MCGRATH RENTCORP (MGRC)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains forward-looking statements under federal securities laws. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Our actual results could differ materially from those indicated by forward-looking statements as a result of various factors. These factors include, but are not limited to, those set forth under this Item, those discussed in Part II—Item 1a, “Risk Factors” and elsewhere in this Form 10-Q and those that may be identified from time to time in our reports and registration statements filed with the SEC.

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in Part I—Item 1 of this Form 10-Q and the Consolidated Financial Statements and related Notes and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on February 25, 2026 (the “2025 Annual Report”). In preparing the following MD&A, we presume that readers have access to and have read the MD&A in our 2025 Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. We undertake no duty to update any of these forward-looking statements after the date of filing of this Form 10-Q to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law.

General

The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space and electronic test equipment for general purpose and communications needs. The Company’s primary emphasis is on equipment rentals. The Company is comprised of four reportable business segments: (1) its modular building segment (“Mobile Modular”); (2) its portable storage container segment (“Portable Storage”); (3) its electronic test equipment segment (“TRS-RenTelco”); and (4) its classroom manufacturing business selling modular buildings used primarily as classrooms in California (“Enviroplex”).

In the six months ended June 30, 2026, Mobile Modular, Portable Storage, TRS-RenTelco and Enviroplex contributed 63%, 10%, 27% and less than 1% of the Company’s income before provision for taxes (the equivalent of “pretax income”), respectively, compared to 63%, 14%, 16% and 7% for the same period in 2025.

The Company generates its revenues primarily from the rental of its equipment on operating leases and from sales of equipment occurring in the normal course of business. The Company requires significant capital outlay to purchase its rental inventory and recovers its investment through rental and sales revenues. Rental revenues and certain other service revenues negotiated as part of lease agreements with customers and related costs are recognized on a straight-line basis over the terms of the leases. Sales revenues and related costs are recognized upon delivery and installation of the equipment to customers. Sales revenues are less predictable and can fluctuate from quarter to quarter and year to year depending on customer demands and requirements. Generally, rental revenues less cash operating costs recover the equipment’s capitalized cost in a short period of time relative to the equipment’s potential rental life and when sold, sale proceeds are usually above its net book value.

The Company’s modular revenues (consisting of revenues from Mobile Modular, Kitchens To Go and Enviroplex) are derived from rentals and sales to commercial and education customers. Modular revenues are affected by demand for classrooms, which in turn is affected by shifting and fluctuating school populations, the levels of state funding to public schools, the need for temporary classroom space during reconstruction of older schools and changes in policies regarding class size. As a result of any reduced funding, lower expenditures by these schools may result in certain planned programs to increase the number of classrooms, such as those that the Company provides, to be postponed or terminated. However, reduced expenditures may also result in schools reducing their long-term facility construction projects in favor of using the Company’s modular classroom solutions. At this time, the Company can provide no assurances as to whether public schools will either reduce or increase their demand for the Company's modular classrooms as a result of fluctuations in state funding of public schools. Looking forward, the Company believes that any interruption in the passage of facility bonds or contraction of class size reduction programs by public schools may have a material adverse effect on both rental and sales revenues of the Company. (For more information, see “Item 1. Business – Relocatable Modular Buildings – Classroom Rentals and Sales to Public Schools (K-12)” in the Company’s 2025 Annual Report and “Item 1a. Risk Factors – Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom units to decline, which has in the past caused, and may cause in the future, a reduction in our revenues and profitability” in Part II of the Company's 2025 Annual Report)

Revenues of Portable Storage consists of the rental and sale of steel containers and ground level offices to provide a temporary storage solution that is delivered to the customer’s location and addresses the need for secure temporary storage with immediate access to the unit. The portable storage container rental market in the U.S. has a large and diverse number of market segments including construction, retail, commercial and industrial, energy and petrochemical, manufacturing, education and healthcare.

