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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 June 30, 2020

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

Commission file number 000-13292

 

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 28, 2020, 24,083,096 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 “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plan,” “predict,” “project,” or “will,” 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, 2020 and the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity for the three and six-months ended June 30, 2020 and 2019, cash flows for the six-months ended June 30, 2020 and 2019 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, 2019, 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 25, 2020, 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, 2019, 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 29, 2020

 

 

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)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

85,629

 

 

$

88,105

 

 

$

175,135

 

 

$

170,801

 

Rental related services

 

 

20,475

 

 

 

24,467

 

 

 

44,986

 

 

 

45,922

 

Rental operations

 

 

106,104

 

 

 

112,572

 

 

 

220,121

 

 

 

216,723

 

Sales

 

 

30,669

 

 

 

13,707

 

 

 

45,035

 

 

 

30,532

 

Other

 

 

900

 

 

 

1,160

 

 

 

1,970

 

 

 

2,192

 

Total revenues

 

 

137,673

 

 

 

127,439

 

 

 

267,126

 

 

 

249,447

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs of rental operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation of rental equipment

 

 

21,583

 

 

 

19,726

 

 

 

43,221

 

 

 

38,687

 

Rental related services

 

 

14,894

 

 

 

18,137

 

 

 

33,157

 

 

 

34,500

 

Other

 

 

18,165

 

 

 

21,741

 

 

 

37,618

 

 

 

41,474

 

Total direct costs of rental operations

 

 

54,642

 

 

 

59,604

 

 

 

113,996

 

 

 

114,661

 

Costs of sales

 

 

19,799

 

 

 

7,954

 

 

 

28,242

 

 

 

17,900

 

Total costs of revenues

 

 

74,441

 

 

 

67,558

 

 

 

142,238

 

 

 

132,561

 

Gross profit

 

 

63,232

 

 

 

59,881

 

 

 

124,888

 

 

 

116,886

 

Selling and administrative expenses

 

 

30,540

 

 

 

30,815

 

 

 

62,494

 

 

 

60,510

 

Income from operations

 

 

32,692

 

 

 

29,066

 

 

 

62,394

 

 

 

56,376

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,184

)

 

 

(3,138

)

 

 

(4,836

)

 

 

(6,246

)

Foreign currency exchange gain (loss)

 

 

117

 

 

 

37

 

 

 

(319

)

 

 

86

 

Income before provision for income taxes

 

 

30,625

 

 

 

25,965

 

 

 

57,239

 

 

 

50,216

 

Provision for income taxes

 

 

8,076

 

 

 

6,477

 

 

 

14,531

 

 

 

12,279

 

Net income

 

$

22,549

 

 

$

19,488

 

 

$

42,708

 

 

$

37,937

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.93

 

 

$

0.80

 

 

$

1.76

 

 

$

1.57

 

Diluted

 

$

0.92

 

 

$

0.79

 

 

$

1.74

 

 

$

1.54

 

Shares used in per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,121

 

 

 

24,246

 

 

 

24,207

 

 

 

24,221

 

Diluted

 

 

24,471

 

 

 

24,579

 

 

 

24,612

 

 

 

24,561

 

Cash dividends declared per share

 

$

0.420

 

 

$

0.375

 

 

$

0.840

 

 

$

0.750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

22,549

 

 

$

19,488

 

 

$

42,708

 

 

$

37,937

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(52

)

 

 

(6

)

 

 

158

 

 

 

(40

)

Tax benefit (provision)

 

 

15

 

 

 

 

 

 

(37

)

 

 

7

 

Comprehensive income

 

$

22,512

 

 

$

19,482

 

 

$

42,829

 

 

$

37,904

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

694

 

 

$

2,342

 

Accounts receivable, net of allowance for doubtful accounts of $2,200 in 2020

   and $1,883 in 2019

 

 

125,940

 

 

 

128,099

 

Rental equipment, at cost:

 

 

 

 

 

 

 

 

Relocatable modular buildings

 

 

892,339

 

 

 

868,807

 

Electronic test equipment

 

 

337,987

 

 

 

335,343

 

Liquid and solid containment tanks and boxes

 

 

316,497

 

 

 

316,261

 

 

 

 

1,546,823

 

 

 

1,520,411

 

Less accumulated depreciation

 

 

(577,142

)

 

 

(552,911

)

Rental equipment, net

 

 

969,681

 

 

 

967,500

 

Property, plant and equipment, net

 

 

133,610

 

 

 

131,047

 

Prepaid expenses and other assets

 

 

46,997

 

 

 

45,356

 

Intangible assets, net

 

 

7,223

 

 

 

7,334

 

Goodwill

 

 

28,197

 

 

 

28,197

 

Total assets

 

$

1,312,342

 

 

$

1,309,875

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

$

272,149

 

 

$

293,431

 

Accounts payable and accrued liabilities

 

 

116,825

 

 

 

109,174

 

Deferred income

 

 

60,779

 

 

 

54,964

 

Deferred income taxes, net

 

 

218,753

 

 

 

218,270

 

Total liabilities

 

 

668,506

 

 

 

675,839

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Issued and outstanding - 24,085 shares as of June 30, 2020 and 24,296 shares as of December 31, 2019

 

 

106,010

 

 

 

106,360

 

Retained earnings

 

 

537,775

 

 

 

527,746

 

Accumulated other comprehensive income (loss)

 

 

51

 

 

 

(70

)

Total shareholders’ equity

 

 

643,836

 

 

 

634,036

 

Total liabilities and shareholders’ equity

 

$

1,312,342

 

 

$

1,309,875

 

 

 

 

 

 

 

 

 

 

 

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, 2019

 

 

24,296

 

 

 

 

$

106,360

 

 

 

 

$

527,746

 

 

 

 

$

(70

)

 

 

 

$

634,036

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

20,159

 

 

 

 

 

 

 

 

 

 

20,159

 

Share-based compensation

 

 

 

 

 

 

 

1,723

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,723

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchased common stock

 

 

(164

)

 

 

 

 

(725

)

 

 

 

 

(7,127

)

 

 

 

 

 

 

 

 

 

 

(7,852

)

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

 

 

(401

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(401

)

Dividends accrued of $0.42 per share

 

 

 

 

 

 

 

 

 

 

 

 

(10,219

)

 

 

 

 

 

 

 

 

 

(10,219

)

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

158

 

 

 

 

 

158

 

Balance at March 31, 2020

 

 

24,182

 

 

 

 

$

106,957

 

 

 

 

$

530,559

 

 

 

 

$

88

 

 

 

 

$

637,604

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

22,549

 

 

 

 

 

 

 

 

 

 

22,549

 

Share-based compensation

 

 

 

 

 

 

 

1,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,501

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchased common stock

 

 

(116

)

 

 

 

 

(509

)

 

 

 

 

(5,139

)

 

 

 

 

 

 

 

 

 

 

(5,648

)

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

 

 

(1,939

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,939

)

Dividends accrued of $0.42 per share

 

 

 

 

 

 

 

 

 

 

 

 

(10,194

)

 

 

 

 

 

 

 

 

 

(10,194

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

(37

)

Balance at June 30, 2020

 

 

24,085

 

 

 

 

$

106,010

 

 

 

 

$

537,775

 

 

 

 

$

51

 

 

 

 

$

643,836

 

 

 

 

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