mgrc-10q_20180630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2018

Commission file number 0-13292

 

McGRATH RENTCORP

(Exact name of registrant as specified in its Charter)

 

 

California

94-2579843

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

5700 Las Positas Road, Livermore, CA 94551-7800

(Address of principal executive offices)

Registrant’s telephone number:  (925) 606-9200

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).

 

Large accelerated filer

 

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

  

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period of complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 30, 2018, 24,169,551 shares of Registrant’s Common Stock were outstanding.

 


FORWARD LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical facts, regarding McGrath RentCorp’s (the “Company’s”) expectations, strategies, prospects or targets are forward looking statements.  These forward-looking statements also can be identified by the use of forward-looking terminology such as “believes,” “expects,” “will,” or “anticipates” or the negative of these terms or other comparable terminology..

Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. Further, our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties as set forth under “Risk Factors” in this form 10-Q.

Forward-looking statements are made only as of the date of this Form 10-Q and are based on management’s reasonable assumptions, however these assumptions can be wrong or affected by known or unknown risks and uncertainties.   No forward-looking statement can be guaranteed and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements.  Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. Except as otherwise required by law, we are under no duty to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results or to changes in our expectations.

 

 

2


Part I - Financial Information

Item 1. Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Shareholders

McGrath RentCorp

 

Results of review of interim financial statements

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp and subsidiaries (the “Company”) as of June 30, 2018, and the related condensed consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2018 and 2017, cash flows for the six-month periods ended June 30, 2018 and 2017, and the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 27, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for review results

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

/s/ GRANT THORNTON LLP

San Jose, California

July 31, 2018

 

 

3


McGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands, except per share amounts)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

77,267

 

 

$

69,953

 

 

$

151,528

 

 

$

137,931

 

Rental related services

 

 

19,086

 

 

 

18,796

 

 

 

36,917

 

 

 

36,731

 

Rental operations

 

 

96,353

 

 

 

88,749

 

 

 

188,445

 

 

 

174,662

 

Sales

 

 

19,546

 

 

 

20,187

 

 

 

31,637

 

 

 

28,482

 

Other

 

 

1,084

 

 

 

646

 

 

 

1,986

 

 

 

1,275

 

Total revenues

 

 

116,983

 

 

 

109,582

 

 

 

222,068

 

 

 

204,419

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs of rental operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation of rental equipment

 

 

18,103

 

 

 

17,242

 

 

 

35,880

 

 

 

34,621

 

Rental related services

 

 

15,018

 

 

 

14,312

 

 

 

28,786

 

 

 

28,145

 

Other

 

 

18,753

 

 

 

16,039

 

 

 

35,022

 

 

 

31,398

 

Total direct costs of rental operations

 

 

51,874

 

 

 

47,593

 

 

 

99,688

 

 

 

94,164

 

Costs of sales

 

 

11,181

 

 

 

12,778

 

 

 

18,282

 

 

 

17,374

 

Total costs of revenues

 

 

63,055

 

 

 

60,371

 

 

 

117,970

 

 

 

111,538

 

Gross profit

 

 

53,928

 

 

 

49,211

 

 

 

104,098

 

 

 

92,881

 

Selling and administrative expenses

 

 

29,479

 

 

 

27,365

 

 

 

57,607

 

 

 

55,213

 

Income from operations

 

 

24,449

 

 

 

21,846

 

 

 

46,491

 

 

 

37,668

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,999

)

 

 

(2,949

)

 

 

(5,991

)

 

 

(5,738

)

Foreign currency exchange gain (loss)

 

 

(344

)

 

 

11

 

 

 

(376

)

 

 

237

 

Income before provision for income taxes

 

 

21,106

 

 

 

18,908

 

 

 

40,124

 

 

 

32,167

 

Provision for income taxes

 

 

5,194

 

 

 

7,447

 

 

 

9,746

 

 

 

12,733

 

Net income

 

$

15,912

 

 

$

11,461

 

 

$

30,378

 

 

$

19,434

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.66

 

 

$

0.48

 

 

$

1.26

 

 

$

0.81

 

Diluted

 

$

0.65

 

 

$

0.48

 

 

$

1.24

 

 

$

0.80

 

Shares used in per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,145

 

 

 

23,985

 

 

 

24,106

 

 

 

23,968

 

Diluted

 

 

24,584

 

 

 

24,092

 

 

 

24,549

 

 

 

