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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, 2021

    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 October 27, 2021, 24,246,568 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.

These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected including: the duration of the COVID-19 pandemic and its variants and economic impact, the extent and length of the shelter-in and other restrictions associated with COVID-19 pandemic and its variants.

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 September 30, 2021, and the related condensed consolidated statements of income, comprehensive income, and changes in shareholders’ equity for the three and nine-months ended September 30, 2021 and 2020, cash flows for the nine-months ended September 30, 2021 and 2020 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, 2020, 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 23, 2021, 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, 2020, 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

October 28, 2021

 

 

3


 

McGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands, except per share amounts)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

103,269

 

 

$

88,138

 

 

$

283,937

 

 

$

263,273

 

Rental related services

 

 

31,513

 

 

 

25,040

 

 

 

73,870

 

 

 

70,026

 

Rental operations

 

 

134,782

 

 

 

113,178

 

 

 

357,807

 

 

 

333,299

 

Sales

 

 

37,636

 

 

 

42,331

 

 

 

80,503

 

 

 

87,366

 

Other

 

 

874

 

 

 

939

 

 

 

2,612

 

 

 

2,909

 

Total revenues

 

 

173,292

 

 

 

156,448

 

 

 

440,922

 

 

 

423,574

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs of rental operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation of rental equipment

 

 

23,802

 

 

 

21,419

 

 

 

68,216

 

 

 

64,640

 

Rental related services

 

 

24,356

 

 

 

18,603

 

 

 

56,236

 

 

 

51,760

 

Other

 

 

24,711

 

 

 

18,553

 

 

 

67,696

 

 

 

56,171

 

Total direct costs of rental operations

 

 

72,869

 

 

 

58,575

 

 

 

192,148

 

 

 

172,571

 

Costs of sales

 

 

24,618

 

 

 

29,669

 

 

 

50,021

 

 

 

57,911

 

Total costs of revenues

 

 

97,487

 

 

 

88,244

 

 

 

242,169

 

 

 

230,482

 

Gross profit

 

 

75,805

 

 

 

68,204

 

 

 

198,753

 

 

 

193,093

 

Selling and administrative expenses

 

 

39,907

 

 

 

30,871

 

 

 

109,305

 

 

 

93,365

 

Income from operations

 

 

35,898

 

 

 

37,333

 

 

 

89,448

 

 

 

99,728

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(3,168

)

 

 

(1,968

)

 

 

(7,208

)

 

 

(6,804

)

Foreign currency exchange (loss) gain

 

 

(128

)

 

 

130

 

 

 

(185

)

 

 

(189

)

Income before provision for income taxes

 

 

32,602

 

 

 

35,495

 

 

 

82,055

 

 

 

92,735

 

Provision for income taxes

 

 

9,350

 

 

 

7,394

 

 

 

20,797

 

 

 

21,926

 

Net income

 

$

23,252

 

 

$

28,101

 

 

$

61,258

 

 

$

70,809

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.96

 

 

$

1.17

 

 

$

2.53

 

 

$

2.93

 

Diluted

 

$

0.95

 

 

$

1.15

 

 

$

2.50

 

 

$

2.88

 

Shares used in per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,245

 

 

 

24,097

 

 

 

24,209

 

 

 

24,170

 

Diluted

 

 

24,507

 

 

 

24,443

 

 

 

24,506

 

 

 

24,558

 

Cash dividends declared per share

 

$

0.435

 

 

$

0.420

 

 

$

1.305

 

 

$

1.260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

23,252

 

 

$

28,101

 

 

$

61,258

 

 

$

70,809

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

37

 

 

 

(93

)

 

 

86

 

 

 

64

 

Tax benefit (provision)

 

 

(10

)

 

 

22

 

 

 

(23

)

 

 

(14

)

Comprehensive income

 

$

23,279

 

 

$

28,030

 

 

$

61,321

 

 

$

70,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

5


 

McGrath RentCorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

2,380

 

 

$

1,238

 

Accounts receivable, net of allowance for doubtful accounts of $2,225 in 2021

   and $2,100 in 2020

 

 

168,831

 

 

 

123,316

 

Rental equipment, at cost:

 

 

