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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, 2019

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

Securities registered pursuant to Section 12(b) of the Act

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

MGRC

NASDAQ Global Select Market

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 every Interactive Data File required to be submitted 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 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.

 

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 29, 2019, 24,253,091 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.

 

 


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, 2019, and the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity for the three and six-months ended June 30, 2019 and 2018, cash flows for the six-months ended June 30, 2019 and 2018 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, 2018, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2019, 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, 2018, 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 Public Company Accounting Oversight Board (United States) (“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 30, 2019

 

 

2


McGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands, except per share amounts)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

88,105

 

 

$

77,267

 

 

$

170,801

 

 

$

151,528

 

Rental related services

 

 

24,467

 

 

 

19,086

 

 

 

45,922

 

 

 

36,917

 

Rental operations

 

 

112,572

 

 

 

96,353

 

 

 

216,723

 

 

 

188,445

 

Sales

 

 

13,707

 

 

 

19,546

 

 

 

30,532

 

 

 

31,637

 

Other

 

 

1,160

 

 

 

1,084

 

 

 

2,192

 

 

 

1,986

 

Total revenues

 

 

127,439

 

 

 

116,983

 

 

 

249,447

 

 

 

222,068

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs of rental operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation of rental equipment

 

 

19,726

 

 

 

18,103

 

 

 

38,687

 

 

 

35,880

 

Rental related services

 

 

18,137

 

 

 

15,018

 

 

 

34,500

 

 

 

28,786

 

Other

 

 

21,741

 

 

 

18,753

 

 

 

41,474

 

 

 

35,022

 

Total direct costs of rental operations

 

 

59,604

 

 

 

51,874

 

 

 

114,661

 

 

 

99,688

 

Costs of sales

 

 

7,954

 

 

 

11,181

 

 

 

17,900

 

 

 

18,282

 

Total costs of revenues

 

 

67,558

 

 

 

63,055

 

 

 

132,561

 

 

 

117,970

 

Gross profit

 

 

59,881

 

 

 

53,928

 

 

 

116,886

 

 

 

104,098

 

Selling and administrative expenses

 

 

30,815

 

 

 

29,479

 

 

 

60,510

 

 

 

57,607

 

Income from operations

 

 

29,066

 

 

 

24,449

 

 

 

56,376

 

 

 

46,491

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(3,138

)

 

 

(2,999

)

 

 

(6,246

)

 

 

(5,991

)

Foreign currency exchange gain (loss)

 

 

37

 

 

 

(344

)

 

 

86

 

 

 

(376

)

Income before provision for income taxes

 

 

25,965

 

 

 

21,106

 

 

 

50,216

 

 

 

40,124

 

Provision for income taxes

 

 

6,477

 

 

 

5,194

 

 

 

12,279

 

 

 

9,746

 

Net income

 

$

19,488

 

 

$

15,912

 

 

$

37,937

 

 

$

30,378

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.80

 

 

$

0.66

 

 

$

1.57

 

 

$

1.26

 

Diluted

 

$

0.79

 

 

$

0.65

 

 

$

1.54

 

 

$

1.24

 

Shares used in per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,246

 

 

 

24,145

 

 

 

24,221

 

 

 

24,106

 

Diluted

 

 

24,579

 

 

 

24,584

 

 

 

24,561

 

 

 

24,549

 

Cash dividends declared per share

 

$

0.375

 

 

$

0.340

 

 

$

0.750

 

 

$

0.680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3


McGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

19,488

 

 

$

15,912

 

 

$

37,937

 

 

$

30,378

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(6

)

 

 

167

 

 

 

(40

)

 

 

141

 

Tax benefit (provision)

 

 

 

 

 

(44

)

 

 

7

 

 

 

(40

)

Comprehensive income

 

$

19,482

 

 

$

16,035

 

 

$

37,904

 

 

$

30,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4


McGrath RentCorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

June 30,

 

 

December 31,

 

(in thousands)

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

1,496

 

 

$

1,508

 

Accounts receivable, net of allowance for doubtful accounts of $1,883 in 2019

   and 2018

 

 

121,018

 

 

 

121,016

 

Rental equipment, at cost:

 

 

 

 

 

 

 

 

Relocatable modular buildings

 

 

854,076

 

 

 

817,375

 

Electronic test equipment

 

 

307,639

 

 

 

285,052

 

Liquid and solid containment tanks and boxes

 

 

315,571

 

 

 

313,573

 

 

 

 

1,477,286

 

 

 

1,416,000

 

Less accumulated depreciation

 

 

(534,134

)

 

 

(514,985

)

Rental equipment, net

 

 

943,152

 

 

 

901,015

 

Property, plant and equipment, net

 

 

126,906

 

 

 

126,899

 

Prepaid expenses and other assets

 

