10-Q 1 mgrc-20240331.htm 10-Q 10-Q
Q1false--12-3100007527140000752714us-gaap:TransferredAtPointInTimeMember2024-01-012024-03-310000752714mgrc:DixieTemporaryStorageLlcMember2023-04-0100007527142023-10-012023-12-310000752714mgrc:PortableStorageMember2023-03-310000752714mgrc:NonLeaseSalesMember2024-01-012024-03-310000752714mgrc:AdlerTankRentalsLlcMember2023-01-012023-12-310000752714mgrc:NonLeaseRevenuesMembermgrc:EnviroplexMember2024-01-012024-03-310000752714mgrc:VestaHousingSolutionsHoldingsIncMember2023-01-012023-03-310000752714us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-03-310000752714mgrc:PortableStorageMembermgrc:NonLeaseSalesMember2024-01-012024-03-310000752714us-gaap:CommonStockMember2023-03-310000752714mgrc:DeferredIncomeMember2024-03-310000752714mgrc:MobileModularMember2023-01-012023-03-310000752714us-gaap:ProductMember2023-01-012023-03-310000752714us-gaap:GeographicConcentrationRiskMemberus-gaap:SalesRevenueNetMemberus-gaap:NonUsMember2024-01-012024-03-310000752714mgrc:MobileModularMembermgrc:NonLeaseSalesMember2023-01-012023-03-310000752714mgrc:NonLeaseOtherMembermgrc:PortableStorageMember2023-01-012023-03-310000752714mgrc:WillscotMobileMiniHoldingsCorpMembermgrc:FirstStepMergerMember2024-01-280000752714srt:MaximumMember2015-08-310000752714mgrc:EnviroplexMember2023-01-012023-03-310000752714us-gaap:CommonStockMember2023-01-012023-03-310000752714mgrc:BrekkeStorageMember2023-03-010000752714mgrc:LeasingMember2023-01-012023-03-310000752714us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310000752714us-gaap:SalesRevenueNetMemberus-gaap:NonUsMemberus-gaap:GeographicConcentrationRiskMember2023-01-012023-03-310000752714mgrc:MobileModularMemberus-gaap:IntersegmentEliminationMember2024-01-012024-03-310000752714mgrc:EnviroplexMembermgrc:NonLeaseSalesMember2024-01-012024-03-310000752714mgrc:LeasingMembermgrc:MobileModularMember2024-01-012024-03-310000752714us-gaap:AccountsReceivableMember2023-12-310000752714mgrc:NonLeaseOtherMember2024-01-012024-03-310000752714srt:MaximumMemberus-gaap:CustomerRelationshipsMember2024-01-012024-03-310000752714mgrc:LeasingMembermgrc:PortableStorageMember2023-01-012023-03-310000752714us-gaap:ProductAndServiceOtherMembermgrc:AdlerTankRentalsLlcMember2023-01-012023-03-310000752714mgrc:IncrementalCreditFacilityMemberus-gaap:SubsequentEventMembermgrc:TermLoanMember2024-04-2300007527142024-03-310000752714us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310000752714mgrc:VestaHousingSolutionsHoldingsIncMember2023-02-012023-02-010000752714mgrc:MobileModularMember2024-01-012024-03-3100007527142024-01-012024-03-310000752714mgrc:AdlerTankRentalsLlcMember2023-02-010000752714mgrc:MobileModularMembermgrc:NonLeaseSalesMember2024-01-012024-03-310000752714mgrc:MobileModularMembermgrc:NonLeaseRentalRelatedServicesMember2023-01-012023-03-310000752714mgrc:TrsRenTelcoMembermgrc:NonLeaseSalesMember2024-01-012024-03-310000752714mgrc:DeferredIncomeMember2023-12-310000752714srt:MinimumMemberus-gaap:TradeNamesMember2024-01-012024-03-310000752714us-gaap:RetainedEarningsMember2024-01-012024-03-310000752714us-gaap:RetainedEarningsMember2022-12-310000752714mgrc:TrsRenTelcoMembermgrc:NonLeaseOtherMember2023-01-012023-03-310000752714us-gaap:RetainedEarningsMember2023-12-310000752714us-gaap:TransferredOverTimeMember2024-01-012024-03-310000752714mgrc:LeasingMembermgrc:PortableStorageMember2024-01-012024-03-310000752714mgrc:PortableStorageMembermgrc:NonLeaseSalesMember2023-01-012023-03-310000752714srt:MinimumMemberus-gaap:CustomerRelationshipsMember2024-01-012024-03-310000752714mgrc:TrsRenTelcoMembermgrc:NonLeaseRentalRelatedServicesMember2024-01-012024-03-310000752714mgrc:InlandLeasingAndStorageLLCMember2023-07-010000752714mgrc:NonLeaseRentalRelatedServicesMember2024-01-012024-03-310000752714us-gaap:TradeNamesMember2024-03-310000752714us-gaap:AccountsReceivableMember2024-03-310000752714mgrc:NonLeaseRevenuesMembermgrc:PortableStorageMember2024-01-012024-03-310000752714srt:MaximumMemberus-gaap:TradeNamesMember2024-01-012024-03-310000752714mgrc:NonLeaseRevenuesMembermgrc:PortableStorageMember2023-01-012023-03-310000752714mgrc:VestaModularBrekkeStorageAndDixieStorageMember2024-03-310000752714mgrc:NonLeaseRevenuesMember2024-01-012024-03-3100007527142023-01-012023-03-310000752714srt:MinimumMemberus-gaap:TradeNamesMember2023-01-012023-12-310000752714mgrc:WillscotMobileMiniHoldingsCorpMembermgrc:FirstStepMergerMember2024-01-282024-01-280000752714us-gaap:OperatingSegmentsMemberus-gaap:ProductMembermgrc:EnviroplexMember2023-01-012023-03-310000752714mgrc:DixieTemporaryStorageLlcMemberus-gaap:CustomerRelationshipsMember2023-04-012023-04-010000752714mgrc:NonLeaseRevenuesMembermgrc:MobileModularMember2023-01-012023-03-310000752714us-gaap:OperatingSegmentsMemberus-gaap:ProductMembermgrc:EnviroplexMember2024-01-012024-03-310000752714mgrc:TrsRenTelcoMember2023-01-012023-03-310000752714mgrc:TrsRenTelcoMember2024-01-012024-03-310000752714us-gaap:NoncompeteAgreementsMember2024-01-012024-03-310000752714mgrc:EnviroplexMember2024-03-310000752714srt:MinimumMemberus-gaap:CustomerRelationshipsMember2023-01-012023-12-310000752714mgrc:AdlerTankRentalsLlcMember2