10-Q
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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, 2022

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 26, 2022, 24,382,445 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, including the economic impact of the COVID-19 pandemic and its variants. 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 (a California Corporation) and subsidiaries (the “Company”) as of September 30, 2022, and the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity for the three-month and nine-month periods ended September 30, 2022 and 2021, cash flows for the nine-month periods ended September 30, 2022 and 2021, 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, 2021, 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 23, 2022, 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, 2021, 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 Francisco, California

October 27, 2022

 

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)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

118,361

 

 

$

103,269

 

 

$

333,226

 

 

$

283,937

 

Rental related services

 

 

35,361

 

 

 

31,513

 

 

 

88,497

 

 

 

73,870

 

Rental operations

 

 

153,722

 

 

 

134,782

 

 

 

421,723

 

 

 

357,807

 

Sales

 

 

45,391

 

 

 

37,636

 

 

 

97,738

 

 

 

80,503

 

Other

 

 

1,423

 

 

 

874

 

 

 

3,479

 

 

 

2,612

 

Total revenues

 

 

200,536

 

 

 

173,292

 

 

 

522,940

 

 

 

440,922

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs of rental operations:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation of rental equipment

 

 

24,176

 

 

 

23,802

 

 

 

72,114

 

 

 

68,216

 

Rental related services

 

 

25,971

 

 

 

24,356

 

 

 

64,967

 

 

 

56,236

 

Other

 

 

31,708

 

 

 

24,711

 

 

 

92,356

 

 

 

67,696

 

Total direct costs of rental operations

 

 

81,855

 

 

 

72,869

 

 

 

229,437

 

 

 

192,148

 

Costs of sales

 

 

29,241

 

 

 

24,618

 

 

 

59,737

 

 

 

50,021

 

Total costs of revenues

 

 

111,096

 

 

 

97,487

 

 

 

289,174

 

 

 

242,169

 

Gross profit

 

 

89,440

 

 

 

75,805

 

 

 

233,766

 

 

 

198,753

 

Selling and administrative expenses

 

 

44,095

 

 

 

39,907

 

 

 

124,010

 

 

 

109,305

 

Income from operations

 

 

45,345

 

 

 

35,898

 

 

 

109,756

 

 

 

89,448

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(4,177

)

 

 

(3,168

)

 

 

(9,998

)

 

 

(7,208

)

Foreign currency exchange loss

 

 

(236

)

 

 

(128

)

 

 

(404

)

 

 

(185

)

Income before provision for income taxes

 

 

40,932

 

 

 

32,602

 

 

 

99,354

 

 

 

82,055

 

Provision for income taxes

 

 

10,365

 

 

 

9,350

 

 

 

23,857

 

 

 

20,797

 

Net income

 

$

30,567

 

 

$

23,252

 

 

$

75,497

 

 

$

61,258

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.25

 

 

$

0.96

 

 

$

3.10

 

 

$

2.53

 

Diluted

 

$

1.25

 

 

$

0.95

 

 

$

3.08

 

 

$

2.50

 

Shares used in per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,379

 

 

 

24,245

 

 

 

24,342

 

 

 

24,209

 

Diluted

 

 

24,504

 

 

 

24,507

 

 

 

24,516

 

 

 

24,506

 

Cash dividends declared per share

 

$

0.455

 

 

$

0.435

 

 

$

1.365

 

 

$

1.305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

$

30,567

 

 

$

23,252

 

 

$

75,497

 

 

$

61,258

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax impact

 

65

 

 

 

27

 

 

 

129

 

 

 

63

 

Comprehensive income

$

30,632

 

 

$

23,279

 

 

$

75,626

 

 

$

61,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Cash

 

$

1,561

 

 

$

1,491

 

Accounts receivable, net of allowance for credit losses of $2,125 in 2022
   and 2021

 

 

189,959

 

 

 

159,499

 

Rental equipment, at cost:

 

 

 

 

 

 

Relocatable modular buildings

 

 

