false000075271400007527142023-10-262023-10-26

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 26, 2023

 

 

McGRATH RENTCORP

(Exact name of Registrant as Specified in Its Charter)

 

 

California			000-13292	94-2579843
(State or Other Jurisdiction of Incorporation)			(Commission File Number)	(IRS Employer Identification No.)
5700 Las Positas Road
Livermore, California				94551-7800
(Address of Principal Executive Offices)				(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (925) 606-9200

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Item 2.02 Results of Operations and Financial Condition.

On October 26, 2023, McGrath RentCorp (the “Company”) announced via press release the Company’s results for its third quarter ended September 30, 2023. A copy of the Company’s press release is attached hereto as Exhibit 99.1. This Form 8-K and the attached exhibit are provided under Item 2.02 of Form 8-K and are furnished to, but not filed with, the Securities and Exchange

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Commission, and shall not be incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
99.1	Press Release of McGrath RentCorp, dated October 26, 2023.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

			McGRATH RENTCORP
Date:	October 26, 2023	By:	/s/ Keith E. Pratt
			Keith E. Pratt Executive Vice President and Chief Financial Officer

 

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Exhibit 99.1

 

Contact

Keith E. Pratt

EVP & Chief Financial Officer

925-606-9200

PRESS RELEASE

FOR RELEASE October 26, 2023

McGrath Announces Results for Third Quarter 2023

 

Livermore, CA - October 26, 2023 – McGrath RentCorp (“McGrath” or the “Company”) (Nasdaq: MGRC), a leading business-to-business rental company in North America, today announced total revenues from continuing operations for the quarter ended September 30, 2023 of $243.5 million, an increase of 40% compared to the third quarter of 2022. The Company reported net income from continuing operations of $40.4 million, or $1.65 per diluted share, for the third quarter of 2023, compared to net income from continuing operations of $27.1 million, or $1.11 per diluted share, for the third quarter of 2022.

 

THIRD QUARTER 2023 YEAR-OVER-YEAR Company HIGHLIGHTS (FROM CONTINUING OPERATIONS):

Joe Hanna, President and CEO of McGrath, made the following comments regarding these results and future expectations:

“We were very pleased with our third quarter results. Our 22% increase in companywide rental revenues was driven by strong modular segment performance. Modular rental revenues grew 36%, with over half of the growth attributable to our Vesta Modular and several smaller Portable Storage acquisitions completed earlier this year. Before acquisitions, the modular segment rental revenues grew organically by a robust 13%.

Our modular business saw broad based rental strength across commercial, education and portable storage customer bases. We maintained our focus on pricing optimization, rental fleet utilization, and value-added services for our modular customers. Our initiatives to grow modular sales also showed progress as sales revenues doubled compared to a year ago.

TRS-RenTelco experienced continued softness in semiconductor related demand, resulting in 10% lower rental revenues for the quarter, compared to a year ago. During the quarter we reduced new equipment capital spending, made progress with sales of underutilized equipment, and improved rental fleet utilization to above 60% at quarter-end.

We made good progress with the Vesta integration. Our organization work is complete and the Vesta team is fully integrated into the McGrath organization. I am very pleased with the team collaboration and commercial successes that have been achieved.

We are very pleased with our year-to-date performance, and we are fully focused on solid execution for the remainder of the year.”

 

Division HIGHLIGHTS:

All comparisons presented below are for the quarter ended September 30, 2023 to the quarter ended September 30, 2022 unless otherwise indicated.

 

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Mobile Modular

For the third quarter of 2023, the Company’s Mobile Modular division reported Adjusted EBITDA of $73.0 million, an increase of $33.1 million, or 83%.