023-02-012023-02-010000752714mgrc:TrsRenTelcoMembermgrc:NonLeaseSalesMember2023-01-012023-03-3100007527142022-12-310000752714mgrc:AdlerTankRentalsLlcMember2022-12-310000752714us-gaap:TradeNamesMember2023-12-310000752714mgrc:NonLeaseOtherMembermgrc:PortableStorageMember2024-01-012024-03-310000752714us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310000752714us-gaap:NoncompeteAgreementsMembermgrc:BrekkeStorageMember2023-03-010000752714mgrc:PortableStorageMembermgrc:NonLeaseRentalRelatedServicesMember2024-01-012024-03-310000752714us-gaap:ProductAndServiceOtherMember2024-01-012024-03-310000752714mgrc:PortableStorageMember2024-03-3100007527142024-04-240000752714mgrc:EnviroplexMember2024-01-012024-03-310000752714mgrc:MobileModularMemberus-gaap:IntersegmentEliminationMember2023-01-012023-03-310000752714mgrc:NonLeaseRevenuesMember2023-01-012023-03-310000752714mgrc:VestaHousingSolutionsHoldingsIncMemberus-gaap:CustomerRelationshipsMember2023-02-010000752714mgrc:VestaHousingSolutionsHoldingsIncMemberus-gaap:TradeNamesMember2024-01-012024-03-310000752714mgrc:NonLeaseRevenuesMembermgrc:EnviroplexMember2023-01-012023-03-310000752714us-gaap:ProductMembermgrc:AdlerTankRentalsLlcMember2023-01-012023-03-310000752714mgrc:NonLeaseOtherMember2023-01-012023-03-310000752714us-gaap:RetainedEarningsMember2023-03-310000752714mgrc:TrsRenTelcoMembermgrc:NonLeaseRentalRelatedServicesMember2023-01-012023-03-310000752714mgrc:TrsRenTelcoMember2023-03-310000752714us-gaap:ProductMember2024-01-012024-03-310000752714mgrc:IncrementalCreditFacilityMemberus-gaap:SubsequentEventMembermgrc:TermLoanMember2024-04-232024-04-230000752714mgrc:PortableStorageMember2024-01-012024-03-310000752714mgrc:VestaHousingSolutionsHoldingsIncMember2023-02-010000752714us-gaap:RetainedEarningsMember2024-03-310000752714us-gaap:CustomerRelationshipsMember2023-12-310000752714mgrc:VestaHousingSolutionsHoldingsIncMemberus-gaap:TradeNamesMember2023-02-010000752714mgrc:MobileModularMember2023-03-310000752714mgrc:EnviroplexMembermgrc:NonLeaseSalesMember2023-01-012023-03-310000752714mgrc:EnviroplexMember2023-03-310000752714mgrc:AdlerTankRentalsLlcMember2022-01-012022-12-310000752714mgrc:NonLeaseOtherMembermgrc:MobileModularMember2023-01-012023-03-310000752714mgrc:LeasingMember2024-01-012024-03-310000752714us-gaap:NoncompeteAgreementsMembermgrc:VestaHousingSolutionsHoldingsIncMember2023-02-010000752714mgrc:MobileModularMembermgrc:NonLeaseRentalRelatedServicesMember2024-01-012024-03-310000752714us-gaap:CustomerRelationshipsMembermgrc:BrekkeStorageMember2023-03-010000752714mgrc:NonLeaseRevenuesMembermgrc:TrsRenTelcoMember2023-01-012023-03-310000752714mgrc:TrsRenTelcoMember2024-03-310000752714us-gaap:NoncompeteAgreementsMember2023-01-012023-12-310000752714us-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2024-01-012024-03-310000752714us-gaap:NoncompeteAgreementsMember2024-03-3100007527142023-03-310000752714us-gaap:CommonStockMember2024-01-012024-03-310000752714mgrc:LeasingMembermgrc:TrsRenTelcoMember2023-01-012023-03-310000752714mgrc:MobileModularMember2024-03-310000752714mgrc:NonLeaseRentalRelatedServicesMember2023-01-012023-03-310000752714mgrc:AdlerTankRentalsLlcMember2023-01-012023-03-310000752714us-gaap:NoncompeteAgreementsMember2023-12-310000752714mgrc:NonLeaseOtherMembermgrc:MobileModularMember2024-01-012024-03-310000752714us-gaap:NoncompeteAgreementsMembermgrc:DixieTemporaryStorageLlcMember2023-04-010000752714us-gaap:CustomerRelationshipsMembermgrc:BrekkeStorageMember2023-03-012023-03-010000752714us-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-01-012023-03-310000752714mgrc:VestaHousingSolutionsHoldingsIncMemberus-gaap:CustomerRelationshipsMember2023-02-012023-02-010000752714us-gaap:CommonStockMember2024-03-310000752714us-gaap:CustomerRelationshipsMember2024-03-310000752714us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310000752714us-gaap:CustomerRelationshipsMembermgrc:DixieTemporaryStorageLlcMember2023-04-010000752714srt:MaximumMemberus-gaap:CustomerRelationshipsMember2023-01-012023-12-310000752714us-gaap:CommonStockMember2023-12-3100007527142023-12-310000752714us-gaap:ProductAndServiceOtherMember2023-01-012023-03-310000752714mgrc:NonLeaseRevenuesMembermgrc:TrsRenTelcoMember2024-01-012024-03-310000752714mgrc:PortableStorageMembermgrc:NonLeaseRentalRelatedServicesMember2023-01-012023-03-310000752714mgrc:NonLeaseSalesMember2023-01-012023-03-310000752714mgrc:BrekkeStorageMember2023-03-012023-03-010000752714us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310000752714mgrc:LeasingMembermgrc:MobileModularMember2023-01-012023-03-310000752714mgrc:PortableStorageMember2023-01-012023-03-310000752714mgrc:NonLeaseRevenuesMembermgrc:MobileModularMember2024-01-012024-03-310000752714us-gaap:RetainedEarningsMember2023-01-012023-03-310000752714srt:MaximumMemberus-gaap:TradeNamesMember2023-01-012023-12-310000752714mgrc:LeasingMembermgrc:TrsRenTelcoMember2024-01-012024-03-310000752714mgrc:TrsRenTelcoMembermgrc:NonLeaseOtherMember2024-01-012024-03-310000752714us-gaap:CommonStockMember2022-12-31mgrc:Segmentxbrli:puremgrc:PortableStoragemgrc:Customerxbrli:sharesiso4217:USDiso4217:USDxbrli:shares