 

53,062

 

 

 

31,816

 

Intangible assets, net

 

 

6,807

 

 

 

7,254

 

Goodwill

 

 

27,808

 

 

 

27,808

 

Total assets

 

$

1,280,249

 

 

$

1,217,316

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

$

301,878

 

 

$

298,564

 

Accounts payable and accrued liabilities

 

 

109,443

 

 

 

90,844

 

Deferred income

 

 

66,618

 

 

 

49,709

 

Deferred income taxes, net

 

 

210,001

 

 

 

206,664

 

Total liabilities

 

 

687,940

 

 

 

645,781

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Issued and outstanding - 24,253 shares as of June 30, 2019 and 24,182 shares as of December 31, 2018

 

 

104,984

 

 

 

103,801

 

Retained earnings

 

 

487,407

 

 

 

467,783

 

Accumulated other comprehensive loss

 

 

(82

)

 

 

(49

)

Total shareholders’ equity

 

 

592,309

 

 

 

571,535

 

Total liabilities and shareholders’ equity

 

$

1,280,249

 

 

$

1,217,316

 

 

 

 

 

 

 

 

 

 

 

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

 

 

5


McGrath RentCorp

CONDENSED Consolidated Statements OF SHAREHOLDERS’ EQUITY

(unaudited)

 

 

 

Common Stock

 

 

 

 

Retained

 

 

 

 

Accumulated

Other

Comprehensive

 

 

 

 

Total

Shareholders’

 

(in thousands, except per share amounts)

 

Shares

 

 

 

 

Amount

 

 

 

 

Earnings

 

 

 

 

Income (Loss)

 

 

 

 

Equity

 

Balance at December 31, 2018

 

 

24,182

 

 

 

 

$

103,801

 

 

 

 

$

467,783

 

 

 

 

$

(49

)

 

 

 

$

571,535

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

18,449

 

 

 

 

 

 

 

 

 

 

18,449

 

Share-based compensation

 

 

 

 

 

 

 

1,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,392

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

 

 

(1,555

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,555

)

Dividends accrued of $0.375 per share

 

 

 

 

 

 

 

 

 

 

 

 

(9,151

)

 

 

 

 

 

 

 

 

 

(9,151

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27

)

 

 

 

 

(27

)

Balance at March 31, 2019

 

 

24,222

 

 

 

 

$

103,638

 

 

 

 

$

477,081

 

 

 

 

$

(76

)

 

 

 

$

580,643

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

19,488

 

 

 

 

 

 

 

 

 

 

19,488

 

Share-based compensation

 

 

 

 

 

 

 

1,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,354

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

Dividends accrued of $0.375 per share

 

 

 

 

 

 

 

 

 

 

 

 

(9,162

)

 

 

 

 

 

 

 

 

 

(9,162

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

(6

)

Balance at June 30, 2019

 

 

24,253

 

 

 

 

$

104,984

 

 

 

 

$

487,407

 

 

 

 

$

(82

)

 

 

 

$

592,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

Retained

 

 

 

 

Accumulated

Other

Comprehensive

 

 

 

 

Total

Shareholders’

 

(in thousands, except per share amounts)

 

Shares

 

 

 

 

Amount

 

 

 

 

Earnings

 

 

 

 

Income (Loss)

 

 

 

 

Equity

 

Balance at December 31, 2017

 

 

24,052

 

 

 

 

$

102,947

 

 

 

 

$

421,405

 

 

 

 

$

(168

)

 

 

 

$

524,184

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

14,466

 

 

 

 

 

 

 

 

 

 

14,466

 

Share-based compensation

 

 

 

 

 

 

 

864

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

864

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

 

 

(971

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(971

)

Dividends accrued of $0.34 per share

 

 

 

 

 

 

 

 

 

 

 

 

(8,237

)

 

 

 

 

 

 

 

 

 

(8,237

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22

)

 

 

 

 

(22

)

Balance at March 31, 2018

 

 

24,102

 

 

 

 

$

102,840

 

 

 

 

$

427,634

 

 

 

 

$

(190

)

 

 

 

$

530,284

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

15,912

 

 

 

 

 

 

 

 

 

 

15,912

 

Share-based compensation

 

 

 

 

 

 

 

964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

964

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

 

 

(1,821

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,821

)

Dividends accrued of $0.34 per share

 

 

 

 

 

 

 

 

 

 

 

 

(8,267

)

 

 

 

 

 

 

 

 

 

(8,267

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

123

 

 

 

 

 

123

 

Balance at June 30, 2018

 

 

24,170

 

 

 

 

$

101,983

 

 

 

 

$

435,279

 

 

 

 

$

(67

)

 

 

 

$

537,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6


McGrath RentCorp

CONDENSED Consolidated Statements of Cash Flows

(unaudited)