TRS-RenTelco

For the third quarter of 2023, the Company’s TRS-RenTelco division reported Adjusted EBITDA of $21.9 million, a decrease of 9%, when compared to the same quarter in 2022.

financial outlook:

 

Based upon the Company's year-to-date results and current outlook for the remainder of the year, the Company is revising its financial outlook. For the full-year 2023, the Company expects:

 

		Previous (Continuing Operations)	Current (Continuing Operations)
•	Total revenue:	$805 to $830 million	$820 to $830 million
•	Adjusted EBITDA1, 2:	$306 to $320 million	$312 to $320 million
•	Gross rental equipment capital expenditures:	$190 to $200 million	$190 to $200 million

 

 

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ABOUT MCGRATH:

McGrath RentCorp (Nasdaq: MGRC) is a leading business-to-business rental company in North America with a strong record of profitable business growth. Founded in 1979, McGrath’s operations are centered on modular solutions through its Mobile Modular and Mobile Modular Portable Storage businesses. In addition, its TRS-RenTelco business offers electronic test equipment rental solutions. The Company’s rental product offerings and services are part of the circular supply economy, helping customers work more efficiently, and sustainably manage their environmental footprint. With over 40 years of experience, McGrath’s success is driven by a focus on exceptional customer experiences. This focus has underpinned the Company’s long-term financial success and supported over 30 consecutive years of annual dividend increases to shareholders, a rare distinction among publicly listed companies.

McGrath is headquartered in Livermore, California. Additional information about McGrath and its businesses is available at mgrc.com and investors.mgrc.com.

You should read this press release in conjunction with the financial statements and notes thereto included in the Company’s latest Forms 10-K, 10-Q and other SEC filings. You can visit the Company’s web site at www.mgrc.com to access information on McGrath RentCorp, including the latest Forms 10-K, 10-Q and other SEC filings.

 

Conference Call Note:

As previously announced in its press release of September 28, 2023, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 26, 2023 to discuss the third quarter 2023 results. To participate in the teleconference, dial 1-800-245-3047 (in the U.S.), or 1-203-518-9765 (outside the U.S.), or to listen only, access the simultaneous webcast at the investor relations section of the Company’s website at https://investors.mgrc.com/. A replay will be available for 7 days following the call by dialing 1-800-839-5685 (in the U.S.), or 1-402-220-2567 (outside the U.S.). In addition, a live audio webcast and replay of the call may be found in the investor relations section of the Company’s website at https://investors.mgrc.com/events-and-presentations.

 

FORWARD-LOOKING STATEMENTS:

This press release contains 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 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. In particular, Mr. Hanna’s statements about (i) progress with sales of underutilized TRS equipment, (ii) focus on solid execution for the remainder of the year, and (iii) statements regarding the full year 2023 in the “Financial Outlook” section, are forward-looking.

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: health of the education and commercial markets in our modular building division; unforeseen liabilities and integration challenges associated with the Vesta, Brekke Storage, Dixie Storage and Inland Storage acquisitions; competition within the modular business; the activity levels in the semiconductor and general purpose and communications test equipment markets at TRS-RenTelco; continued execution of our strategic performance improvement initiatives; our ability to successfully increase prices to offset cost increases; and our ability to effectively manage our rental assets, as well as the other factors disclosed under “Risk Factors” in the Company’s Form 10-K and other SEC filings.

Forward-looking statements are made only as of the date hereof. Except as otherwise required by law, we assume no obligation to update any of the forward-looking statements contained in this press release.