 

 

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 March 31, 2024

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 April 24, 2024, 24,548,743 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, including statements about (1) our expectations around the effect of the proposed acquisition of us by WillScot Mobile Mini, and (2) our belief that we will continue to be able to negotiate general bank lines of credit and issue senior notes adequate to meet capital requirements not otherwise met by operational cash flows and proceeds from sales of rental equipment. 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. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.

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 March 31, 2024, and the related condensed consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the three-months ended March 31, 2024 and 2023, 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, 2023, 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 21, 2024, 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, 2023, 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

April 25, 2024

 

3


 

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

Three Months Ended March 31,

 

(in thousands, except per share amounts)

 

2024

 

 

2023

 

Revenues

 

 

 

 

 

 

Rental

 

$

120,332

 

 

$

110,247

 

Rental related services

 

 

29,580

 

 

 

27,132

 

Rental operations

 

 

149,912

 

 

 

137,379

 

Sales

 

 

35,069

 

 

 

23,660

 

Other

 

 

2,846

 

 

 

2,679

 

Total revenues

 

 

187,827

 

 

 

163,718

 

Costs and Expenses

 

 

 

 

 

 

Direct costs of rental operations:

 

 

 

 

 

 

Depreciation of rental equipment

 

 

22,366

 

 

 

21,833

 

Rental related services

 

 

20,786

 

 

 

19,268

 

Other

 

 

29,010

 

 

 

31,135

 

Total direct costs of rental operations

 

 

72,162

 

 

 

72,236

 

Costs of sales

 

 

22,397

 

 

 

14,115

 

Total costs of revenues

 

 

94,559

 

 

 

86,351

 

Gross profit

 

 

93,268

 

 

 

77,367

 

Expenses:

 

 

 

 

 

 

Selling and administrative expenses

 

 

59,818

 

 

 

57,498

 

Other income, net

 

 

(9,281

)

 

 

 

Income from operations

 

 

42,731

 

 

 

19,869

 

Interest expense

 

 

12,704

 

 

 

7,464

 

Foreign currency exchange loss (gain)

 

 

132

 

 

 

(226

)

Income from continuing operations before provision for income taxes

 

 

29,895

 

 

 

12,631

 

Provision for income taxes from continuing operations

 

 

7,047

 

 

 

1,113

 

Income from continuing operations

 

 

22,848

 

 

 

11,518

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Income from discontinued operations before provision for income taxes

 

 

 

 

 

1,709

 

Provision for income taxes from discontinued operations

 

 

 

 

 

453

 

Gain on sale of discontinued operations, net of tax

 

 

 

 

 

58,883

 

Income from discontinued operations

 

 

 

 

 

60,139

 

 

 

 

 

 

 

 

Net income

 

$

22,848

 

 

$

71,657

 

 

 

 

 

 

 

 

Earnings per share from continuing operations:

 

 

 

 

 

 

Basic

 

$

0.93

 

 

$

0.47

 

Diluted

 

$

0.93

 

 

$

0.47

 

Earnings per share from discontinued operations:

 

 

 

 

 

 

Basic

 

$

 

 

$

2.46

 

Diluted

 

$

 

 

$

2.45

 

Earnings per share:

 

 

 

 

 

 

Basic

 

$

0.93

 

 

$

2.93

 

Diluted

 

$

0.93

 

 

$

2.92

 

Shares used in per share calculation:

 

 

 

 

 

 

Basic

 

 

24,513

 

 

 

24,416

 

Diluted

 

 

24,564

 

 

 

24,542

 

Cash dividends declared per share

 

$

0.475

 

 

$

0.465

 

 

 

 

 

 

 

 

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 March 31,

 

(in thousands)

 

2024

 

 

2023

 

Net income

 

$

22,848

 

 

$

71,657

 

Other comprehensive income:

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax impact

 

 

67

 

 

 

(18

)

Comprehensive income

 

$

22,915

 

 

$

71,639

 

 

 

 

 

 

 

 

 

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

 

5


 

McGrath RentCorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

March 31,

 

December 31,

 

 

(in thousands)

 

2024

 

2023

 

 

Assets

 

 

 

 

 

 

Cash

 

$

1,912

 

$

877

 

 

Accounts receivable, net of allowance for credit losses of $2,819 at March 31, 2024 and $2,801 at December 31, 2023

 

