobile modular starting 26% lower utilization, but guiding to the adjusted EBITDA growth, even with higher operating expenses and CapEx repair fleet. Can you walk us through the bridge on that? And what the key drivers are there, whether it's pricing, utilization, the mobile modular site-related mix or end from take standpoint cost absorption? And then what's the incremental margin on the Mobile Modular Plus and site services versus base rental?

Yes. A lot to unpack there. What I would say, Ronan, is, and Phil alluded to we've got several initiatives in play that we feel good about. So as always, there's a range of possible outcomes here. We'll be working to trend make the most of each of those initiative areas.

I think the geographic expansion is important to call out. We stacked up over 25%. We feel good about the traction we're getting in the market. We'll put new capital to work because a lot of that geographic coverage is in areas where the -- we do not either have equipment in the market or we don't have the right kind of equipment available in our fleet.

In terms of margin impact, I wouldn't see margin impact being dramatically different within the individual revenue streams, so areas like Mobile Modular Plus, areas like site-related services, I would look at what we've done historically and said, margins are probably going to stay pretty consistent.

Probably the biggest wildcard is the sales piece of the business. You saw in the fourth quarter -- even though sales were down a bit for Mobile Modular, we actually increased our gross profit contribution from sales, and that was the impact of a higher mix of used sales.

So when we turn that and look into '26, again, there's a range of possibilities here. We put our best estimates on the table, but we look a lot around sensitivities. So that area a little bit hard to tell, but I think we have a realistic midpoint in our range that reflects some continued progress with sales at Mobile Modular, probably not as heavy awaiting towards the used sales more on the new, and that can be slightly detrimental from a margin point of view. So let us know if you like more color? I know you touched on a lot of individual topics there.

No, that's great. And then ask on the monthly revenue per unit, I think you rose 6% year-over-year, while new shipment revenue per unit fell 3%. Could you talk about the drivers there, whether it's mix drive pricing, customer-driven and potential implications for the portfolio and future economics as the portfolio churns.

Sure. I'd probably start with the 6% increase in the revenue per unit on rent. So that's really looking at all of our assets that are held by customers and are at work, so to speak. That is really the key metric. And you see that 6% lift is very good in this environment. We're very pleased with that.

The offset was fewer units being on rent, and that netted out to about 2% rental growth for the quarter. In terms of new activations, based on an LTM look at new shipments, the number there was down by 3%. So it was down from $1,203 to $1,169 million. I think there's a few things going on there. First, we are within those numbers. We are making progress with MNPs.

If we look at the base rent, that is actually lower and that's for a couple of reasons. The primary reason is mix related when we look at the types of units, the regions they're in, the contracts they're on, mix plays a big factor there in making the base rent lower, but in addition, we're also seeing parts of the market for modulars are very competitive.

Others are more stable, but there's definitely a lot of competition in the marketplace. So that's how I would sort of summarize what we're seeing. I think when we look at the economic opportunity, there's still a significant gap between the revenue we're getting for units in our fleet today and where we're executing new shipments. That combination of discipline on base unit pricing, good progress with services. there's still an opportunity over time to raise that fleet rate by as much as 33%.

We'll take our next question from Daniel Moore with CJS Securities.

Thank you. Good afternoon. Joe, congratulations going out on a strong note, so to speak. And Phil, congratulations to you. I look forward to working more closely going forward.

CapEx or purchases of new rental equipment, you touched on several times, tick higher in Q4 as well as our guide for 26. Is that primarily kind of expanding into new geographies? And just talk about the confidence that you have to turn on the CapEx to get a little bit more required more rental equipment in this environment?

Dan, this is Phil. The primary driver of that higher CapEx on the modular side of the business is definitely geographic expansion, where we're growing our fleet in a newer market. There are some product areas of our portfolio in mature markets where we'd also be adding and then GRS, the health of the TRS business is another place where the CapEx will be likely higher than it was a year ago.

Yes. And Dan, always good to look at history when you look at that number, it really takes us back to a level similar to what we spent in 2024. It's still lower than what we spent in 2023. And one other comment I will make is that the portion of additional spend, it also includes maintenance CapEx on some of our modular units, where we're doing a long-term refurb on the unit and we're not really adding any units to the fleet.

And so think of a number, order of magnitude around $20 million in that CapEx guide, that is really extending the life of units we already own as opposed to adding units.

Got it. Helpful. Any color, Keith, kind of the cadence of growth in margins embedded in the 26 guide, starting with Q1, how do we see kind of revenue and EBITDA growth? And how do you see it progressing over the course of the year?

Yes. The way I would look at it is we're not assuming business conditions get any better anytime soon. So I would look at the first quarter as maybe be more comparable to how we started last year, second quarter, probably more of the same. And then second half of the year, by then, I think we're likely to be seeing more impact from deploying some of that new capital, particularly in some of the new modular markets. That's sort of how we characterize it at a very high level. .

Very good. See if I have one more. I guess just from a capital allocation perspective, obviously picked up the dividend. Balance sheet's in great shape. Maybe talk about the M&A pipeline for '26 and kind of strategic priorities from a capital allocation perspective this year?

We continue to have an active M&A pipeline. We're consistently looking for opportunities, particularly in those geographic areas that we would like to enter. And the timing on those is always uncertain based on finding the right assets, right business in the right geography at the right valuation. It continues to be part of our financial allocation model and place that we spend a lot of time.

Thank you. We'll move now to Steven Ramsey with Thompson Research Group.

I extend my congratulations as well. When thinking about the geographic expansion, can you give a little bit more flavor on how the ingredients for how you go to market if it's modular and storage how you're thinking about going to densely populated areas versus mega project-oriented areas?

And then maybe lastly, in the areas with success how much is modular plus in SRS a factor or attaching to those wins?

All right. The way I would think about geographic expansions. We are looking for metro areas and based on metros that states that are strong opportunities for both -- for our entire Modular Solutions platform, which would include modulars, portable storage and all the service offerings that you referenced in that.

So when we enter a new market, our goal is to provide all those offerings. And then it always helps if there's some large mega projects in those markets that provide a nice anchor, but we believe that -- and we've demonstrated through entering the Pacific Northwest after design space, Midwest after best that we can enter these markets, come in with quality people and processes and add CapEx and take share. We'll participate in growth that exists in that market.

Maybe to add to your question on Mo Modular Pus, I think you think about that being a small portion of the revenue on unit, it really becomes more impactful as you get more units on rent in that market, and you're seeing that flywheel build over time. So I wouldn't say that's a material needle mover early in the process.

Okay. That's helpful. And then maybe to continue on SRS and modulars showing such great growth makes up $74 million or 16% of modular segment rental revenue, do you expect the strong double-digit growth of those product lines to continue in 2026?

I think we have -- we believe there's a nice long-term opportunity there. On the -- as penetrations increase on the Mobile Module Plus side, we add more service to that offering. We think there's room to continue turning that flywheel and give lift. -- the site-related services side, that could be lumpier, right? Those are larger revenue items tied to specific projects, and those can -- a little bit like sales tend to be a little lumpier in the process. We believe we've got a runway to continue to grow those. I'd be careful about the trajectory that we make in there. And now that high growth that we see can continue.

Yes. Steven, 1 thing I'd point out is we've been doing this for a few years. So as we, if you will, anniversary some of the success of earlier MMs contracts, sometimes we'll have returning units, which actually bring the number down because they come back and they had MMs on the contract. And so simply replacing that with another contract that is MNPs is necessary to hold the line.

So Again, we've made a lot of progress. We think there's more opportunity. We've broadened the offering. Those are all good long-term drivers. But keep in mind, as we start rotating here, some of our earlier success has to be replaced. Okay. That's helpful perspective.

And then last one for me, serving data centers with TRS. Can you talk about how much you can do to grow intentionally that product set? Or how much of it is following customers? And then with data centers being supportive of TRS growth can you put the data center vertical into some kind of context of size within total TRS revenue.

Yes, I don't think we want to try to give a specific size of that related to but I would characterize that word as following existing customers that are doing fiber connections or other communications type of testing and electrical testing into that data center space. So this is the work that -- we do every day across many different project types. There just happens to be a lot more of it in these data center projects.

We'll take our next question from Marc Riddick of Sidoti.

Good evening, everyone. So first of all, I want to start, Joe, thank you so much. It's been a pleasure working with you over all these years and certainly was you the best on your retirement. You've worked with us at any for many years, and it's certainly been a pleasure to do so with you and certainly looking forward to having a very positive retirement well. I know you're not completely going to do here, but it's good for you and -- it's been a pleasure. So full congratulations there.

Thank you, Marc.

And Phil, we're certainly looking forward to working closer with you over time and certainly wish you're the best going forward. And really, really do appreciate all the color that you guys have already given on the call. One of the things I did sort of want to touch a little bit on the expansion. You touched on the organic pursuits on the expansion side and the geographic footprint side.

Maybe you can touch a little bit on the potential of acquisitions. I guess there hasn't -- the pace of acquisition activity hasn't been what it was prior to everything at WillScot and the like. And maybe you could talk a little bit about what you're seeing out there valuations, appetite, anything wise that you can give there would be appreciated. .

Maybe I'll start with reminded everyone that we did 2 small deals related to our geographic expansion efforts last year, one in portable storage and one on the modular side of the business. So those are examples of the type of opportunities and transactions that represent our pipeline and that we look for.

I think a couple of things to think about are -- we don't determine the timing of those, the owners do. And so a lot of our pipeline are people that we keep in close contact with when they're ready to sell or their first call, but they may not be ready at a particular time that we're having conversations with them.

And for ones that are ready, there's a process to go through diligence, evaluating fleets and making sure it's the right fit for us. and then the valuation stars have to align. So I think we are rigorous in that process. We don't feel compelled to do deals. We look for ones that make sense for us, again, based on the market the valuation and the timing of the opportunity. And so those are the 2 we found this year. We continue to be hopeful that there's more. It's not something that we bake into our earnings guidance or our plan.

Okay. Great. And then the one thing I sort of -- as a quick follow-up. As far as the timing of investments and timing of CapEx, is there anything we should be thinking about there as far as whether there's whether they would be concentrated to any particular part of the year?

Or do you anticipate that sort of being sort of a consistent level as you go through 2026?

Yes, Marc, it's a good question. I would say, generally, it's likely to be front loaded. So the first couple of quarters, the spend is likely to be heavier because as you heard us describe in some of the earlier Q&A, one of our opportunities with the geographic expansion is building the revenue base particularly in the second half. So capital will generally be flowing earlier in the year. And then you're going to see that if all goes according to plan, showing up in the revenue streams, particularly in the second half.

Ladies and gentlemen, that appears to be the last question. Let me now turn the call back over to Mr. Hanna for any closing remarks.

Thank you, Stephanie. Now Phil, how about a few finished the closing remarks.

It would be my pleasure, on behalf of Joe and Keith and the entire team here at graph, 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 April to review our first quarter results.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Okay. We're going to get started. Good morning, everybody, and welcome to day 1 of the 43rd edition of our Barclays Industrial Select Conference. I'm Ronan Kennedy. I'm a proud member of Barclays Business Information and Professional Services team, Manav's team BIPS as we're affectionately referred to. And I do the business services side of the coverage for Manav, which includes a host of names, including Cintas who we just heard from, Ecolab, Rollins and of course, McGrath RentCorp. So we're very pleased to be joined by McGrath, a leading B2B and services provider of rental and related services, specialing in modular, portable storage and electronic test equipment in the U.S. Our chat this morning comes at an important moment in the company's history because we approach an executive transition at the CEO seat that was announced just under 2 weeks ago.

We're joined by their leadership trio, representing both the strategic legacy and future direction of McGrath. So to my right, we have incoming CEO and current Chief Operating Officer, Phil Hawkins; outgoing CEO, Joe Hanna; and the EVP and CFO, Keith Pratt. I'll also just note for those who aren't as familiar, we just initiated McGrath as an overweight. But we're very pleased to have you guys here today. So thank you for joining us. I think Joe, if I'm not mistaken, you have a safe harbor you'd like to quickly touch on before.

Thank you, Ronan, and we are very happy to be here today. We'd just like to remind everyone that any forward-looking statements we might make today are not guarantees of future performance, and actual events could differ materially. Please review our relevant SEC filings for a full review of our business and its risk factors.

Very good. Thank you for that. So as I alluded to, we initiated on you guys as overweight, relatively safer way to have kind of one foot in the door from a potential cyclical recovery in the U.S. nonrecovery -- recovery of non-resi construction. This comes following the termination of an agreement to be acquired by your comp, WillScot, and where you guys have a reinvigorated focus on your stand-alone strategy. We also appeal -- find appealing the potentially attractive financial framework, consistent results and disciplined capital allocation. We'd like to touch on all that to various degrees, but it may make sense perhaps Keith or whoever is so inclined to just give an overview of the company for those who are less familiar, given it's your first time here at the conference.

Sure. I'll start. And if you look at the business today, it's really built around what we call our Modular Solutions strategy, and that encompasses our core modular business, Mobile Modular, our Portable Storage business. We also have a related new modular unit manufacturing business called Enviroplex, that's all part of what we call modular solutions. And we'll talk about all the opportunities we see around that business. We also have an electronics business, TRS-RenTelco, a very high-performing business, high return business. But when we look at the company today and we look at the last couple of years, where our initiatives for growth are and where the focus for our capital deployment has been, we really see more opportunity on the modular side. So that's the business today. Think of it as 75-25 or 80-20 in terms of focus on modulars, but a very high-quality electronics business that is also part of the McGrath family.

That's helpful. And then it may be helpful if you just touch on your -- what you would see as your 3 competitive differentiators. A lot of people might reference WillScot as a comp in consideration and evaluation of you as a company. So how do you articulate the core value proposition? And today, particularly in a still challenging non-resi environment?

Sure. I can take that. I would say that a significant contributor to our differentiation in the market is our culture and the amount of service that we provide our customers. We -- one of our core values is we provide exceptional experiences. It's our lifeblood. And as a business services company, that's really important. When you have a modular building project, especially with the school as an example, school, let's just say that school is going to open in -- on August 20. If you don't have that classroom there and ready to set up to the specifications that the district wanted and it's not on time, those kids are not going to have a classroom to be in. And so that hallmark of us doing things when we say we're going to do them, get them done to an exceptional level is definitely something that has, I think, propelled the company very well in the past lifetime of the business.

The other, I think, differentiator is our ability to be able to supply customers with large projects. Modular building projects can become quite complicated if they're modified to the customer specifications. We have the production facilities, the inventory centers, the means to be able to provide those products to our customers to their specifications and sometimes that's a complicated and difficult thing for them to go from concept to actually getting that product in the field. That's been a big differentiator for us. The other thing, too, that I would say that's been very important for the company has been our ability to have folks in the field that are very familiar with all the rules, the regulations, the codes, everything that are relevant for a modular building project, particularly in the education field.

There's a lot of things that you need to know when you get a classroom in place for someone. And we have the skill in our sales force, a lot of long-tenured people, that are very cognizant of all the requirements for codes and regulations that set us apart from the competition. It's been very good for us.

Very good. I understand -- we understand part of our analysis was that, that education exposure is enviable, I think, for peers, primarily because of the consistency of results that it provides. So could you talk about broadly your end market exposures in education, commercial and otherwise, and how your products and segments serve those respective end markets?

Phil, would you like to take that?

Sure about 1/3 of the business is education focused, so modular classrooms and the services and accessories that go along with that as Joe and Keith have talked about the importance of service, you have kids in those classrooms, service is very important. Being able to maintain that. And typically, those stay out for much longer terms, especially if they're associated with a growth project tied to student enrollment growth. And then the other 2/3 commercial, so that be industrial, government, typical nonresidential construction is a piece of that, but a wide variety of customers and verticals that are running things from modular offices on a job site to growth space for their employees before they build a new facility, all the way to portable storage container that's used for storing materials during a project.

Very good. Can you talk about -- or could you characterize your exposure to the large long-duration projects versus a smaller, perhaps more rate-sensitive projects? And kind of the bifurcation of demand that you're seeing, I think peers are as well across the industry and the trends there?

Phil?

Yes. Joe and Keith talked about our sweet spot are these large projects, the capabilities and the expertise we have on our team, the size of our facilities and the size of our fleet, make us a perfect fit for those projects. Very few of our competitors can check all those boxes. And so from the beginning, whether it's a large school or a large commercial installation, our mix of business has tilted that way in the current environment. That's where we're still seeing strength, right? It's weaker in standard nonresidential commercial construction and building McDonald's down in the corner, that was weaker, but the mega projects, the data center work, manufacturing, from remanufacturing trends coming back to the U.S. those types of projects lend themselves to our capabilities and our fleet size.

Got it. And then can you talk about something you've talked about on recent calls, and we would expect to be the case going forward. what you're seeing from one of the key leading indicators for construction, non-resi construction, 6 to 9 months out as the ABI. People obviously look to the nonresidential square footage startage from Dodge as well. Can you talk about the trends you've seen there? And then in relation to your results within your segments?

Well, I can start and then Phil or Keith, you can fill in. I think what's been, I think, a little puzzling when you look at the ABI is that it's been weak for a number of quarters for a fairly long time, yet we have this bifurcation. We've got strength in the mega projects and data centers, things like that, but then the weakness on the smaller construction sites that we realize, which are smaller, less intensive projects for us. And so following really what the ABI and what Dodge and what the construction backlog indicators and things like that, following those over the last year has been a challenge for us. But we definitely see strength on the large projects, not so much on the smaller projects. Phil or Keith, anything to add there?

Yes. I think this theme of small project, large project, another way to see it is in our business segments. And if you look at our Portable Storage business, that is much more exposure to commercial construction broadly. And within that, more of those smaller local projects, that business over the last 2.5 years has seen utilization go from a number north of 80% to a number right around 60% currently. So it's been a painful adjustment. That's the first comment I'd make. As Phil noted on the modular side, those more complicated projects are more our sweet spot. We've got the inventory depth. We've got the skill set to do them, but there's still some local type projects in the mix. So with that as a backdrop, even in modulars, there are some challenges to grow in this environment.

Our utilization data shows we've got fewer units out on rent in that environment than we did a year ago. But offsetting that, we've been very disciplined around how we price and very disciplined in introducing services to the customer that provide an opportunity for more revenue for every unit that goes out on rent. So even in this tough demand environment, we've actually shown good growth on the modular side of the business. And in Portable Storage, we noted for the third quarter, we actually grew that business, albeit only 1%, but it was the first growth we've seen in almost 2 years. So glimmers of hope there, and we hope to see more of that.

And the only thing I would add maybe is just a current snapshot of some of those metrics. You talked about the Architectural Billing Index, one of the leading indicators we pay attention to, improved slightly, still at 48.5% in December. So under that 50% level, I would say things are improving, but it's a little better. And then the other thing we pay attention to is this commercial -- nonresidential commercial backlog indicator, and so that was a little bit weaker. It's 8 months overall. But to this large project kind of bifurcation in the market we've been talking about the largest contractors, the largest GCs have backlogs that are still a year long. So for our business, the types of projects we play into and fit into, there's still a steady stream of work out there, and that's why you see this dynamic of plenty of projects to go forward with those larger GCs, the smaller ones, smaller project activity, still going to be struggling for a while.

Got it. And then can you speak to what -- even at a high level, what the driver of the consistency of the results was, solid results through 3Q? I think you raised your guidance as well. Can you talk about primarily what the drivers of that is across or was?

Yes. I think, first of all, with all the comments we just made at the macro level, it's a tricky environment. I think for anyone forecasting how a business is going to perform, whether it's for the full year or the next couple of quarters, this is a challenging period. It is for us. I think it is for many in this kind of an industry. I think when we got to the October time frame, we were pleased with our results for the third quarter and we had good momentum entering the fourth quarter. A couple of areas specifically. Portable Storage, which had such a tough time with those local projects declining in number over a 6-quarter-plus period, we were seeing signs of stability there. So that was a positive in that business. And we also commented that there was an opportunity for some seasonal retail business in the fourth quarter that further bolstered our positive feelings in that business for winding out the year.