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MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands, except per share amounts)		2023				2022				2023				2022
Revenues
Rental		$	122,686			$	100,871			$	350,773			$	285,588
Rental related services			40,492				28,198				101,481				69,276
Rental operations			163,178				129,069				452,254				354,864
Sales			77,115				44,414				148,576				95,503
Other			3,213				860				9,424				2,397
Total revenues			243,506				174,343				610,254				452,764
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment			22,069				20,174				66,499				60,118
Rental related services			28,532				20,576				71,625				50,116
Other			28,493				28,203				90,188				82,573
Total direct costs of rental operations			79,094				68,953				228,312				192,807
Costs of sales			52,878				28,548				98,431				58,124
Total costs of revenues			131,972				97,501				326,743				250,931
Gross profit			111,534				76,842				283,511				201,833
Selling and administrative expenses			48,508				36,954				153,032				103,368
Other income			(3,559	)			—				(3,559	)			—
Income from operations			66,585				39,888				134,038				98,465
Interest expense			(11,025	)			(3,355	)			(28,434	)			(8,057	)
Foreign currency exchange (loss) gain			(42	)			(236	)			166				(404	)
Income from continuing operations before provision for income taxes			55,518				36,297				105,770				90,004
Provision for income taxes from continuing operations			15,152				9,182				25,934				21,687
Income from continuing operations			40,366				27,115				79,836				68,317
Discontinued operations:
Income from discontinued operations before provision for income taxes			—				4,635				1,709				9,350
Provision for income taxes from discontinued operations			—				1,183				453				2,170
Gain on sale of discontinued operations, net of tax			—				—				61,513				—
Income from discontinued operations			—				3,452				62,769				7,180
Net income		$	40,366			$	30,567			$	142,605			$	75,497
Earnings per share from continuing operations:
Basic		$	1.65			$	1.11			$	3.26			$	2.81
Diluted		$	1.65			$	1.11			$	3.26			$	2.79
Earnings per share from discontinued operations:
Basic		$	—			$	0.14			$	2.57			$	0.29
Diluted		$	—			$	0.14			$	2.56			$	0.29
Earnings per share:
Basic		$	1.65			$	1.25			$	5.83			$	3.10
Diluted		$	1.65			$	1.25			$	5.81			$	3.08
Shares used in per share calculation:
Basic			24,487				24,379				24,461				24,342
Diluted			24,525				24,504				24,527				24,516
Cash dividends declared per share		$	0.465			$	0.455			$	1.395			$	1.365

 

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MCGRATH RENTCORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

		September 30,				December 31,
(in thousands)		2023				2022
Assets
Cash		$	1,946			$	957
Accounts receivable, net of allowance for credit losses of $2,683 in 2023 and $2,300 in 2022			224,269				169,937
Rental equipment, at cost:
Relocatable modular buildings			1,474,359				1,123,268
Electronic test equipment			383,006				398,267
			1,857,365				1,521,535
Less: accumulated depreciation			(565,497	)			(531,218	)
Rental equipment, net			1,291,868				990,317
Property, plant and equipment, net			146,484				138,713
Prepaid expenses and other assets			80,853				69,837
Intangible assets, net			67,480				35,431
Goodwill			323,771				106,403
Assets of discontinued operations			—				196,249
Total assets		$	2,136,671			$	1,707,844
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	667,640			$	413,742
Accounts payable and accrued liabilities			223,010				151,208
Deferred income			105,534				82,417
Deferred income taxes, net			229,115				203,361
Liabilities of discontinued operations			—				53,171
Total liabilities			1,225,299				903,899
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,489 shares as of September 30, 2023 and 24,388 shares as of December 31, 2022			109,253				110,080
Retained earnings			802,161				693,943
Accumulated other comprehensive loss			(42	)			(78	)
Total shareholders’ equity			911,372				803,945
Total liabilities and shareholders’ equity		$	2,136,671			$	1,707,844

 

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MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine Months Ended September 30,
(in thousands)		2023				2022
Cash Flows from Operating Activities:
Net income		$	142,605			$	75,497
Adjustments to reconcile net income to net cash provided by    operating activities:
Depreciation and amortization			81,842				83,272
Deferred income taxes			(30,018	)			(4,299	)
Provision for credit losses			1,794				307
Share-based compensation			5,273				5,106
Gain on sale of property, plant and equipment			(3,559	)			—
Gain on sale of discontinued operations			(61,513	)			—
Gain on sale of used rental equipment			(22,964	)			(26,705	)
Foreign currency exchange (gain) loss			(166	)			404
Amortization of debt issuance costs			6				13
Change in:
Accounts receivable			(27,733	)			(30,767	)
Prepaid expenses and other assets			(7,390	)			(17,313	)
Accounts payable and accrued liabilities			32,818				14,384
Deferred income			7,908				33,399
Net cash provided by operating activities			118,903				133,298
Cash Flows from Investing Activities:
Proceeds from sale of discontinued operations			268,012				—
Purchases of rental equipment			(171,322	)			(130,395	)
Purchases of property, plant and equipment			(16,448	)			(10,594	)
Cash paid for acquisition of businesses			(458,315	)			—
Cash paid for acquisition of business assets			(3,474	)			—
Proceeds from sales of used rental equipment			49,405				54,193
Proceeds from sales of property, plant and equipment			595				—
Net cash used in investing activities			(331,547	)			(86,796	)
Cash Flows from Financing Activities:
Net borrowings (payments) under bank lines of credit			178,892				(7,000	)
Borrowings under note purchase agreement			75,000				—
Taxes paid related to net share settlement of stock awards			(6,100	)			(6,253	)
Payment of dividends			(34,168	)			(33,175	)
Net cash provided by (used in) financing activities			213,624				(46,428	)
Effect of foreign currency exchange rate changes on cash			9				(4	)
Net increase in cash			989				70
Cash balance, beginning of period			957				1,491
Cash balance, end of period		$	1,946			$	1,561
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	27,818			$	8,982
Net income taxes paid, during the period		$	9,547			$	24,885
Dividends accrued during the period, not yet paid		$	12,014			$	11,167
Rental equipment acquisitions, not yet paid		$	5,765			$	9,555
Proceeds to be received on the sale of property, plant and equipment		$	6,370			$	—
Business acquisition payments withheld		$	293			$	—

 

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MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended September 30, 2023
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Enviroplex				Adler Tanks (Discontinued)				Consolidated
Revenues
Rental		$	94,028			$	28,658			$	—			$	—			$	122,686
Rental related services			39,716				776				—				—				40,492
Rental operations			133,744				29,434				—				—				163,178
Sales			58,867				8,733				9,515				—				77,115
Other			2,271				942				—				—				3,213
Total revenues			194,882				39,109				9,515				—				243,506
Costs and Expenses
Direct costs of rental operations:
Depreciation			10,037				12,032				—				—				22,069
Rental related services			27,927				605				—				—				28,532
Other			23,353				5,140				—				—				28,493
Total direct costs of rental operations			61,317				17,777				—				—				79,094
Costs of sales			39,821				5,651				7,406				—				52,878
Total costs of revenues			101,138				23,428				7,406				—				131,972
Gross Profit
Rental			60,638				11,486				—				—				72,124
Rental related services			11,789				171				—				—				11,960
Rental operations			72,427				11,657				—				—				84,084
Sales			19,046				3,082				2,109				—				24,237
Other			2,271				942				—				—				3,213
Total gross profit			93,744				15,681				2,109				—				111,534
Selling and administrative expenses			39,832				6,999				1,677				—				48,508
Other income			(2,740	)			(819	)			—				—				(3,559	)
Income from operations		$	56,652			$	9,501			$	432			$	—				66,585
Interest expense																			(11,025	)
Foreign currency exchange loss																			(42	)
Provision for income taxes																			(15,152	)
Net income																		$	40,366
Other Information
Adjusted EBITDA 1		$	72,953			$	21,858			$	517			$	—			$	95,328
Average rental equipment 2		$	1,350,562			$	385,353
Average monthly total yield 3			2.32	%			2.46	%
Average utilization 4			79.4	%			59.4	%
Average monthly rental rate 5			2.92	%			4.17	%

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the quarter ended September 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks.

2. Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

3. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.

4. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.

5. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

 

 

 

 

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MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended September 30, 2022
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Enviroplex				Adler Tanks (Discontinued)				Consolidated
Revenues
Rental		$	69,111			$	31,760			$	—			$	17,490			$	118,361
Rental related services			27,353				845				—				7,163				35,361
Rental operations			96,464				32,605				—				24,653				153,722
Sales			28,922				5,514				9,978				977				45,391
Other			452				408				—				563				1,423
Total revenues			125,838				38,527				9,978				26,193				200,536
Costs and Expenses
Direct costs of rental operations:
Depreciation			7,747