 

 

 

 

 

 

Relocatable modular buildings

 

 

1,023,344

 

 

 

882,115

 

Electronic test equipment

 

 

363,799

 

 

 

333,020

 

Liquid and solid containment tanks and boxes

 

 

311,677

 

 

 

315,706

 

 

 

 

1,698,820

 

 

 

1,530,841

 

Less: accumulated depreciation

 

 

(635,358

)

 

 

(592,725

)

Rental equipment, net

 

 

1,063,462

 

 

 

938,116

 

Property, plant and equipment, net

 

 

135,055

 

 

 

136,210

 

Prepaid expenses and other assets

 

 

59,523

 

 

 

41,549

 

Intangible assets, net

 

 

48,715

 

 

 

7,118

 

Goodwill

 

 

132,387

 

 

 

28,197

 

Total assets

 

$

1,610,353

 

 

$

1,275,744

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

$

459,475

 

 

$

222,754

 

Accounts payable and accrued liabilities

 

 

137,308

 

 

 

108,334

 

Deferred income

 

 

69,634

 

 

 

45,975

 

Deferred income taxes, net

 

 

231,480

 

 

 

216,077

 

Total liabilities

 

 

897,897

 

 

 

593,140

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Issued and outstanding - 24,247 shares as of September 30, 2021 and 24,128 shares as of December 31, 2020

 

 

106,744

 

 

 

106,289

 

Retained earnings

 

 

605,754

 

 

 

576,419

 

Accumulated other comprehensive loss

 

 

(42

)

 

 

(104

)

Total shareholders’ equity

 

 

712,456

 

 

 

682,604

 

Total liabilities and shareholders’ equity

 

$

1,610,353

 

 

$

1,275,744

 

 

 

 

 

 

 

 

 

 

 

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

 

 

6


 

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, 2020

 

 

24,128

 

 

$

106,289

 

 

$

576,419

 

 

$

(104

)

 

$

682,604

 

Net income

 

 

 

 

 

 

 

 

17,398

 

 

 

 

 

 

17,398

 

Share-based compensation

 

 

 

 

 

1,777

 

 

 

 

 

 

 

 

 

1,777

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

78

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

(3,482

)

 

 

 

 

 

 

 

 

(3,482

)

Dividends accrued of $0.435 per share

 

 

 

 

 

 

 

 

(10,650

)

 

 

 

 

 

(10,650

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

38

 

 

 

38

 

Balance at March 31, 2021

 

 

24,206

 

 

$

104,584

 

 

$

583,167

 

 

$

(66

)

 

$

687,685

 

Net income

 

 

 

 

 

 

 

 

20,608

 

 

 

 

 

 

20,608

 

Share-based compensation

 

 

 

 

 

1,820

 

 

 

 

 

 

 

 

 

1,820

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

39

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

(1,346

)

 

 

 

 

 

 

 

 

(1,346

)

Dividends accrued of $0.435 per share

 

 

 

 

 

 

 

 

(10,643

)

 

 

 

 

 

(10,643

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Balance at June 30, 2021

 

 

24,245

 

 

$

105,058

 

 

$

593,132

 

 

$

(69

)

 

$

698,121

 

Net income

 

 

 

 

 

 

 

 

23,252

 

 

 

 

 

 

23,252

 

Share-based compensation

 

 

 

 

 

1,705

 

 

 

 

 

 

 

 

 

1,705

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

(19

)

 

 

 

 

 

 

 

 

(19

)

Dividends accrued of $0.435 per share

 

 

 

 

 

 

 

 

(10,630

)

 

 

 

 

 

(10,630

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

27

 

Balance at September 30, 2021

 

 

24,247

 

 

$

106,744

 

 

$

605,754

 

 

$

(42

)

 

$

712,456

 

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

 

7


 

 

 

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 income

 

 

 

 

 

 

 

 

 

 

 

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

 

Net income

 

 

 

 

 

 

 

 

28,101

 

 

 

 

 

 

28,101

 

Share-based compensation

 

 

 

 

 

1,670

 

 

 

 

 

 

 

 

 

1,670

 

Common stock issued under stock plans, net of shares

   withheld for employee taxes

 

 

28