McGrath Lifts Rental Equipment Spending To $270 Million-$290 Million, Mostly For Test Gear Riding AI Demand
Management says utilization at its TRS unit is at a record high over the last couple of decades and not something it expects to sustain long term.
McGrath RentCorp, which rents modular buildings, portable storage containers and electronic test equipment, now plans $270 million to $290 million in gross rental equipment capital spending for 2026, and most of the increase is going to its test-equipment unit, executives said on the company's third-quarter earnings call Wednesday. Phil Hawkins, the chief executive, and Keith Pratt, the chief financial officer, also cautioned that utilization at that unit is a level they do not expect to hold over a long term.
Where the extra capital is going
Pratt said the February outlook for rental equipment spending had a midpoint of $190 million. The October update raises it, and he said the majority of the increase is at TRS, the test-equipment business, with an uptick at modular as well.
TRS ended the third quarter at essentially 72% utilization on a fleet he put at $380 million, a figure the call transcript renders unclearly. The company reported quarter-end utilization of 71.9%, the highest in the past 20 years, and rental revenue up 26% to $35 million on demand that includes projects supporting data center build-outs. Rental margins improved to 48% from 43% a year earlier.
The company also narrowed its adjusted EBITDA outlook to $365 million to $373 million with no change to the midpoint, and now expects total revenue of $945 million to $960 million. Lower new modular equipment sales are trimming the revenue outlook, which management blamed on customer projects taking longer to finish.
A record that management does not expect to last
Asked how today's TRS utilization compares with history, Hawkins said it is record high over the last couple of decades and "not an area where we would expect to be able to sustain over a long term." The answer then breaks into garbled audio.
Asked whether the spending pulls forward next year's needs, Pratt said the company should end 2026 owning a lot of equipment, hopefully highly utilized, and will then assess where to go from there in the months ahead. On semiconductor plants, executives said more of the equipment goes to research and development than manufacturing, and that they are still working to understand the opportunity more fully.
Hawkins called the AI and data center cycle, which runs from chip R&D to testing equipment installed in new data centers, an attractive multi-year opportunity.
Modular softness and the rest of the quarter
Total company revenue rose 7% to $275 million and adjusted EBITDA rose 10% to $106 million. Mobile Modular revenue fell 1% to $180 million, with new equipment sales down $5.3 million to $47.1 million as large projects ran slower.
The company bought back $34 million of shares in the first nine months, and just under 1.7 million shares remain authorized for repurchase. Net borrowings stood at $618 million.
Management said it will take up the fourth-quarter results with investors in late February.
Sources
- McGrath RentCorp GAAP EPS of $2.00 beats by $0.13, revenue of $82.9M misses by $190.35M (MGRC:NASDAQ) | Seeking Alpha — seekingalpha.com
- McGrath: Q3 Earnings Snapshot | 9news.com — Associated Press
- McGrath Announces Results for Third Quarter 2026 — businesswire.com