That was one factor. Another real positive story of 2025 that we saw progress each quarter was our electronics business. It had a very tough time in '23 and '24 with weaker demand conditions. That really turned at the start of '25 and we commented back in October that entering the fourth quarter, good momentum with that business. So those were positives. And I'd say modular in a pretty steady position as we looked at that business. So overall, gave us the encouragement to just edge up slightly our outlook for '25, and we'll have lots to say about that when we have our earnings call next week.

Thank you. And can you talk about the role or the contribution from the powerful dynamic of as assets come off lease. I think you currently have a 40% spread between your last 12 months delivered and what the average price on rent is. Can you talk about the power of that convergence and the extent that's played a role in your results and is expected to going forward?

Yes. There is a phenomenon with our business where the average unit out on rent in the most recent quarter generates around $865 in revenue. And if you compare that with units that have been shipped over the last 12 months, the number is closer to $1,200. So there's quite a difference there. You got to be careful with those numbers. There's lots of details that impact those numbers, particularly around mix, term of the contract, regionality, but even taken at a very high macro level, what are some of the important dynamics. The first one is that over time, the cost of doing business goes up, the cost of a new unit increases, the cost of maintaining the fleet increases, so we generally expect units that go out on rent today are going out at a higher level, a higher price point than units that went out a few years ago. And the typical stay term for a modular unit, if it's a commercial project, 2 to 3 years very typical, an education unit can be 4 to 5 years or even more.

So these units churn gradually. And when they're on rent, there may be some small price adjustments, but a more significant price reset is generally when the unit comes back to us and goes on to the next customer. So that's dynamic number one. And you can think of that in terms of just cost inflation would cause there generally to be a spread, and we've seen that over many years. It's a wider spread currently because with COVID and the years that followed COVID, there was very significant inflation in building materials costs, which meant cost of new units became more expensive and cost of maintaining our fleet became more expensive. So we need to charge more to maintain our returns.

That's an important dynamic in that spread. The second important dynamic is the provision of services to our customers. So if we look at the legacy fleet, we look at everything we have installed in the field, that reflects a lower level of attachment of services to the fleet than what we're seeing today. So in more recent shipments, we're offering a wider range of services, and we're generally being more successful at attaching more of those services to new contracts. So those are really the 2 big dynamics that create that spread. And I think really what I look at is for the installed base, seeing some progression in what is the revenue we realized per unit on rent, and that was up 6% in the third quarter compared to a year earlier, which is good progress and helping offset some of those challenges we've talked about on the demand side.

Thank you. Appreciate it. And then how should we think about the contribution, I think, for Mobile Modular, 6% pricing in the most recent quarter. How should we think about the historical and expected contribution from pricing and even volume as well as we move forward?

Yes, it's a good question. I think over the long arc of time, and we're clearly in a period with a bit of turbulence, but you should expect a couple of percentage points related to inflation, where you want to edge your pricing up to maintain healthy margin structure, healthy return structure. We're already a pretty big player. So it's not easy to organically grow your fleet rapidly, but the goal of a couple of percentage points there as well, I think is realistic. And then the services piece, potentially get a couple of percentage points there. So you put all that together, and somewhere in that mid-single digit or better in good times is feasible. Clearly, the offset we've been living through over the last couple of years is one where units on rent are an offset to everything that I said. But net effect for our modular business, we've done a nice job in growing rental revenue in this environment.

Thank you. And as we segue to discuss strategy, one of the, I think, a good tie-in or a way to frame it is how we think about historic contributions from organic and inorganic. If and when there was a change as you began to do and execute more acquisitions, so perhaps we can talk about that holistically as we transition to a discussion of strategy as well.

Yes. Maybe, Phil and Joe, we -- all 3 of us worked intimately on the strategy and actually see M&A can be very complementary to organic. I'll say that, and that was in our thinking when we did 2 important acquisitions back in 2021 and 2023. But I'll let Phil and Joe.

Yes, I can say we've grown the company organically. That's been most of our history. The significant acquisitions that we did have occurred within the last 6 years essentially. And so we do believe we know how to grow organically. We've done it successfully, but we've also really cut our teeth and done very well on the 2 significant acquisitions that we've done as well as a number of tuck-ins that we've done also. And so we feel very confident that there's -- we have the ability. We've got the chops to be able to do those types of things, and it's going to be an important part of our growth in the future.

Yes. We love to grow organically. It's a preferred method of approach. You can't control when the right targets in the right places at the right valuations will become available. And so that's our default. And then we have a pipeline of opportunities that we actively work to accelerate that geographic expansion. We'll find a nice fit with our existing business, again, at the right price points. So think it will continue to play a role. And we've proven, as Joe said, we can do it both ways.

Got it. And from a strategy standpoint, the -- two of the transactions you referred to were in '23, where you had the acquisition of Vesta for roughly over $400 million and a simultaneous divestiture of Adler Tank and that marked the coming of -- if not mistaken, we are a pure play modular focused, and we're going to be one of the leading national providers of that. Can you just give us some insights on that transaction and the shape and role in the strategy of the company?

Sure. I can start on that. We had -- as Phil said, we had this pipeline of potential acquisitions that we were really wanted to be a part of. We wanted to be at the table. The Vesta acquisition was one of them. And so when the owners of that business brought that to the market, and actually, the -- we were aware that they wanted to sell the business, and we were right there. And so at the same time, as we were going through that transaction, we also understood that they had purchased the tank business from WillScot and it really started to help us develop a conversation with them to potentially look at our tank business. And at that particular time, our tank business was not in a commanding market position.

We were #4 in the market and it made sense because it required a lot of management time and bandwidth. We didn't have a good market position. It made sense to divest at that particular time. And we were very fortunate that the seller of Vesta was interested in buying the Adler Tank business from us. We were able to roll that transaction all into a single opportunity for us, which was really great. And it worked out very nicely for us. And so it got us away from that tank business, really enabled us to focus on the modular business, which has been our strategy ever since. That was a really good opportunity for us.

And then can you talk about the -- you were in agreement to be acquired by WillScot, from I think Jan '24 to mutually deciding to terminate the transaction in September '24. Can you talk about the lessons learned. I don't think there was any necessary real disruption to your execution because you guys continued to remain head down and focus. But can you shed some light on that?

Sure. One of the things that as -- if you're going to be acquired, you want to deliver the company in a sound financial condition. We're going to be meeting all the expectations. That was my role as CEO and so as [indiscernible] company was, we're not going to deviate from the strategy that we have. We may have reeled back a couple of things, some IT expenditures and some small things like that we put on the shelf. But essentially, we continue to execute our strategy, which was a very smart move for us because when the transaction actually was terminated, we did not have to pick up Humpty Dumpty off the floor that was in 1,000 pieces. We were able to really kind of roll forward and continue the strategy that we had always been executing. And so we just did not miss a beat, and I was very proud of the team about that. We didn't lose people. We held on to the team. We've got -- we had all the bandwidth and resources that we needed to be able to continue on and we did.