24,164

 

Cash dividends declared per share

 

$

0.340

 

 

$

0.260

 

 

$

0.680

 

 

$

0.520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


McGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

15,912

 

 

$

11,461

 

 

$

30,378

 

 

$

19,434

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

167

 

 

 

(30

)

 

 

141

 

 

 

(108

)

Tax benefit (provision)

 

 

(44

)

 

 

11

 

 

 

(40

)

 

 

36

 

Comprehensive income

 

$

16,035

 

 

$

11,442

 

 

$

30,479

 

 

$

19,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


McGrath RentCorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

June 30,

 

 

December 31,

 

(in thousands)

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

4,484

 

 

$

2,501

 

Accounts receivable, net of allowance for doubtful accounts of $1,883 in 2018

   and $1,920 in 2017

 

 

105,095

 

 

 

105,872

 

Rental equipment, at cost:

 

 

 

 

 

 

 

 

Relocatable modular buildings

 

 

789,158

 

 

 

775,400

 

Electronic test equipment

 

 

278,253

 

 

 

262,325

 

Liquid and solid containment tanks and boxes

 

 

312,168

 

 

 

309,808

 

 

 

 

1,379,579

 

 

 

1,347,533

 

Less accumulated depreciation

 

 

(503,057

)

 

 

(485,213

)

Rental equipment, net

 

 

876,522

 

 

 

862,320

 

Property, plant and equipment, net

 

 

121,614

 

 

 

119,170

 

Prepaid expenses and other assets

 

 

37,397

 

 

 

22,459

 

Intangible assets, net

 

 

7,289

 

 

 

7,724

 

Goodwill

 

 

27,808

 

 

 

27,808

 

Total assets

 

$

1,180,209

 

 

$

1,147,854

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

$

314,860

 

 

$

303,414

 

Accounts payable and accrued liabilities

 

 

89,064

 

 

 

86,408

 

Deferred income

 

 

44,073

 

 

 

39,219

 

Deferred income taxes, net

 

 

195,017

 

 

 

194,629

 

Total liabilities

 

 

643,014

 

 

 

623,670

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock, no par value - Authorized 40,000 shares

 

 

 

 

 

 

 

 

Issued and outstanding - 24,170 shares as of June 30, 2018 and 24,052

   shares as of December 31, 2017

 

 

101,983

 

 

 

102,947

 

Retained earnings

 

 

435,279

 

 

 

421,405

 

Accumulated other comprehensive loss

 

 

(67

)

 

 

(168

)

Total shareholders’ equity

 

 

537,195

 

 

 

524,184

 

Total liabilities and shareholders’ equity

 

$

1,180,209

 

 

$

1,147,854

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


McGrath RentCorp

CONDENSED Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months Ended June 30,

 

(in thousands)

 

2018

 

 

2017

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

30,378

 

 

$

19,434

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

40,288

 

 

 

38,752

 

Impairment of rental assets

 

 

39

 

 

 

 

Provision for doubtful accounts

 

 

181

 

 

 

597

 

Share-based compensation

 

 

1,828

 

 

 

1,538

 

Gain on sale of used rental equipment

 

 

(9,875

)

 

 

(7,914

)

Foreign currency exchange (gain) loss

 

 

376

 

 

 

(237

)

Amortization of debt issuance costs

 

 

15

 

 

 

25

 

Change in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

596

 

 

 

(259

)

Prepaid expenses and other assets

 

 

(14,938

)

 

 

(8,839

)

Accounts payable and accrued liabilities

 

 

(365

)

 

 

680

 

Deferred income

 

 

4,854

 

 

 

5,034

 

Deferred income taxes

 

 

388

 

 

 

587

 

Net cash provided by operating activities

 

 

53,765

 

 

 

49,398

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchases of rental equipment

 

 

(58,662

)

 

 

(46,118

)

Purchases of property, plant and equipment

 

 

(6,417

)

 

 

(9,623

)

Proceeds from sales of used rental equipment

 

 

19,212

 

 

 

16,057

 

Net cash used in investing activities

 

 

(45,867

)

 

 

(39,684

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Net borrowings under bank lines of credit

 

 

31,431

 

 

 

23,996

 

Principal payments on Series A senior notes

 

 

(20,000

)

 

 

(20,000

)

Taxes paid related to net share settlement of stock awards

 

 

(2,792

)

 

 

(319

)

Payment of dividends

 

 

(14,501

)

 

 

(12,390

)

Net cash used in financing activities

 

 

(5,862

)

 

 

(8,713

)

Effect of foreign currency exchange rate changes on cash

 

 

(53

)

 

 

18

 

Net increase in cash

 

 

1,983

 

 

 

1,019

 

Cash balance, beginning of period

 

 

2,501

 

 

 

852

 

Cash balance, end of period

 

$

4,484

 

 

$

1,871

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Interest paid, during the period

 

$

6,123

 

 

$

5,817

 

Net income taxes paid, during the period

 

$

11,675

 

 

$

18,141

 

Dividends accrued during the period, not yet paid

 

$

8,267

 

 

$

6,214

 

Rental equipment acquisitions, not yet paid

 

$

7,201

 

 

$

6,359

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7


McGRATH RENTCORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

 

 

NOTE 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The condensed consolidated financial statements for the three and six months ended June 30, 2018 and 2017 have not been audited, but in the opinion of management, all adjustments (consisting of normal recurring accruals, consolidating and eliminating entries) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows of McGrath RentCorp (the “Company”) have been made.  The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations.  The consolidated results for the six months ended June 30, 2018 should not be considered as necessarily indicative of the consolidated results for the entire fiscal year.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K, filed with the SEC on February 27, 2018 for the year ended December 31, 2017 (the “2017 Annual Report”).

 

 

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (Subtopic 842-10).  Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: a) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and b) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. While the Company is still evaluating the potential impact of this guidance, as a lessor the Company does not believe the accounting for operating lease revenues will be materially affected by this standard.  The Company anticipates the lessee accounting to increase its total assets and liabilities; however, the Company is currently evaluating the magnitude of the impact the adoption of this guidance will have on the Company’s consolidated financial statements.  The Company is currently implementing processes and systems to assist in the ongoing lease data collection and analysis and evaluating the impact on its accounting policies and internal controls.

 

NOTE 3. IMPLEMENTED ACCOUNTING PRONOUNCEMENTS

Revenue from Contracts with Customers

The Company’s accounting for revenues is governed by two accounting standards.  The majority of the Company’s revenues are considered lease related and are accounted for in accordance with Topic 840, Leases.   Revenues determined to be non-lease related are accounted for in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was adopted by the Company on January 1, 2018.   The Company utilized the modified retrospective method of adoption and there was no impact on its condensed consolidated financial statements, nor was there a cumulative effect of initially applying the new standard.  The Company accounts for revenues when approval and commitment from both parties have been obtained, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.  The Company typically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the benefits of the Company’s promised goods and services, or performance obligations, and obtain control when delivery and installation is complete.  For contracts that have multiple performance obligations, the transaction price is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation in the contract.  The standalone selling price is typically determined based upon the expected cost plus an estimated margin of each performance obligation.  

8


The Company generally rents and sells to customers on 30 day payment terms.  The Company does not typically offer variable payment terms, or accept non-monetary consideration.  Amounts billed and due from the Company’s customers are classified as Accounts receivable on the Company’s consolidated balance sheet.  For certain sales of modular buildings, progress payments from the customer are received during the manufacturing of new equipment, or the preparation of used equipment.  The advance payments are not considered a significant financing component because the payments are used to meet working capital needs during the contract and to protect the Company from the customer failing to adequately complete their obligations under the contract.  These contract liabilities are included in Deferred income on the Company’s consolidated balance sheet and totaled $17.0 million and $6.8 million at June 30, 2018 and December 31, 2017, respectively.   Sales revenues totaling $1.2 million and $3.5 million were recognized during the three and six months ended June 30, 2018, respectively, which were included in the contract liability balance at December 31, 2017.  For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, which results in revenue earned in excess of billings.  These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $0.8 million and $2.0 million at June 30, 2018 and December 31, 2017, respectively.

Lease Revenues

Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operating segments.  Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned.  Rental related services revenues are primarily associated with relocatable modular building and liquid and solid containment tanks and boxes leases.  For modular building leases, rental related services revenues for modifications, delivery, installation, dismantle and return delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with the customer.  These revenues are recognized on a straight-line basis over the term of the lease. Certain leases are accounted for as sales-type leases.  For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment.  Other revenues include interest income on sales-type leases and rental income on facility leases.

Non-Lease Revenues

Non-lease revenues are recognized in the period when control of the performance obligation is transferred, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services.  For liquid and solid containment solutions, portable storage containers and electronic test equipment, rental related services revenues for delivery and return delivery are considered non-lease revenues.    

Sales revenues are typically recognized at a point in time, which occurs upon the completion of delivery, installation and acceptance of the equipment by the customer.    Accounting for non-lease revenues requires judgment in determining the point in time the customer gains control of the equipment and the appropriate accounting period to recognize revenue.

Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.

9


The following table disaggregates the Company’s revenues by lease (within the scope of Topic 840) and non-lease revenues (within the scope of Topic 606) and the underlying service provided for the three and six months ended June 30, 2018 and 2017:

 

(in thousands)

 

Mobile

Modular

 

 

TRS-

RenTelco

 

 

Adler

Tanks

 

 

Enviroplex

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

46,634

 

 

$

23,136

 

 

$

16,977

 

 

$

 

 

$

86,747

 

Non-lease:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental related services

 

 

4,275

 

 

 

707

 

 

 

5,991

 

 

 

 

 

 

10,973

 

Sales

 

 

8,961

 

 

 

6,012

 

 

 

30

 

 

 

3,711

 

 

 

18,714

 

Other

 

 

1

 

 

 

497

 

 

 

51

 

 

 

 

 

 

549

 

Total non-lease

 

 

13,237

 

 

 

7,216

 

 

 

6,072

 

 

 

3,711

 

 

 

30,236

 

Total revenues

 

$

59,871

 

 

$

30,352

 

 

$

23,049

 

 

$

3,711

 

 

$

116,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

43,562

 

 

$

20,588

 

 

$

15,149

 

 

$

 

 

$

79,299

 

Non-lease:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental related services

 

 

3,566

 

 

 

654

 

 

 

6,176

 

 

 

 

 

 

10,396

 

Sales

 

 

9,504

 

 

 

4,909

 

 

 

926

 

 

 

4,152

 

 

 

19,491

 

Other

 

 

6

 

 

 

388

 

 

 

2

 

 

 

 

 

 

396

 

Total non-lease

 

 

13,076

 

 

 

5,951

 

 

 

7,104

 

 

 

4,152

 

 

 

30,283

 

Total revenues

 

$

56,638

 

 

$

26,539

 

 

$

22,253

 

 

$

4,152

 

 

$

109,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

91,905

 

 

$

45,636

 

 

$

32,760

 

 

$

 

 

$

170,301

 

Non-lease:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental related services

 

 

8,260

 

 

 

1,514

 

 

 

11,081

 

 

 

 

 

 

20,855

 

Sales

 

 

13,554

 

 

 

10,351

 

 

 

335

 

 

 

5,729

 

 

 

29,969

 

Other

 

 

3

 

 

 

889

 

 

 

51

 

 

 

 

 

 

943

 

Total non-lease

 

 

21,817

 

 

 

12,754

 

 

 

11,467

 

 

 

5,729

 

 

 

51,767

 

Total revenues

 

$

113,722

 

 

$

58,390

 

 

$

44,227

 

 

$

5,729

 

 

$

222,068

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

85,960

 

 

$

40,805

 

 

$

29,734

 

 

$

 

 

$

156,499

 

Non-lease:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental related services

 

 

6,507

 

 

 

1,312

 

 

 

11,865

 

 

 

 

 

 

19,684

 

Sales

 

 

12,468

 

 

 

8,894

 

 

 

1,115

 

 

 

4,911

 

 

 

27,388

 

Other

 

 

6

 

 

 

842

 

 

 

 

 

 

 

 

 

848

 

Total non-lease

 

 

18,981

 

 

 

11,048

 

 

 

12,980

 

 

 

4,911

 

 

 

47,920

 

Total revenues

 

$

104,941

 

 

$

51,853

 

 

$

42,714

 

 

$

4,911

 

 

$

204,419

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer returns of rental equipment prior to the end of the rental contract term are typically billed a cancellation fee, which is recorded as rental revenue in the period billed.  Sales of new relocatable modular buildings, portable storage containers, electronic test equipment and related accessories and liquid and solid containment tanks and boxes not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold.  The Company typically provides limited 90-day warranties for certain sales of used rental equipment and one-year warranties on equipment manufactured by Enviroplex.  Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, the Company has not found it necessary to establish such reserves to date as warranty costs have not been significant.

 

The Company’s incremental cost of obtaining lease contracts, which consists of salesperson commissions, are deferred and amortized over the initial lease term for modular building leases.  Incremental costs for obtaining a contract for all other operating segments are expensed in the period incurred because the lease term is typically less than 12 months.

10


Modifications to Share-based Payments

In May 2017, the FASB issued ASU No. 2017-09, Compensation, Stock Compensation (Topic 718).  The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.  An entity should account for the effects of a modification unless all of the following are met: 1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; 2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and; 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.  The amendments of this update became effective for the interim and annual periods beginning after December 15, 2017.  The Company adopted the provisions of this guidance on January 1, 2018, which had no impact on the Company’s consolidated financial statements.

 

NOTE 4. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed as net income divided by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS is computed assuming conversion of all potentially dilutive securities including the dilutive effect of stock options, unvested restricted stock awards and other potentially dilutive securities.  The table below presents the weighted-average number of shares of common stock used to calculate basic and diluted earnings per share:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Weighted-average number of shares of common stock for

   calculating basic earnings per share

 

 

24,145

 

 

 

23,985

 

 

 

24,106

 

 

 

23,968

 

Effect of potentially dilutive securities from equity-based

   compensation

 

 

439

 

 

 

107

 

 

 

443

 

 

 

196

 

Weighted-average number of shares of common stock for

   calculating diluted earnings per share

 

 

24,584

 

 

 

24,092

 

 

 

24,549

 

 

 

24,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following securities were not included in the computation of diluted earnings per share as their effect would have been anti-dilutive:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Options to purchase shares of common stock

 

 

 

 

 

306

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 5. INTANGIBLE ASSETS

Intangible assets consist of the following:

 

(dollar amounts in thousands)

 

Estimated

useful life

in years

 

 

June 30,

2018

 

 

December 31,

2017

 

Trade name

 

Indefinite

 

 

$

5,700

 

 

$

5,700

 

Customer relationships

 

 

11

 

 

 

9,611

 

 

 

9,611

 

 

 

 

 

 

 

 

15,311

 

 

 

15,311

 

Less accumulated amortization

 

 

 

 

 

 

(8,022

)

 

 

(7,587

)

 

 

 

 

 

 

$

7,289

 

 

$

7,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11


 

The Company assesses potential impairment of its goodwill and intangible assets when there is evidence that events or circumstances have occurred that would indicate the recovery of an asset’s carrying value is unlikely.  The Company also assesses potential impairment of its goodwill and intangible assets on an annual basis regardless of whether there is evidence of impairment.  If indicators of impairment were to be present in intangible assets used in operations and future discounted cash flows were not expected to be sufficient to recover the assets’ carrying amount, an impairment loss would be charged to expense in the period identified. The amount of an impairment loss that would be recognized is the excess of the asset’s carrying value over its fair value.  Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results.

The Company typically conducts its annual impairment analysis in the fourth quarter of its fiscal year.  The impairment analysis did not result in an impairment charge for the fiscal year ended December 31, 2017.  Determining the fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions.  The Company bases its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions.

Intangible assets with finite useful lives are amortized over their respective useful lives.  Based on the carrying values at June 30, 2018 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $0.5 million for the remainder of fiscal year 2018, $0.9 million in the year 2019 and $0.2 million in 2020.

 

 

12


NOTE 6. SEGMENT REPORTING

The Company’s four reportable segments are (1) its modular building and portable storage segment (“Mobile Modular”); (2) its electronic test equipment segment (“TRS-RenTelco”); (3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”); and (4) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”). The operations of each of these segments are described in Part I – Item 1, “Business,” and the accounting policies of the segments are described in “Note 2 – Significant Accounting Policies” in the Company’s annual report on Form 10-K for the year ended December 31, 2017. Management focuses on several key measures to evaluate and assess each segment’s performance, including rental revenue growth, gross profit, income from operations and income before provision for income taxes. Excluding interest expense, allocations of revenue and expense not directly associated with one of these segments are generally allocated to Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of direct revenues.  Interest expense is allocated among Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of average rental equipment at cost, intangible assets, accounts receivable, deferred income and customer security deposits. The Company does not report total assets by business segment.  Summarized financial information for the six months ended June 30, 2018 and 2017 for the Company’s reportable segments is shown in the following table:

 

(dollar amounts in thousands)

 

Mobile

Modular

 

 

TRS-

RenTelco

 

 

Adler

Tanks

 

 

Enviroplex 1

 

 

Consolidated

 

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenues

 

$