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, 2023

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 25, 2023, 24,489,445 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. 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, 2023, and the related condensed consolidated statements of income, comprehensive income, shareholders’ equity, for the three-month and nine-month periods ended September 30, 2023 and 2022, cash flows for the nine-month periods ended September 30, 2023 and 2022, 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, 2022, 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 22, 2023, 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, 2022, 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 26, 2023

 

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)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

40,366

 

 

$

30,567

 

 

$

142,605

 

 

$

75,497

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax impact

 

 

11

 

 

 

65

 

 

 

36

 

 

 

129

 

Comprehensive income

 

$

40,377

 

 

$

30,632

 

 

$

142,641

 

 

$

75,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

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

 

 

 

 

 

 

 

 

 

 

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, 2022

 

 

24,388

 

 

$

110,080

 

 

$

693,943

 

 

$

(78

)

 

$

803,945

 

Net income

 

 

 

 

 

 

 

 

71,657

 

 

 

 

 

 

71,657

 

Share-based compensation

 

 

 

 

 

1,493

 

 

 

 

 

 

 

 

 

1,493

 

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

 

 

78

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

(6,086

)

 

 

 

 

 

 

 

 

(6,086

)

Dividends accrued of $0.465 per share

 

 

 

 

 

 

 

 

(11,453

)

 

 

 

 

 

(11,453

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

(18

)

Balance at March 31, 2023

 

 

24,466

 

 

$

105,487

 

 

$

754,147

 

 

$

(96

)

 

$

859,538

 

Net income

 

 

 

 

 

 

 

 

30,582

 

 

 

 

 

 

30,582

 

Share-based compensation

 

 

 

 

 

1,889

 

 

 

 

 

 

 

 

 

1,889

 

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

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

(14

)

Dividends accrued of $0.465 per share

 

 

 

 

 

 

 

 

(11,469

)

 

 

 

 

 

(11,469

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

43

 

 

 

43

 

Balance at June 30, 2023

 

 

24,485

 

 

$

107,362

 

 

$

773,260

 

 

$

(53

)

 

$

880,569

 

Net income

 

 

 

 

 

 

 

 

40,366

 

 

 

 

 

 

40,366

 

Share-based compensation

 

 

 

 

 

1,891

 

 

 

 

 

 

 

 

 

1,891

 

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

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends accrued of $0.465 per share

 

 

 

 

 

 

 

 

(11,465

)

 

 

 

 

 

(11,465

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

11

 

Balance at September 30, 2023

 

 

24,489

 

 

$

109,253

 

 

$

802,161

 

 

$

(42

)

 

$

911,372

 

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, 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