Very good. And also, if I'm not mistaken, you received a $180 million break fee. Can you talk about what you did with the use of proceeds and how that potentially positions you with flexibility from a capital allocation standpoint?

Sure. And I wish it was $180 million in total after adviser fees, which netted out somewhere in the mid-60s and then taxes, the actual benefit to McGrath was a number, I think it was $85 million or $86 million net. So that's the first clarification. It shrank the number a little bit. But look, it's net-net, it's a positive. It puts McGrath, which has generally had a conservative and solid footing from a financial point of view, it enhanced that even further. As always, we're going to work through our capital allocation framework and spend that money wisely. It certainly has helped us with our organic investments with some tuck-in M&A, and really, if you look at our balance sheet at the end of September, we're in great shape.

We'll leverage lots of opportunity to build the business as we go forward. So those funds certainly added to the war chest and we're very grateful for that. And I think it's appropriate because what we dealt with during that period, it's -- it takes a lot of management time and energy, and we want that time and energy fully deployed in growing McGrath, and that's where we've been since September.

Very good. If I may, I'd like to now spend -- I think we have approximately 5 minutes left, some time on the transition at the CEO seat. So Joe, if I'm not mistaken, you've been here at CEO since 2017, with the company since '03. Obviously, overseen significant strategic product, strategic and geographic expansion. So why the decision now to move on? And you are going to continue in the capacity of -- on the Board of Directors.

I will remain on the board. I've been with the company, as you noted, for 23 years and 9 of those as CEO. And during that time, we've doubled revenues in the company, and during my time as CEO, doubled revenues in the company and tripled our stock price. We have a sound strategy. We've got a deep bench. We've got an excellent successor for me, Phil, who's going to take the role. It's a perfect time for me to want to retire, and I'm ready to go. So no other hidden. There's no problems in the company. We're not doing a strategic pivot. Phil is going to continue to execute the strategy that we've been very clear about over the last several years that's been producing results for us. And so I feel very confident, Phil feels very confident that we're going to be able to continue to have great success.

And then, Phil, just from your perspective, I think been with the company since '04, leadership positions, both within TRS, Mobile Modular, current COO. So it does make sense, a natural progression. Just your thoughts on the transition.

I think while I'm a new CEO at McGrath, I'm not new to the company. Like Joe, I've been here over 20 years. Joe has been my boss for 18 of those. I started my career at McGrath and FP&A, working closely with Keith -- and we've -- everything we've done from the strategy to the way we run our business, we've done together. I've led our Modular business, our TRS-RenTelco business and most recently as CEO, looking for ways across our enterprise that we can have all of our operating businesses working more closely together and just even more emphasis on the quality of that customer experience. So I've been well prepared by great mentors and leaders in our company, and Keith's not going anywhere. Joe's still going to be close, and they've been involving me a lot over this last year in their process, including Investor Relations and working more closely with the Board.

Got it. So it sounds like we can expect the consistency and solid financial results, the disciplined approach to capital allocation, a careful approach to communication and management of expectations. Is there anything else to be mindful of in that transition? .

Phil?

Or even Keith, from your standpoint, as CFO.

Consistency, I think the nice thing is at the leadership level, we're a very collaborative team. Joe and I have had the pleasure of working together, particularly in the IR front in front of audiences like this. We've enjoyed it. It's been a real pleasure. But Phil, we've really woven into the fabric of what we do. He understands how we approach things. We have great dialogue every time we get ready, whether it's for a call or a conference. That's really -- it's really process and cultural approach to how we do things where that consistency will remain. I think it gets back to comments from Joe and Phil, culture, tone at the top, those things really matter, and we're very clear on how we operate.

Very good. Was just going to see if there's any questions from the audience, but assuming there are none, is there anything you would like to leave with us, things that you would like to most resonate for people who are new to the McGrath story?

Well, I can say this. I mean, this company has, I think it's a wonderful organization. We care about our customers and each other deeply in the organization. And this desire to want to do the right thing for customers as it permeates to the deepest levels in the organization. I've been blessed as a CEO to be able to lead an organization that has a strong culture as we have. And I'm very confident that, that is in place. It's very robust and that Phil and Keith will be the stewards of that going forward. So the strategy that we have is very sound. It's executed well. We've been seeing results from it over the last 5 years. There's no reason to think that anything is going to change that. And so we feel very confident that we're going to have a very bright future.

Great. Very well. Anything further to add from either Keith or....

No, I think it's a good summary.

Okay. Very good, guys. Thank you so much for your time. Thrilled to have you here. Thank you.

Thank you, Ronan.

Thank you, Ronan.

Thank you very much.

Ladies and gentlemen, thank you for standing by. Welcome to the McGrath RentCorp Third Quarter 2025 Earnings Call. [Operator Instructions] This conference call is being recorded today, Thursday, October 23, 2025.

Before we begin, note the matters of the company management will be discussing today that are not statements of historical facts 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 risks and uncertainties that could cause our actual results to differ materially from those projected. Important factors that could cause actual results to differ materially from the company's expectations are disclosed under 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 its Form 10-Q for the quarter ended September 30, 2025.

Speaking today will be Joe Hanna, Chief Executive Officer; and Keith Pratt, Chief Financial Officer.

I will now turn the call over to Mr. Hanna. Go ahead, sir.

Thank you, Dave. Good afternoon, everyone. We appreciate your attendance on McGrath RentCorp's Third Quarter Earnings Call for 2025. It's a pleasure to be here today, and we're eager to share further insights into our performance. I'll begin with an overview of our third quarter results before key shares and financial details, and then we will open up the call for questions.

For the third quarter, total company rental operations revenues rose by 4% with growth from all 3 of our rental businesses. Project activity remains steady despite ongoing market uncertainties. Mobile Modular rental revenues increased by 2%. The rental revenue growth we experienced in the quarter was primarily due to commercial activity centered around larger infrastructure projects across all our geographies. Smaller projects have been less prevalent, which is consistent with the trend we have experienced year-to-date.

We had a busy education season with a good level of new shipment activity. Funding for the education business remains solid as the need for classroom modernization and growth in select areas remains consistent. With higher shipments, volumes for the quarter, we faced higher inventory center costs to prepare equipment for delivery. We used off-rent inventory rather than investing in new product continuing to manage the fleet with a sharp focus on deploying capital efficiently.

Despite challenges in the demand environment, our booked orders increased during the third quarter. This was encouraging and positive for our momentum entering the fourth quarter. Our ongoing efforts with Mobile Modular Plus and site-related services continue to go well. both experienced healthy growth during the quarter. We continue to be pleased with our year-to-date progress.

At Portable Storage, rental revenues increased by 1% year-over-year and by 2% sequentially from the prior quarter. Shipments grew and pricing remained stable. Opportunities in energy, offset the flat construction market. Overall, we are encouraged by these positive signs that suggest the market may be stabilizing after a challenging demand contraction in 2024.

TRS-RenTelco rental revenue grew by a strong 9%. Both our general purpose and communications rental revenues saw strong growth maintaining positive momentum from the first half of the year. Utilization at a healthy 65% improved year-over-year and remained steady sequentially versus the second quarter. Rental demand pipelines remain solid as we enter the fourth quarter, indicating that the business is well positioned to continue its growth trajectory.

Turning my comments to the whole company. We do not believe McGrath is currently facing any immediate headwinds due to the ongoing federal government shutdown and any potential impacts from a long shutdown are unclear at this time. With regard to the dynamic tariff environment, the impact of tariffs has been managed appropriately by our teams and has had minimal impact on our results.

Looking ahead to the rest of the year, uncertain market conditions persist. Nonresidential construction indicators such as the Architectural Billing Index, or ABI remains soft. We remain focused on our strategic growth priorities dedicated to expanding our modular and portable storage businesses. Over the course of this year, we have taken steps to enter new regions, grow our Mobile Modular Plus and site-related services initiatives and increase our coverage through tuck-in acquisitions. All of these items support our efforts to become a true national modular solutions provider capable of serving our customers with storage units, single-wide units, large multi-floor and multi-story facilities and services to meet all their space needs.

I want to thank all our team members for your third quarter accomplishments and steadfast commitment to delivering the highest quality service to our customers. Our culture at McGrath is a driving force behind our growth as we introduce more customers to the exceptional experience we offer. I am pleased with our progress so far in 2025, and we remain dedicated to providing value to our customers and shareholders as we finish the year.

With that, I will turn the call over to Keith, who will take you through the financial details of our quarter and our updated outlook for the full year.

Thank you, Joe, and good afternoon, everyone. Looking at the overall corporate results for the third quarter. Total revenues decreased 4% to $256 million, with rental operations increasing 4% and sales revenues decreasing 18% during the quarter. Adjusted EBITDA decreased 7% to $96.5 million. Excluding prior year items related to the terminated WillScot merger process, net income for the third quarter decreased $3.6 million or 8% to $42.3 million and diluted earnings per share decreased $0.15 to $1.72.

Reviewing Mobile Modular's operating performance as compared to the third quarter of 2024, Mobile Modular total revenues decreased 5% and to $181.5 million. The business saw a 2% higher rental revenues and 5% higher rental-related services revenues which were offset by 21% lower sales revenues. The sales revenues decrease was primarily due to lower as we discussed in July, while 2024 sales were more concentrated in the third quarter. This year, we expect a more balanced contribution from sales and related gross profit across the third and fourth quarters.

This quarter had higher inventory center expenses to prepare available fleet for new shipment demand, which allowed us to minimize rental equipment capital spending. We also operated with higher selling and administrative expenses to support broader sales coverage. As a result, adjusted EBITDA decreased 10% to $64.6 million. Conditions, we saw a lower average fleet utilization or 73.6% compared to 77.1% a year earlier.

Despite the softer market demand, third quarter monthly revenue per unit on rent increased 6% year-over-year to $865. For new shipments over the last 12 months, the average monthly revenue per unit increased 3% to $1,192. As Joe highlighted, we continue to make progress with our modular services offerings. Global Modular Plus revenues increased to $9.7 million from $7.9 million a year earlier, and site-related services increased to $15.6 million up from $12.7 million. Overall, Mobile Modular had a solid quarter as we continue to make progress with our modular business growth strategy despite some challenging demand conditions.

Turning to the review of portable storage. Rental revenues for the quarter increased 1% to $17.3 million, which is the first year-over-year growth since the first quarter of last year. We have begun to feel encouraged that market conditions for Portable Storage are showing signs of stabilization despite soft commercial construction project activity. Average utilization for the quarter was 61.4% compared to 62.8% a year ago. Adjusted EBITDA was $9.2 million, a decrease of 14% compared to the prior year.

Turning now to the review of TRS-RenTelco. DRS had a strong quarter with total revenues up 6% and to $36.9 million, driven by higher rental revenues. Rental revenues increased 9% as the industry continues to experience improved demand across markets. Average utilization for the quarter was 64.8%, up from 57.3% a year ago. Rental margins improved 43% and from 37% a year ago. Adjusted EBITDA was $20.2 million, an increase of 7% compared to last year.

The remainder of my comments where we had a total company basis. Third quarter selling and administrative expenses increased $3.2 million to $52.5 million as we operated with broader sales coverage to support long-term business growth and invested in information technology projects. Interest expense was $8.2 million a decrease of $4.5 million as a result of lower average interest rates and lower average debt levels during the quarter. The third quarter provision for income taxes based on an effective tax rate of 27.7% compared to 26.4% a year earlier.

Turning to our year-to-date cash flow highlights. Net cash provided by operating activities was $175 million. Rental equipment purchases were $92 million, down from $167 million last year. Consistent with lower fleet utilization and our plans to use available fleet to satisfy customer orders. At quarter end, we had net borrowings of $552 million and the ratio of funded debt to the last 12 months actual adjusted EBITDA was 1.58:1.

Wrapping up the financial review. While there is still uncertainty in the demand environment, we are pleased with our year-to-date results, and we have seen some encouraging positive trends as we enter the fourth quarter. As a result, we have upwardly revised our full year financial outlook, and we currently expect total revenue between $935 million and $955 million adjusted EBITDA between $350 million and $357 million and both rental equipment capital expenditures between $120 million and $125 million. We are proud of McGrath's third quarter performance, and we are fully focused on solid execution for the remainder of the year. That concludes our prepared remarks and the lines for questions.

[Operator Instructions] We'll take our first question from Scott Schneeberger with Oppenheimer.

I guess, guys, could you address kind of -- you foreshadowed it last quarter the lumpiness of the sales activity, could you speak a little bit about what the run rate in the business. Keith did a good job outlining that it was big in the third quarter last year. It's more smooth across the year this year. But it looks like it will, over the course of 25 grow over 24 million -- how -- is that right? And how should we think about it going forward outside of the lumpiness on an annual basis?

Yes, Scott, I can answer that. You're right, we did have a big sales quarter in Q3 of last year, and we did telegraph that it would be more balanced this year. So if things are turning out the way that we thought they would. Our sales backlog is strong. We had a number of projects in this particular quarter that didn't close by the end of the quarter that will move into the fourth quarter. We did not lose our -- none of those projects were canceled. So overall, we're very positive on our sales outlook for the year. And as you can see from our guidance adjustment, we think that the business is going to perform well, and sales is a big part of that. So we're confident that we'll be able to hit those numbers.

And is this a business on an upward trajectory, would you say? I'm not asking for 2016 guidance, but -- this year, I believe it's going to be probably better than last year. Should we continue to anticipate that kind of trend? Or is it safer just to think about it as a flattish business and take it as it comes?

No. We anticipate that, that's going to continue to grow. It's an important part of the market. We're well positioned with resources out in the field to take advantage of these projects. And keep in mind that when we go to a customer, they may have a rental need in 1 year that very well could turn into a sales need in the following year. And so we want to be positioned to be able to take advantage of that customer need no matter what they need. And so our folks are out there looking for those opportunities, and we feel it's an important part of the business, and it's going to grow.

Sounds good, Joe. The -- keeping it on modular. The -- can we speak to -- I've heard you loud and clear and then it kind of echoes what another larger rental company said earlier today. that there really is strong demand at the upper end of the market for larger projects. Could you speak to the education sector? And how is funding there? How do you see that as we're looking out to the next year?

Sure. We had a decent Q3 in education. We shipped more than we did last year. And we also got a number of returns this particular year that as part of the normal cadence, but muted our results there a little bit. Now having said that, the thing that makes me sleep well at night, and I've been doing this for a long time. What we realize is that each year with education is always a little bit different. Sometimes districts place orders earlier in the year. Sometimes they place orders later in the year. If there's some kind of economic uncertainty which there was with the administration and the Department of Education and all the things that were going on there. It just makes districts a little bit nervous. Are we going to have the money for the programs? Programs equals teachers, equals classrooms.

And so in this particular year, orders were placed a little bit later in the season, but we're getting orders all the way into Q4 here and we're getting orders for next year. But what really is, I think, makes me sleep well at night is the fact that the funding is very, very good. California passed a $10 billion facility bond. Texas passed another $8 billion in facilities fund. It was later in the year. So we won't see that until 2026. And then there's literally billions of dollars that have been passed at a local level that are waiting to be dispersed and used on projects. So I feel very, very good about the status and the solid nature of our education business and think that it's going to be a tailwind for us in quarters to come.

Good, Joe. Across both modular and portable storage, obviously, the lower end of the market remains challenged. -- no big surprise there. Could you speak to the rate environment, the spot rate environment across both, please? .

Sure. I would say for both businesses, our rates are holding in there pretty well. And you can see that we have this -- we're still working on this differential between our fleet average pricing and what units are going out on new contracts now. And so we do continue to have that tailwind, and that's been a positive and will continue to be a positive for a while as the fleet churns. Over in portable storage, rates are steady. And we've been really working hard to not have to lower our unit rents. We have had to give up a little bit on some of the transportation costs to stay competitive, but we'd rather do that than give up on the rental rate. And so contrary to what's happened in the industry in years past, this is a good sign, and I think we're in pretty solid ground. .

One more in storage and then just a couple of others, and I'll pass it on. I found it interesting. You mentioned, I think it was energy data centers and then seasonal retail and storage. That's not an area where you've typically competed, but we've heard recently from a competitor of yours that maybe some of the large players in the industry are changing their strategies with how they did business. Is this an area that you're going to move -- is this a onetime thing? Are you moving to this space more so? If you can just elaborate on specifically the seasonal retail.

This is not a big part of our portable storage business going to be a big part of our business, but we're happy to pick up orders, and we were well positioned with some of the large retailers to get orders if they're available, and we have people out there that look for them, but it's not a strategic initiative in the business for us to really try to grow that because just for the reason, it is seasonal. Those units go out, they come back. We much rather have a much longer term with other types of customers. But any seasonal business we can pick up, we're happy to do it, and we did some this year.

Okay. And then over in TRS, how is your visibility in the next year? 2025 has been a pretty good year for you in that business. How do you feel about heading into next year? Maybe with some discussion across the end markets?

Yes. A little bit -- it's tough to predict into next year. We're in the process of putting our plan together for next year. So I can't comment too much on that, but the encouraging thing is that our bookings have been strong. Our rental order volume has been strong. We managed the inventory appropriately. And I think even coming into Q4 here, things are looking good for the month of October. And I think that's momentum that will carry us into next year. We're not seeing anything different in the landscape that we're seeing right now that's going to indicate a big change for next year, but I think we've got momentum. But keep in mind, too, that this was a much shorter term rental business. So it is harder to see out over the hood in terms of what is coming down the pipe. But so far, we're encouraged and we'll know more and be able to share more in the Q4 call.

Great. And last for me, you called out technology spend or investments in projects and technology. Could you elaborate on what you're doing? And is that to a sizable magnitude and what type of returns you're seeking in that investment?

Sure. The bright spot, I'm assuming you're still talking about TRS. The bright spot in that business this year is along the wired communications part of the business and the business that we're getting at data centers. That's been a real strong point for us. And that's very technology oriented. We're well positioned to serve that market. There's a ton of testing that needs to be done when you put in a data center, and we're on it. and that's been good for us this year, and I think it's going to continue.

Look, that's actually not what I was asking, Joe, but that's about sorry. I'm glad you added that in there because that was well worth hearing. I was just asking general for the total corporation, it sounded like you've been making some technology investments in McGrath itself. So that's what I was asking, but I like answer, but if we could touch on that as .

Sorry about that, Scott. I completely missed that. I should have asked for clarification. Yes, the technology investments that we're making are normal course we always need to update our systems, systems come out of support in years. We need to move things to the cloud. There's just all kinds of work that we need to do to keep our systems relevant and keep them customer-friendly and customer-facing. So that's pretty much what I meant by the technology enhancements.

Got it. And in what I was hearing about the work you're doing in data centers and PRS.

We'll take our next question from Daniel Moore with CJS Securities.

Joe and Keith -- you get. I'll start with obviously, you get ready, but you mentioned some encouraging trends. Can you just speak to the cadence of inquiries as well as order rates over say the last 1, 3, 6 months, start with Mobile Modular, sequential improvement, more stable? How would you describe it? And then the same question for portable storage.

Sure. Yes, I'll start with Mobile Modular. Our quote volumes have been healthy, and our booked order levels have been healthy, too, and they were healthy for this particular quarter, up double digits. That was fairly consistent with the second quarter and up from the first quarter. And I would say we're seeing a similar trend in portable storage. I wouldn't say that the third quarter, we're not seeing any marked increase over the second quarter, but we're seeing a consistent level of inquiries and booked order flow sequentially.

Really helpful. Something that you've described in detail and laid out again this quarter, the shift from CapEx to OpEx over the last few quarters as you refurbish units rather than purchase new ones dampens your GAAP margins a little, not necessarily your cash flow. Is that something you expect to continue into next year? And what would cause you to shift back into a little bit more of a CapEx mode?

Yes, Dan, I can help with that. I think it all goes to fleet utilization. So if you look at the modular fleet, there are more markets where we have equipment available to meet new orders. If you go back 18 months, 2 years ago, utilization was higher. It was more common that when a new order came in, we were already highly utilized, and we would look to invest capital to meet the orders. So that's the dynamic at play. I think to answer your question, look at where utilization is when we're entering next year. And for businesses where it's low, which is currently the case of portable storage and in many of our modular regions, we've got available equipment and that's how we'll meet demand.

So there will be a trade-off there. It may mean those expenses continue to be more elevated. But from a cash flow point of view, it's the right thing to do. So that's how it's looking. I would say at TRS, where we've seen good recovery, particularly over the last 3 quarters and where utilization in the mid 60s is actually very good utilization for that business. That's an area where already, we're looking at selectively spending the capital and adding to the fleet again to meet that.

Really helpful. Clearly, we still have a couple of months to go here, and we'll be looking to guide for a couple of months after that. I just wonder if you could maybe contrast the environment today compared to where we were, say, this time last year and whether or not you expect to get back to a more kind of normalized long-term growth in EBITDA as we look out '26, '27?

Yes, Dan, I'll throw in a couple of comments. I'm sure Joe can add to it. I'd characterize the environment as still mixed. We've talked already about things like the Architectural Billings Index which has really bounced along below 50 for all this year and some months a little better, some months a little worse, but consistently below 50. That's a headwind for parts of the business. Smaller projects and portable storage have definitely suffered as well due to interest rate being high and really a slow journey of seeing interest rates start to come down. And then at various points in the year, a lot of it is related to just the policy and governmental topics there's that era of uncertainty.

That probably means some customers have either moved with a little bit more deliberation, a little bit more caution. And we've seen examples of projects just take longer to get executed. So that's really the backdrop of how we've managed through this year. It hasn't been an easy year for us. If you then look into next year, the question is, how many of those headwinds start to ease. Do we see interest rates come down enough that people start to act more quickly on starting up new projects. And do we see some of the broader macro indicators like ADI start to move into positive territory and indicate that people are planning to execute a larger number of projects going forward.

I think it's too early to tell. I think as we said in our prepared remarks, we've done a pretty good job this year of counterbalancing some of those headwinds with all of our growth initiatives, the services side of modulars getting good revenue per rental unit, which we're continuing to get and grow and in some of the regional expansion where we have been hiring and we're beginning to fund equipment purchases to support growth in some regions, but for us are relatively undeveloped and where we see longer-term opportunity. So those are the things you've got to lay on the scales as you look at the pluses and minuses that will influence next year.

So I'd like to just click on that just a minute to and what Keith said about the regional expansion. I mean, we hired a number of folks this year, and we're putting them into new markets. and also markets that are adjacent to operating areas that we are already in. And we definitely are anticipating that to be a nice contributor to next year's results. So we're really trying to add that horsepower in there to be able to continue to grow the business despite what the market is doing.

That's really helpful. Last one, and I'll jump out. Maybe just talk a little about the 2 smaller acquisitions you made last quarter. I know it's still early days, but 1 in mobile modular portable storage. How are they progressing? And more importantly, what are the quarters?

Yes. We -- yes, those were relatively small acquisitions. We closed them in Q2. And there was one, was a modular business and 1 was a portable storage business located in the Southeast. And so they're integrated, and we're happy to have them on board and they're contributing at this point. And we'll see what the results are as the next quarter or 2 progress. It is a little bit early to really be able to talk much about how they're performing. But there's no red flags there at this point.

And then maybe the pipeline comment. I think we can say that we're very active in our normal process. We have work going on in the field. We new markets that we have a high level of interest in. And I think the pipeline is active and encouraging and it's going to be part of our growth strategy.

We'll take our next question from Marc Riddick with Sidoti.

So I just wanted to sort of maybe piggyback on the prior question and line of questioning. Maybe give a bit of an update as far as kind of usage prioritization that you're sort of looking into next year and particularly around the acquisition sort of pipeline. Can you maybe talk a little bit about the valuation that you're seeing now, whether that's changed much over maybe over the last 6 months or so? And then I have a follow-up on the personnel side.

Okay. Marc, I'll take a crack at that. In terms of usage of cash, first high-level comment I would make is, this has been a very good year from a free cash flow point of view. And if you look at us year-to-date, we've reduced our debt. We actually had slightly lower leverage than when we started the year. We've managed to pay our dividends, and we've completed 2 small acquisitions. One of the factors that has allowed us to do that in addition to just good operating performance from the business, but it's that lower CapEx that I referenced in the prepared remarks. We've spent a lot less on new equipment this year than we did a year ago.

So if we look into next year, and I touched on this earlier, based on fleet utilization, we're probably going to be in a position where we can meet a lot of demand from existing fleet. That's a good thing. That may be a positive, again, from a CapEx point of view. That gives us a lot more flexibility with things like M&A. And that's why the pipeline is active. It's an important part of the strategy.

Briefly on valuations, it's very situationally specific what you're looking at, what there is on offer from a business that's for sale. We try to be very measured in how we look at things, fleet quality matters to us a lot and the ability to generate future cash from any business that we acquire. But there are opportunities out there. We'll always pay a fair price for a good quality business. but we'll also know what our walkaway is where it doesn't make sense for us and we'll simply approve to market from other angles.

Great. And then maybe just a little bit of a follow-up on the commentary around adding folks and tech spend for some opportunities that you see. Are those kind of just sort of a short focus as far as far as things you're going to be executing on in the short term? Or is this something that you see opportunity sets going into next year? And are there some areas there geographically or otherwise that you're that you're kind of targeting for the potential for new additions, both on the assuming capital side as well as the technology side?

Yes. Marc, the hires that we've made this year are definitely long term, we hope to have them be long-term resources in the company, no short-term plans there. We want those salespeople to get out into the market and really start generating some business over the next several years. Most of the hires that we made were in the Midwest area and Northeast, but we will continue to add sales people in places that we need them, where we see business potential and in places that we have resources already that we can leverage to be able to serve the market. So very much long-term strategy very carefully thought out and implemented, and we're anticipating that's going to be very nice to help our growth.

Excellent. And the last thing, I think in your prepared remarks and maybe as a response to 1 of the questions. It really did a great job as far as bringing us up to speed on maybe how education funding has really played out through the year. Are there any valid initiatives that you kind of have an eye on or keen next month that we should be aware or should be thinking about as far as -- is there any better top of mind at the moment? Or do you sort of feel like we kind of already have a lot of the main ones locked in already?

Yes. There's no particular ballot issues that I'm aware of right now that we're concerned about concerning facilities funding at this point. So I mean I'm very pleased with the amount of funding that's in place in the markets that we operate in. It's very healthy. And that funding typically doesn't grow cobwebs. That stuff gets implemented and put out into the market as soon as districts can get themselves organized and get the projects underway, and we'll be right there with them when they do it. So we're very, very happy about that and think that it's a good positive.

[Operator Instructions] We can pause for a moment to allow any further questions to queue. And ladies and gentlemen, that appeared to have been our last question. Let me now turn the call back to Mr. Hanna for any closing remarks.

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 February to review our fourth quarter results.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.