 

211,950

 

 

227,368

 

 

Rental equipment, at cost:

 

 

 

 

 

 

Relocatable modular buildings

 

 

1,345,919

 

 

1,291,093

 

 

Portable storage containers

 

 

240,517

 

 

236,123

 

 

Electronic test equipment

 

 

370,641

 

 

377,587

 

 

 

 

 

1,957,077

 

 

1,904,803

 

 

Less: accumulated depreciation

 

 

(588,535

)

 

(575,480

)

 

Rental equipment, net

 

 

1,368,542

 

 

1,329,323

 

 

Property, plant and equipment, net

 

 

189,166

 

 

169,114

 

 

Inventories

 

 

24,548

 

 

15,425

 

 

Prepaid expenses and other assets

 

 

82,066

 

 

87,364

 

 

Intangible assets, net

 

 

62,020

 

 

64,588

 

 

Goodwill

 

 

323,224

 

 

323,224

 

 

Total assets

 

$

2,263,428

 

$

2,217,283

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Notes payable

 

$

798,561

 

$

762,975

 

 

Accounts payable

 

 

57,162

 

 

58,760

 

 

Accrued liabilities

 

 

95,725

 

 

108,763

 

 

Deferred income

 

 

122,696

 

 

111,428

 

 

Deferred income taxes, net

 

 

246,264

 

 

241,555

 

 

Total liabilities

 

 

1,320,408

 

 

1,283,481

 

 

Shareholders’ equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

Issued and outstanding - 24,541 shares as of March 31, 2024 and 24,496 shares as of December 31, 2023

 

 

109,249

 

 

111,122

 

 

Retained earnings

 

 

833,820

 

 

822,796

 

 

Accumulated other comprehensive loss

 

 

(49

)

 

(116

)

 

Total shareholders’ equity

 

 

943,020

 

 

933,802

 

 

Total liabilities and shareholders’ equity

 

$

2,263,428

 

$

2,217,283

 

 

 

 

 

 

 

 

 

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, 2023

 

 

24,496

 

 

$

111,122

 

 

$

822,796

 

 

$

(116

)

 

 

933,802

 

Net income

 

 

 

 

 

 

 

 

22,848

 

 

 

 

 

 

22,848

 

Share-based compensation

 

 

 

 

 

2,209

 

 

 

 

 

 

 

 

 

2,209

 

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

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stock awards

 

 

 

 

 

(4,082

)

 

 

 

 

 

 

 

 

(4,082

)

Dividends accrued of $0.475 per share

 

 

 

 

 

 

 

 

(11,824

)

 

 

 

 

 

(11,824

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

67

 

 

 

67

 

Balance at March 31, 2024

 

 

24,541

 

 

$

109,249

 

 

$

833,820

 

 

$

(49

)

 

$

943,020

 

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

 

 

 

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

 

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

 

7


 

McGrath RentCorp

CONDENSED Consolidated Statements of Cash Flows

(unaudited)

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

22,848

 

 

$

71,657

 

Adjustments to reconcile net income to net cash provided by
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

27,187

 

 

 

27,590

 

Deferred income taxes

 

 

4,709

 

 

 

(45,496

)

Provision for credit losses

 

 

253

 

 

 

744

 

Share-based compensation

 

 

2,209

 

 

 

1,493

 

Gain on sale of property, plant and equipment

 

 

(9,281

)

 

 

 

Gain on sale of discontinued operations

 

 

 

 

 

(58,883

)

Gain on sale of used rental equipment

 

 

(7,355

)

 

 

(3,089

)

Foreign currency exchange loss (gain)

 

 

132

 

 

 

(226

)

Amortization of debt issuance costs

 

 

2

 

 

 

2

 

     Change in:

 

 

 

 

 

 

Accounts receivable

 

 

15,165

 

 

 

16,209

 

Inventories

 

 

(9,123

)

 

 

(5,313

)

Prepaid expenses and other assets

 

 

5,298

 

 

 

(2,032

)

Accounts payable

 

 

9,145

 

 

 

31,559

 

Accrued liabilities

 

 

(13,037

)

 

 

(1,722

)

Deferred income

 

 

11,268

 

 

 

3,218

 

Net cash provided by operating activities

 

 

59,420

 

 

 

35,711

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Proceeds from sale of discontinued operations

 

 

 

 

 

262,454

 

Purchases of rental equipment

 

 

(78,641

)

 

 

(77,731

)

Purchases of property, plant and equipment

 

 

(25,277

)

 

 

(6,857

)

Cash paid for acquisition of businesses

 

 

 

 

 

(453,592

)

Proceeds from sales of used rental equipment

 

 

13,554

 

 

 

12,197

 

Proceeds from sales of property, plant and equipment

 

 

12,251

 

 

 

 

Net cash used in investing activities

 

 

(78,113

)

 

 

(263,529

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Net borrowings under bank lines of credit

 

 

35,584

 

 

 

245,033

 

Taxes paid related to net share settlement of stock awards

 

 

(4,082

)

 

 

(6,086

)

Payment of dividends

 

 

(11,774

)

 

 

(11,400

)

Net cash provided by financing activities

 

 

19,728

 

 

 

227,547

 

Effect of foreign currency exchange rate changes on cash

 

 

 

 

 

4

 

Net increase (decrease) in cash

 

 

1,035

 

 

 

(267

)

Cash balance, beginning of period

 

 

877

 

 

 

957

 

Cash balance, end of period

 

$

1,912

 

 

$

690

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Interest paid, during the period

 

$

14,184

 

 

$

7,817

 

Net income taxes paid, during the period

 

$

479

 

 

$

413

 

Dividends accrued during the period, not yet paid

 

$

12,060

 

 

$

11,851

 

Rental equipment acquisitions, not yet paid

 

$

5,795

 

 

$

5,697

 

 

 

 

 

 

 

 

 

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

 

 

 

 

8


 

MCGRATH RENTCORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

 

 

NOTE 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 have not been audited, but in the opinion of management, all adjustments (consisting of normal recurring accruals, consolidating and eliminating entries) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows of McGrath RentCorp (the “Company”) have been made. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations. The consolidated results for the three months ended March 31, 2024, should not be considered as necessarily indicative of the consolidated results for the entire fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K, filed with the SEC on February 21, 2024 for the year ended December 31, 2023 (the “2023 Annual Report”).

Agreement and Plan of Merger with WillScot Mobile Mini Holdings Corp.

On January 28, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with WillScot Mobile Mini Holdings Corp., a Delaware corporation ("WillScot Mobile Mini”), Brunello Merger Sub I, Inc., a California corporation and a direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub I”), and Brunello Merger Sub II, LLC, a Delaware limited liability company and direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub II”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub I will merge with and into the Company (the “First-Step Merger”), with the Company surviving the First-Step Merger and, immediately thereafter, the Company will merge with and into Merger Sub II (the “Second-Step Merger” and together with the First-Step Merger, the “Transaction”), with Merger Sub II surviving the Second-Step Merger as a wholly owned subsidiary of WillScot Mobile Mini. Each of the parties to the Merger Agreement intends that the Transaction will be treated as a single integrated transaction that qualifies as a “reorganization” within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended. Consummation of the Transaction is subject to the approval of the Company’s shareholders, the receipt of required regulatory approvals, and satisfaction or waiver of other customary closing conditions. The First-Step Merger and the Second-Step Merger will be consummated on the same day.

On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of common stock, no par value, of the Company (the “Company Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares of Company Common Stock owned by WillScot Mobile Mini or any subsidiary of WillScot Mobile Mini or the Company, and shares held by shareholders who did not vote in favor of the Transaction (or consent thereto in writing) and who are entitled to demand and properly demands appraisal of such shares, will be automatically converted into the right to receive either (1) $123 in cash (the “Per Share Cash Consideration”) or (2) 2.8211 (the “Exchange Ratio”) shares of validly issued, fully paid and nonassessable shares of common stock, par value $0.0001, of WillScot Mobile Mini (the “WillScot Mobile Mini Common Stock”) (the “Per Share Stock Consideration” together with the Per Share Cash Consideration, the “Merger Consideration”), as determined pursuant to the election and allocation procedures in the Merger Agreement. The Company’s shareholders will have the opportunity to elect to receive either the Per Share Cash Consideration or the Per Share Stock Consideration in respect of their Company Common Stock, provided that 60% of the Company Common Stock will be converted into the cash consideration and 40% of the Company Common Stock will be converted into the stock consideration. Pursuant to the terms of the Merger Agreement, the closing of the Merger Agreement is subject to the satisfaction of customary closing conditions, including adoption of the Merger Agreement by the Company’s shareholders and receipt of regulatory approvals. The closing of the Transaction is not subject to any financing condition.

NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS

In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes—Improvements to Income Tax Disclosures (Topic 740), which will require Companies to disclose annually the specific categories in income tax rate reconciliations, provide additional information for reconciling items which meet a quantitative threshold, and disaggregate domestic and foreign income or loss from continuing operations. Additionally, this ASU will also require the disclosure of income tax expense or benefit from continuing operations disaggregated by federal, state and foreign. This ASU is effective for fiscal years beginning after December 15, 2024, and applied on a prospective basis. The Company is in the process of evaluating the financial statement impact of this ASU.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280), which will require public companies to provide more transparency in both quarterly and

9


 

annual reports about the expenses they incur from revenue generating reportable business segments. In addition, the ASU requires that a public entity disclose significant segment expenses that are regularly provided to the chief operating decision maker, an amount for other segment items by reportable business segment, including a description of its composition, and the primary measures of a business segment's profit or loss in assessing segment performance. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is in the process of evaluating the financial statement impact of this ASU.

NOTE 3. IMPLEMENTED ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2024, the Company adopted the Accounting Standards Update ("ASU") 2023-01, Leases (Topic 842): Common Control Arrangements, which requires a lessee involved in a common control lease agreement to amortize leasehold improvements over the useful life of the improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset. If the lessor obtains the right to control the use of the underlying asset through a lease with another entity not within the same control group, the amortization period cannot exceed the period of the common control group. Furthermore, the ASU requires the accounting for a transfer between entities under common control through an adjustment to equity when the lessee no longer controls the use of the underlying asset. The adoption of this new guidance did not have a material impact on the Company's consolidated financial statements.

NOTE 4. ACQUISITIONS

On February 1, 2023, the Company completed the acquisition of Vesta Housing Solutions Holdings, Inc. (“Vesta Modular”), a portfolio company of Kinderhook Industries, for $437.2 million cash consideration on the closing date, which included certain adjustments, including net working capital and certain qualified capital expenditures. In connection with the acquisition, the Company purchased a representation and warranty insurance policy to provide certain recourse in the event of breaches of representations and warranties of Vesta Modular and the seller of Vesta Modular under the stock purchase agreement. Vesta Modular was a leading provider of temporary and permanent modular space solutions serving customers between its modular leasing and modular construction divisions. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in Accounting Standards Codification ("ASC") 805, Business Combinations, using the purchase method of accounting. Under the purchase method of accounting, the total purchase price is assigned to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. The excess of the purchase price over those fair values is recorded as goodwill. The financial results of Vesta Modular were a part of the Mobile Modular segment since February 1, 2023, including $7.7 million of acquisition related transaction costs.

On March 1, 2023, the Company completed the acquisition of Jerald R. Brekke, Inc., DBA Brekke Storage ("Brekke Storage"), for a total purchase price of $16.4 million. Brekke Storage was a regional provider of portable storage solutions in the Colorado market. The acquisition expanded the Portable Storage fleet by approximately 2,700 units and provided a new regional operation to serve the Colorado market. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805 using the purchase method of accounting. The financial results of Brekke Storage were a part of the Portable Storage segment since March 1, 2023, including $0.2 million of transaction costs.

On April 1, 2023, the Company completed the acquisition of Dixie Temporary Storage, LLC ("Dixie Storage"), for a purchase price of $4.9 million. Dixie Storage was a regional provider of portable storage solutions in the South Carolina market and is highly complementary to the Company's Portable Storage business segment. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805 using the purchase method of accounting. The financial results of Dixie Storage were a part of the Portable Storage segment since April 1, 2023, including $0.1 million of transaction costs.

On July 1, 2023, the Company completed the purchase of assets of Inland Leasing and Storage, LLC ("Inland Leasing"), for a purchase price of $3.8 million. Inland Leasing was a regional provider of portable storage solutions in the Colorado market and is highly complementary to the Company's Portable Storage business segment. The acquisition was accounted for as a purchase of "assets" in accordance with criteria in ASC 805 and the assessment of the fair value of the purchased assets was allocated primarily to rental equipment totaling $3.0 million and intangible assets totaling $0.7 million. Supplemental pro forma information has not been provided as the historical financial results of Inland Leasing were not significant. Incremental transaction costs associated with the asset purchase were not significant.

The following tables summarize the purchase price allocations reflecting estimated fair values of assets acquired and liabilities assumed in the Vesta Modular, Brekke Storage and Dixie Storage business acquisitions, with excess amounts allocated to goodwill. The estimated fair values of the assets acquired and liabilities assumed at the acquisition date are determined based on preliminary valuations and analyses. Accordingly, the Company has made provisional estimates for the assets acquired and liabilities assumed. The valuation of intangible assets acquired is based on certain valuation assumptions including cash flow projections, discount rates, contributory asset

10


 

charges and other valuation model inputs. The valuation of tangible long-lived assets acquired is dependent upon various analyses including an analysis of the condition and estimated remaining economic lives of the assets acquired.

Vesta Modular:

(dollar amounts in thousands)

 

 

 

Rental equipment

 

$

212,639

 

Intangible assets:

 

 

 

   Goodwill

 

 

211,178

 

   Customer relationships

 

 

29,900

 

   Non-compete

 

 

7,100

 

Trade name

 

 

800

 

Cash

 

 

11

 

Accounts receivable

 

 

22,666

 

Property, plant and equipment

 

 

1,437

 

Prepaid expenses and other assets

 

 

3,550

 

Accounts payable and accrued liabilities

 

 

(26,202

)

Deferred income

 

 

(14,273

)

Deferred income taxes

 

 

(11,596

)

Total purchase price

 

$

437,210

 

Brekke Storage:

(dollar amounts in thousands)

 

 

 

Rental equipment

 

$

10,798

 

Intangible assets:

 

 

 

   Goodwill

 

 

4,083

 

   Customer relationships

 

 

949

 

   Non-compete

 

 

59

 

Property, plant and equipment

 

 

875

 

Deferred income

 

 

(382

)

Total purchase price

 

$

16,382

 

Dixie Storage:

(dollar amounts in thousands)

 

 

 

Rental equipment

 

$

2,758

 

Intangible assets:

 

 

 

   Goodwill

 

 

1,555

 

   Customer relationships

 

 

259

 

   Non-compete

 

 

22

 

Property, plant and equipment

 

 

318

 

Deferred income

 

 

(161

)

Total purchase price

 

$

4,751

 

The value assigned to identifiable intangible assets was determined based on discounted estimated future cash flows associated with such assets to their present value. The combined acquired goodwill of $216.8 million reflects the strategic fit of Vesta Modular, Brekke Storage and Dixie Storage with the Company’s modular and portable storage business operations. The Company amortizes the acquired customer relationships over their expected useful lives of 11 years for Vesta Modular, 8 years for Brekke Storage and 9 years for Dixie Storage. The expected useful life for the non-compete agreements is 5 years. The trade name intangible acquired from the Vesta Modular acquisition will be amortized over it's useful life of nine months. Goodwill is expected to have an indefinite life and will be subject to future impairment testing. The goodwill is deductible for tax purposes over 15 years.

 

The following table reports the actual results of the Company for the three months ended March 31, 2024, and the unaudited pro forma financial information for the three months ended March 31, 2023. The pro forma financial information shows the combined results of continuing operations of the Company and Vesta Modular as if the acquisition occurred as of the beginning of the period presented. The pro forma results include the effects of the amortization of the purchased intangible assets and depreciation expense of acquired rental equipment valuation step up, interest expense on the debt incurred to finance the acquisitions. A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the combined federal and state statutory rate of 26.5% on the acquisitions’ combined net income. The pro forma results for the three months ended March 31, 2023, have been adjusted to include

11


 

transaction related costs. This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of the future operations or the results that would have occurred had the acquisitions taken place in the periods noted below:

 

 

 

(Unaudited)

 

 

 

Three months ended March 31,

 

(dollar amounts in thousands, except for per share amounts)

 

2024

 

 

2023

 

 

 

(Actual)

 

 

(Pro Forma)

 

Pro-forma total revenues

 

$

187,827

 

 

$

171,361

 

Pro-forma net income

 

$

22,848

 

 

$

11,222

 

Pro-forma basic earnings per share

 

$

0.93

 

 

$

0.46

 

Pro-forma diluted earnings per share

 

$

0.93

 

 

$

0.46

 

 

 

 

 

 

 

 

Vesta Modular

 

 

 

 

 

 

Actual total revenues

 

 

 

 

$

17,584

 

Actual net income

 

 

 

 

$

3,679

 

Actual basic earnings per share

 

 

 

 

$

0.15

 

Actual diluted earnings per share

 

 

 

 

$

0.15

 

 

NOTE 5. DISCONTINUED OPERATIONS

On February 1, 2023, the Company completed the sale of Adler Tank Rentals, LLC to Ironclad Environmental Solutions, Inc. ("Ironclad"), a portfolio company of Kinderhook Industries, for a sale price of $268.0 million. The total transaction costs incurred from the divestiture were $8.8 million, with $6.7 million and $2.1 million incurred during the years ended December 31, 2023 and 2022, respectively. The divestiture of the Company's Adler Tanks business represents the Company's strategic shift to concentrate its operations on its core modular and storage businesses. The sale price was subject to certain adjustments, including net working capital, certain qualified capital expenditures and certain transaction expenses to be borne by the Company. In connection with the sale, the Company entered into a number of ancillary agreements, including an escrow agreement associated with net working capital adjustments, a restricted covenant agreement, a transition services agreement, and a number of leases whereby Ironclad or one of its affiliates would be a lessee to certain properties owned by the Company that the Adler Tanks business would continue to utilize after the sale. These ancillary agreements do not provide for continued involvement by the Company in Adler Tanks. In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations and ASC 360, Property, Plant and Equipment, the Company determined that the criteria for the presentation of discontinued operations and held-for-sale, respectively, were met during the first quarter of 2023.

The following table presents the results of Adler Tanks as reported in income from discontinued operations within the condensed consolidated statements of income for the three months ended March 31, 2023:

12


 

(dollar amounts in thousands)

 

Three Months Ended
March 31,

 

 

 

2023

 

Revenues

 

 

 

Rental

 

$

6,520

 

Rental related services

 

 

2,584

 

Rental operations

 

 

9,104

 

Sales

 

 

269

 

Other

 

 

65

 

Total revenues

 

 

9,438

 

Costs and Expenses

 

 

 

Direct costs of rental operations:

 

 

 

Depreciation of rental equipment

 

 

1,325

 

Rental related services

 

 

2,020

 

Other

 

 

1,270

 

Total direct costs of rental operations

 

 

4,614

 

Costs of sales

 

 

159

 

Total costs of revenues

 

 

4,773

 

Gross Profit

 

 

 

Rental

 

 

3,926

 

Rental related services

 

 

564

 

Rental operations

 

 

4,490

 

Sales

 

 

110

 

Other

 

 

65

 

Total gross profit

 

 

4,665

 

Selling and administrative expenses

 

 

2,582

 

Operating income

 

 

2,083

 

Interest expense allocation

 

 

(374

)

Income from discontinued operations before provision for income taxes

 

 

1,709

 

Provision for income taxes from discontinued operations

 

 

453

 

Income from discontinued operations

 

$

1,256

 

The following table presents the carrying value of the divested business' assets and liabilities as presented within assets and liabilities of discontinued operations on the consolidated balance sheets as of December 31, 2022, which was the most recently audited period prior to divestiture:

 

 

December 31,

 

(in thousands)

 

2022

 

Assets

 

 

 

Accounts receivable, net of allowance for credit losses of $450

 

$

20,086

 

Rental equipment, net

 

 

137,738

 

Property, plant and equipment, net

 

 

6,632

 

Prepaid expenses and other assets

 

 

191

 

Intangible assets, net

 

 

5,700

 

Goodwill

 

 

25,902

 

Total assets of discontinued operations

 

$

196,249

 

Liabilities

 

 

 

Accounts payable and accrued liabilities

 

$

9,621

 

Deferred income taxes, net

 

 

43,550

 

Total liabilities of discontinued operations

 

$

53,171

 

 

 

 

 

 

For the three months ended March 31, 2023, significant operating and investing items related to Adler Tanks were as follows:

13


 

 

 

March 31,

 

(in thousands)

 

2023

 

Operating activities of discontinued operations:

 

 

 

Depreciation and amortization

 

$

1,457

 

Gain on sale of used rental equipment

 

 

(111

)

Investing activities of discontinued operations:

 

 

 

Proceeds from sales of used rental equipment

 

 

269

 

Purchases of rental equipment

 

 

(25

)

Purchases of property, plant and equipment

 

 

(40

)

 

 

 

 

 

The following table presents the reconciliation of income from discontinued operations to Adjusted EBITDA for the three months ended March 31, 2023:

 

 

March 31,

 

(in thousands)

 

2023

 

Income from discontinued operations

 

$

1,256

 

Provision for income taxes from discontinued operations

 

 

453

 

Interest expense

 

 

374

 

Depreciation and amortization

 

 

1,457

 

EBITDA

 

 

3,540

 

Share-based compensation

 

 

118

 

Transaction costs

 

 

24

 

Adjusted EBITDA from discontinued operations

 

$

3,682

 

 

 

 

 

NOTE 6. REVENUE RECOGNITION

The Company’s accounting for revenues is governed by two accounting standards. The majority of the Company’s revenues are considered lease or lease related and are accounted for in accordance with Accounting Standards Codification 842, Leases (Topic 842). Revenues determined to be non-lease related are accounted for in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606). The Company accounts for revenues when approval and commitment from both parties have been obtained, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company typically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the benefits of the Company’s promised goods and services, or performance obligations, and obtains control when delivery and installation are complete. For contracts that have multiple performance obligations, the transaction price is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation in the contract. The standalone selling price is typically determined based upon the expected cost plus an estimated margin of each performance obligation.

Revenue from contracts that satisfy the criteria for over time recognition are recognized as work is performed by using the ratio of costs incurred to estimated total contract costs for each contract. The majority of revenue for these contracts is derived from long-term projects which typically span multiple quarters. The timing of revenue recognition, billings, and cash collections results in billed contract receivables and contract assets on the Company's Consolidated Balance Sheets. In the Company’s contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Billings can occur subsequent to revenue recognition, resulting in contract assets, or in advance, resulting in contract liabilities. These contract assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. The contract liabilities included in Deferred income on the Company’s Consolidated Balance Sheets totaled $54.3 million and $40.7 million at March 31, 2024 and December 31, 2023, respectively. Sales revenues totaling $9.7 million were recognized during the three months ended March 31, 2024, which were included in the contract liability balance at December 31, 2023. For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, or revenue is recognizable prior to customer billing, which results in revenue earned in excess of billings. These unbilled contract assets are included in Accounts receivable on the Company’s Consolidated Balance Sheets and totaled $8.4 million and $8.7 million at March 31, 2024 and December 31, 2023, respectively. The Company did not recognize any material contract asset impairments during the periods ended March 31, 2024 and December 31, 2023, respectively.

The Company's uncompleted contracts with customers which meet the criteria for over-time revenue recognition have unsatisfied or partially satisfied performance obligations. As of March 31, 2024, approximately $50.3 million of revenue is expected to be recognized for unsatisfied or partially satisfied obligations. The Company expects to recognize revenue for approximately one half of

14


 

these unsatisfied or partially satisfied performance obligations over the next 12 months, with the remaining balance recognized thereafter. For the three months ended March 31, 2024, approximately $40.2 million of revenue was recognized for sales and non-lease services transferred at a point in time and approximately $7.5 million of revenue was recognized for sales and non-lease services transferred over time.

The Company generally rents and sells to customers on 30 day payment terms. The Company does not typically offer variable payment terms or accept non-monetary consideration. Amounts billed and due from the Company’s customers are classified as Accounts receivable on the Company’s consolidated balance sheet. For certain sales of modular buildings, progress payments from the customer are received during the manufacturing of new equipment, or the preparation of used equipment. The advance payments are not considered a significant financing component because the payments are used to meet working capital needs during the contract and to protect the Company from the customer failing to adequately complete their obligations under the contract.

Lease Revenues

Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operating segments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned. Rental related services revenues are primarily associated with relocatable modular buildings. For modular building leases, rental related services revenues for modifications, delivery, installation, dismantle and return delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with the customer. These revenues are recognized on a straight-line basis over the term of the lease. Certain leases are accounted for as finance leases. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. As of the three months ended March 31, 2024, the Company’s future minimum lease payments to be received under non-cancelable finance leases were $3.2 million. Of the total investment in sales-type leases, non-current future minimum lease payments are expected to be $0.8 million in 2025, $0.4 million in 2026, and $0.1 million in 2027. The Company’s assessment of current expected losses on these receivables was not material and therefore no credit loss expense was provided as of the three months ended March 31, 2024. Other revenues include interest income on finance leases and rental income on facility leases.

In the three months ended March 31, 2024, the Company’s lease revenues were $140.2 million, consisting of $139.8 million of operating lease revenues and $0.4 million of finance lease revenues. The Company has entered into finance leases to finance certain equipment sales to customers. The lease agreements have a bargain purchase option at the end of the lease term. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a straight-line basis, which results in a constant rate of return on the unrecovered lease investment. The Company’s finance lease revenues for the three months ended March 31, 2024 include $0.3 million of sales revenues and $0.1 million of interest income.

Non-Lease Revenues

Non-lease revenues are recognized in the period when control of the performance obligation is transferred, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For portable storage containers and electronic test equipment, rental related services revenues for delivery and return delivery are considered non-lease revenues.

Sales revenues are typically recognized at a point in time, which occurs upon the completion of delivery, installation and acceptance of the equipment by the customer. Accounting for non-lease revenues requires judgment in determining the point in time the customer gains control of the equipment and the appropriate accounting period to recognize revenue.

Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.

15


 

The following table disaggregates the Company’s revenues by lease (within the scope of Topic 842) and non-lease revenues (within the scope of Topic 606) and the underlying service provided for the three months ended March 31, 2024 and 2023:

(in thousands)

 

Mobile
Modular

 

 

Portable Storage

 

 

TRS-
RenTelco

 

 

Enviroplex

 

 

Consolidated

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

94,890

 

 

$

19,030

 

 

$

26,245

 

 

$

 

 

$

140,165

 

Non-lease:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Rental related services

 

 

4,272

 

 

 

4,391

 

 

 

623

 

 

 

 

 

 

9,286

 

     Sales

 

 

25,326

 

 

 

1,212

 

 

 

6,539

 

 

 

1,719

 

 

 

34,796

 

     Other

 

 

3,097

 

 

 

127

 

 

 

356

 

 

 

 

 

 

3,580

 

     Total non-lease

 

 

32,695

 

 

 

5,730

 

 

 

7,518

 

 

 

1,719

 

 

 

47,662

 

          Total revenues

 

$

127,585

 

 

$

24,760

 

 

$

33,763

 

 

$

1,719

 

 

$

187,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

82,003

 

 

$

17,656

 

 

$

30,322

 

 

$

 

 

$

129,981

 

Non-lease:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Rental related services

 

 

4,550

 

 

 

4,424

 

 

 

726

 

 

 

 

 

 

9,700

 

     Sales

 

 

16,967

 

 

 

638

 

 

 

4,623

 

 

 

941

 

 

 

23,169

 

     Other

 

 

407

 

 

 

12

 

 

 

449

 

 

 

 

 

 

868

 

     Total non-lease

 

 

21,924

 

 

 

5,074

 

 

 

5,798

 

 

 

941

 

 

 

33,737

 

          Total revenues

 

$

103,927

 

 

$

22,730

 

 

$

36,120

 

 

$

941

 

 

$

163,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer returns of rental equipment prior to the end of the rental contract term are typically billed a cancellation fee, which is recorded as rental revenue in the period billed. Sales of new relocatable modular buildings, portable storage containers and electronic test equipment not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold. The Company typically provides limited 90-day warranties for certain sales of used rental equipment and one-year warranties on equipment manufactured by Enviroplex. