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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 SECURITY AND EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITY AND EXCHANGE ACT OF 1934

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 October 28, 2019, 24,284,912 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 September 30, 2019 and the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity for the three and nine-months ended September 30, 2019 and 2018, cash flows for the nine-months ended September 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

October 29, 2019

 

 

2


McGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands, except per share amounts)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

90,857

 

 

$

82,155

 

 

$

261,658

 

 

$

233,683

 

Rental related services

 

 

30,816

 

 

 

23,880

 

 

 

76,738

 

 

 

60,797

 

Rental operations

 

 

121,673

 

 

 

106,035

 

 

 

338,396

 

 

 

294,480

 

Sales

 

 

50,855

 

 

 

36,085

 

 

 

81,387

 

 

 

67,722

 

Other

 

 

1,034

 

 

 

1,027

 

 

 

3,226

 

 

 

3,013

 

Total revenues

 

 

173,562

 

 

 

143,147

 

 

 

423,009

 

 

 

365,215

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs of rental operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation of rental equipment

 

 

20,535

 

 

 

18,407

 

 

 

59,222

 

 

 

54,287

 

Rental related services

 

 

23,007

 

 

 

18,618

 

 

 

57,507

 

 

 

47,404

 

Other

 

 

19,654

 

 

 

17,674

 

 

 

61,128

 

 

 

52,696

 

Total direct costs of rental operations

 

 

63,196

 

 

 

54,699

 

 

 

177,857

 

 

 

154,387

 

Costs of sales

 

 

32,084

 

 

 

24,398

 

 

 

49,984

 

 

 

42,680

 

Total costs of revenues

 

 

95,280

 

 

 

79,097

 

 

 

227,841

 

 

 

197,067

 

Gross profit

 

 

78,282

 

 

 

64,050

 

 

 

195,168

 

 

 

168,148

 

Selling and administrative expenses

 

 

31,534

 

 

 

28,226

 

 

 

92,044

 

 

 

85,833

 

Income from operations

 

 

46,748

 

 

 

35,824

 

 

 

103,124

 

 

 

82,315

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(3,161

)

 

 

(3,142

)

 

 

(9,407

)

 

 

(9,133

)

Foreign currency exchange loss

 

 

(132

)

 

 

(129

)

 

 

(46

)

 

 

(505

)

Income before provision for income taxes

 

 

43,455

 

 

 

32,553

 

 

 

93,671

 

 

 

72,677

 

Provision for income taxes

 

 

10,987

 

 

 

7,774

 

 

 

23,266

 

 

 

17,520

 

Net income

 

$

32,468

 

 

$

24,779

 

 

$

70,405

 

 

$

55,157

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.34

 

 

$

1.03

 

 

$

2.90

 

 

$

2.29

 

Diluted

 

$

1.32

 

 

$

1.01

 

 

$

2.86

 

 

$

2.25

 

Shares used in per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,268

 

 

 

24,172

 

 

 

24,237

 

 

 

24,128

 

Diluted

 

 

24,632

 

 

 

24,563

 

 

 

24,592

 

 

 

24,550

 

Cash dividends declared per share

 

$

0.375

 

 

$

0.340

 

 

$

1.125

 

 

$

1.020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

32,468

 

 

$

24,779

 

 

$

70,405

 

 

$

55,157

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

82

 

 

 

82

 

 

 

42

 

 

 

222

 

Tax provision

 

 

(20

)

 

 

(15

)

 

 

(12

)

 

 

(54

)

Comprehensive income

 

$

32,530

 

 

$

24,846

 

 

$

70,435

 

 

$

55,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4


McGrath RentCorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

2,290

 

 

$

1,508

 

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

   and 2018

 

 

138,114

 

 

 

121,016

 

Rental equipment, at cost:

 

 

 

 

 

 

 

 

Relocatable modular buildings

 

 

865,254

 

 

 

817,375

 

Electronic test equipment

 

 

321,677

 

 

 

285,052

 

Liquid and solid containment tanks and boxes

 

 

315,838

 

 

 

313,573

 

 

 

 

1,502,769

 

 

 

1,416,000

 

Less accumulated depreciation

 

 

(544,159

)

 

 

(514,985

)

Rental equipment, net

 

 

958,610

 

 

 

901,015

 

Property, plant and equipment, net

 

 

127,977

 

 

 

126,899

 

Prepaid expenses and other assets

 

 

43,553

 

 

 

31,816

 

Intangible assets, net

 

 

7,554

 

 

 

7,254

 

Goodwill

 

 

28,125

 

 

 

27,808

 

Total assets

 

$

1,306,223

 

 

$

1,217,316

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

$

301,469

 

 

$

298,564

 

Accounts payable and accrued liabilities

 

 

111,320

 

 

 

90,844

 

Deferred income

 

 

60,775

 

 

 

49,709

 

Deferred income taxes, net

 

 

215,944

 

 

 

206,664

 

Total liabilities

 

 

689,508

 

 

 

645,781

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Issued and outstanding - 24,285 shares as of September 30, 2019 and 24,182 shares as of December 31, 2018

 

 

106,033

 

 

 

103,801

 

Retained earnings

 

 

510,702

 

 

 

467,783

 

Accumulated other comprehensive loss

 

 

(20

)

 

 

(49

)

Total shareholders’ equity

 

 

616,715

 

 

 

571,535

 

Total liabilities and shareholders’ equity

 

$

1,306,223

 

 

$

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

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

32,468

 

 

 

 

 

 

 

 

 

 

32,468

 

Share-based compensation

 

 

 

 

 

 

 

1,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,350

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

 

 

(301

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(301

)

Dividends accrued of $0.375 per share

 

 

 

 

 

 

 

 

 

 

 

 

(9,173

)

 

 

 

 

 

 

 

 

 

(9,173

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62

 

 

 

 

 

62

 

Balance at September 30, 2019

 

 

24,285

 

 

 

 

$

106,033

 

 

 

 

$

510,702

 

 

 

 

$

(20

)

 

 

 

$

616,715

 

 

6


 

 

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