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Revenues of TRS-RenTelco are derived from the rental and sale of general purpose and communications test equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies primarily in the aerospace, defense, communications, manufacturing and semiconductor industries. Electronic test equipment revenues are primarily affected by the business activity within these industries related to research and development, manufacturing, and communication infrastructure installation and maintenance.

The Company’s rental operations include rental and rental related service revenues which comprised approximately 80% and 74% of consolidated revenues in the six months ended June 30, 2026 and 2025, respectively. Of the total rental operations revenues for the six months ended June 30, 2026, Mobile Modular, Portable Storage and TRS-RenTelco comprised 69%, 12% and 19%, respectively, compared to 70%, 13% and 17%, respectively, in the same period of 2025. The Company’s direct costs of rental operations include depreciation of rental equipment, rental related service costs, impairment of rental equipment (if applicable), and other direct costs of rental operations (which include direct labor, supplies, repairs, insurance, property taxes, license fees, cost of sub-rentals and amortization of certain lease costs).

The Company’s Mobile Modular, Portable Storage and TRS-RenTelco business segments sell modular units, storage containers and electronic test equipment, respectively, which are either new or previously rented. In addition, Enviroplex sells new modular buildings used primarily as classrooms in California. For the six months ended June 30, 2026 and 2025, sales and other revenues of modular, container and electronic test equipment comprised approximately 20% and 26% of the Company’s consolidated revenues, respectively. Of the total sales and other revenues from operations for the six months ended June 30, 2026 and 2025, Mobile Modular and Enviroplex together comprised 74% and 82%, respectively, Portable Storage comprised 5% and 3%, respectively, and TRS-RenTelco comprised 21% and 15%, respectively. The Company’s cost of sales includes the carrying value of the equipment sold and the direct costs associated with the equipment sold, such as delivery, installation, modifications and related site work.

Selling and administrative expenses primarily include personnel and benefit costs, which include share-based compensation, depreciation and amortization, bad debt expense, advertising costs, and professional service fees. The Company believes that sharing of common facilities, financing, senior management, and operating and accounting systems by all of the Company’s operations results in an efficient use of overhead. Historically, the Company’s operating margins have been impacted favorably to the extent its costs and expenses are leveraged over a large installed customer base. However, there can be no assurances as to the Company’s ability to maintain a large installed customer base or ability to sustain its historical operating margins.

Recent Developments

Dividends

On June 3, 2026, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.495 per common share for the quarter ended June 30, 2026, an increase of 2% over the prior year’s comparable quarter.

Business Outlook

Macroeconomic conditions, such as a volatile interest rate environment, ongoing inflation, the geopolitical landscape, and foreign exchange rate fluctuations, continue to impact the global economy. In addition, recent changes in legislation and regulations, including enacted and proposed tariffs and other trade policies, have introduced additional uncertainty in the global economy. In periods of perceived or actual unfavorable economic conditions, our customers or potential customers could delay or re-evaluate their decisions to initiate various projects which in turn could result in a delay or cessation of engagement or other business activities with us. These factors also make it difficult for us to forecast and plan future budgetary decisions or business activities accurately. Our operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors.

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Results of Operations

Three Months Ended June 30, 2026 Compared to

Three Months Ended June 30, 2025

Overview

Consolidated revenues for the three months ended June 30, 2026, decreased 6% to $221.1 million from $235.6 million for the same period in 2025. Consolidated net income for the three months ended June 30, 2026, decreased 6% to $33.7 million from $36.0 million for the same period in 2025. Earnings per diluted share for the three months ended June 30, 2026, decreased 5% to $1.39, from $1.46 for the same period in 2025. The decrease in consolidated net income and earnings per diluted share during the period was primarily attributed to lower gross profit at Enviroplex, Mobile Modular and Portable Storage, partly offset by higher gross profit at TRS-RenTelco, a $1.8 million gain on sale of a corporate property, and lower interest expense incurred on outstanding debt obligations.

For the three months ended June 30, 2026, on a consolidated basis:

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Gross profit decreased $2.8 million to $107.9 million in 2026. Mobile Modular’s gross profit decreased $2.8 million, or 4%, primarily due to lower gross profit on sales and rental revenues, partly offset by an increase in gross profit on rental related services revenues. Portable Storage's gross profit decreased $1.4 million, or 9%, primarily due to lower gross profit on rental operations revenues. TRS-RenTelco’s gross profit increased $5.8 million, or 35%, primarily due to higher gross profit on rental and sales revenues. Enviroplex’s gross profit decreased $4.5 million, due to lower sales revenues in 2026.

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Selling and administrative expenses increased $2.9 million, or 5%, to $56.4

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in this section as well as those discussed under Part I, “Item 1A. Risk Factors” and elsewhere in this document. This discussion should be read together with the financial statements and the related notes thereto set forth in “Item 8. Financial Statements and Supplementary Data.”

Results of Operations

General

The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space, portable storage containers, and electronic test equipment for general purpose and communications needs. The Company’s primary emphasis is on equipment rentals. At December 31, 2025 the Company was comprised of four reportable business segments: (1) its modular building rental segment (“Mobile Modular”); (2) its portable storage container rental segment ("Portable Storage"); (3) its electronic test equipment rental segment (“TRS-RenTelco”); and (4) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”). In 2025, Mobile Modular, Portable Storage, TRS-RenTelco and Enviroplex contributed 66%, 12%, 16% and 6%, respectively, of the Company’s income from continuing operations before provision for taxes (the equivalent of “pre-tax income”), compared to 69%, 16%, 12% and 3%, respectively, for 2024.

The Company generates its revenues primarily from the rental of its equipment on operating leases with sales of equipment occurring in the normal course of business. The Company requires significant capital outlay to purchase its rental inventory and recovers its investment through rental and sales revenues. Rental revenue and certain other service revenues negotiated as part of the lease agreements with customers and related costs are recognized on a straight-line basis over the terms of the lease. Sales revenue and related costs are recognized upon delivery and installation of the equipment to the customers. Sales revenues are less predictable and can fluctuate from period to period depending on customer demands and requirements. Generally, rental revenues less cash operating costs recover the equipment’s capitalized cost in a shorter period of time relative to the equipment’s potential rental life and when sold, sale proceeds are usually above its net book value.

The Company’s rental operations include rental and rental related services revenues which comprised approximately 70% of the Company’s total revenues from continuing operations in 2025 and 72% for the three years ended December 31, 2025. Over the past three years, modulars, storage containers and electronic test equipment comprised approximately 68%, 14% and 18%, respectively, of the cumulative rental operations revenues from continuing operations. The Company’s direct costs of rental operations include depreciation of rental equipment, rental related service costs, impairment of rental equipment, and other direct costs of rental operations (which include direct labor, supplies, repairs, insurance, property taxes, license fees and amortization of certain lease costs).

The Company sells modulars, storage containers and electronic test equipment that are new, or previously rented. The Company’s Enviroplex subsidiary manufactures and sells new modular classrooms. The renting and selling of some modular equipment requires a dealer’s license, which the Company has obtained from the appropriate governmental agencies. Sales and other revenues of modulars, containers and electronic test equipment have comprised approximately 30% of the Company’s consolidated revenues from continuing operations in 2025 and 28% for the three years ended December 31, 2025. Over the past three years, modulars, containers and electronic test equipment comprised approximately 84%, 3% and 13% of sales and other revenues, respectively. The Company’s cost of sales includes the carrying value of the equipment sold and the direct costs associated with the equipment sold such as delivery, installation, modifications and related site work.

The rental and sale of modulars to public school districts comprised 25%, 24% and 18% of the Company’s consolidated rental and sales revenues from continuing operations for 2025, 2024 and 2023, respectively. (For more information, see “Item 1. Business – Relocatable Modular Buildings – Classroom Rentals and Sales to Public Schools (K-12)” above.)

Selling and administrative expenses primarily include personnel and benefit costs, which includes share-based compensation, depreciation and amortization of property, plant and equipment and intangible assets, credit losses, advertising costs, and professional service fees. The Company believes that sharing of common facilities, financing, senior management, and operating and accounting systems by all of the Company’s operations, results in an efficient use of overhead. Historically, the Company’s operating margins have been impacted favorably to the extent its costs and expenses are leveraged over a large installed customer base. However, there can be no assurance as to the Company’s ability to maintain a large installed customer base or ability to sustain its historical operating margins.

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Recent Developments

Dividends

In February 2026, the Company announced that its Board of Directors declared a cash dividend of $0.495 per common share for the quarter ending March 31, 2026, an increase of 2% over the prior year’s comparable quarter.

Percentage of Revenue Table

The following table sets forth for the periods indicated the results of operations as a percentage of the Company’s total revenues from continuing operations and the percentage of changes in the amount of such items as compared to the amount in the indicated prior period:

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Twelve Months Ended December 31, 2025 Compared to

Twelve Months Ended December 31, 2024

Overview

Consolidated revenues in 2025 increased 4% to $944.2 million, from $910.9 million in 2024. Consolidated net income in 2025 decreased to $156.3 million, or $6.35 per diluted share in 2025, compared to $231.7 million, or $9.43 per diluted share, in 2024. The decrease in consolidated net income and earnings per diluted share during the year was primarily attributed to the terminated Merger Agreement in 2024 which provided a $180.0 million gain on merger termination, partly offset by $63.2 million in transaction costs, net of provision for income taxes. Excluding the gain and transaction costs attributed to the merger termination in the prior year, the Company's net income increased by approximately $10.9 million, or 7%, to $156.3 million, and diluted earnings per share increased $0.43, or 7%, to $6.35, compared to $5.92 in 2024. The Company’s year over year total revenue increase was primarily due to higher rental operations and sales revenues, as more fully described below.

For 2025 compared to 2024, on a consolidated basis from continuing operations:

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Gross profit increased $19.6 million, or 4%, to $455.0 million. Mobile Modular’s gross profit increased $6.0 million, or 2%, primarily due to higher gross profit on rental operations revenues. Portable Storage's gross profit decreased $5.2 million, or 8%, due to lower gross profit on rental operations revenues, partly offset by an increase in gross profit on sales revenues. TRS-RenTelco’s gross profit increased $12.2 million, or 22%, primarily due to higher gross profit on both rental operations and sales revenues. Enviroplex’s gross profit increased $6.6 million, primarily due to $11.6 million higher sales revenues and increased gross margin on sales revenues of 32.4%, compared to 26.1% in 2024.

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Selling and administrative expenses increased $10.9 million, or 5%, to $211.4 million, primarily due to $5.1 million higher employee salaries and benefit costs and a $5.0 million increase in marketing and administrative expenses in 2025. During the year ended December 31, 2024, the Company incurred $63.2 million in transaction costs related to the Merger Agreement with Willscot Mobile Mini that was terminated September 20, 2024. These significant costs that did not recur during the year ended December 31, 2025, are reported separately on the Company’s consolidated statements of income.

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Other income, net was $9.3 million during the year ended December 31, 2024, a result of the sale of a corporate property. These types of transactions are infrequent in nature and did not recur for the year ended December 31, 2025.

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Interest expense decreased $16.6 million, due to 23% lower average debt levels of the Company, accompanied by 15% lower net average interest rates of 5.48% in 2025 compared to 6.48% in 2024.

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Pre-tax income contribution by Mobile Modular, Portable Storage and TRS-RenTelco was 66%, 12% and 16%, respectively, compared to 69%, 16% and 12%, respectively, in 2024. These results are discuss

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