1,085,060

 

 

 

1,040,094

 

Electronic test equipment

 

 

396,068

 

 

 

361,391

 

Liquid and solid containment tanks and boxes

 

 

309,607

 

 

 

309,908

 

 

 

 

1,790,735

 

 

 

1,711,393

 

Less: accumulated depreciation

 

 

(690,913

)

 

 

(646,169

)

Rental equipment, net

 

 

1,099,822

 

 

 

1,065,224

 

Property, plant and equipment, net

 

 

139,203

 

 

 

135,325

 

Prepaid expenses and other assets

 

 

72,258

 

 

 

54,945

 

Intangible assets, net

 

 

42,607

 

 

 

47,049

 

Goodwill

 

 

132,305

 

 

 

132,393

 

Total assets

 

$

1,677,715

 

 

$

1,595,926

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Notes payable

 

$

419,464

 

 

$

426,451

 

Accounts payable and accrued liabilities

 

 

154,942

 

 

 

136,313

 

Deferred income

 

 

92,115

 

 

 

58,716

 

Deferred income taxes, net

 

 

238,126

 

 

 

242,425

 

Total liabilities

 

 

904,647

 

 

 

863,905

 

Shareholders’ equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

Issued and outstanding - 24,382 shares as of September 30, 2022 and 24,260 shares as of December 31, 2021

 

 

107,463

 

 

 

108,610

 

Retained earnings

 

 

665,530

 

 

 

623,465

 

Accumulated other comprehensive income (loss)

 

 

75

 

 

 

(54

)

Total shareholders’ equity

 

 

773,068

 

 

 

732,021

 

Total liabilities and shareholders’ equity

 

$

1,677,715

 

 

$

1,595,926

 

 

 

 

 

 

 

 

 

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, 2021

 

 

24,260

 

 

$

108,610

 

 

$

623,465

 

 

$

(54

)

 

$

732,021

 

Net income

 

 

 

 

 

 

 

 

18,793

 

 

 

 

 

 

18,793

 

Share-based compensation

 

 

 

 

 

1,760

 

 

 

 

 

 

 

 

 

1,760

 

Common stock issued under stock plans, net of shares
   withheld for employee taxes

 

 

75

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

(3,605

)

 

 

 

 

 

 

 

 

(3,605

)

Dividends accrued of $0.455 per share

 

 

 

 

 

 

 

 

(11,084

)

 

 

 

 

 

(11,084

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Balance at March 31, 2022

 

 

24,335

 

 

$

106,765

 

 

$

631,174

 

 

$

(51

)

 

$

737,888

 

Net income

 

 

 

 

 

 

 

 

26,137

 

 

 

 

 

 

26,137

 

Share-based compensation

 

 

 

 

 

1,652

 

 

 

 

 

 

 

 

 

1,652

 

Common stock issued under stock plans, net of shares
   withheld for employee taxes

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

(2,523

)

 

 

 

 

 

 

 

 

(2,523

)

Dividends accrued of $0.455 per share

 

 

 

 

 

 

 

 

(11,181

)

 

 

 

 

 

(11,181

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

61

 

 

 

61

 

Balance at June 30, 2022

 

 

24,378

 

 

$

105,894

 

 

$

646,130

 

 

$

10

 

 

$

752,034

 

Net income

 

 

 

 

 

 

 

 

30,567

 

 

 

 

 

 

30,567

 

Share-based compensation

 

 

 

 

 

1,694

 

 

 

 

 

 

 

 

 

1,694

 

Common stock issued under stock plans, net of shares
   withheld for employee taxes

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

(125

)

 

 

 

 

 

 

 

 

(125

)

Dividends accrued of $0.455 per share

 

 

 

 

 

 

 

 

(11,167

)

 

 

 

 

 

(11,167

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

65

 

 

 

65

 

Balance at September 30, 2022

 

 

24,382

 

 

$

107,463

 

 

$

665,530

 

 

$

75

 

 

$

773,068

 

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, 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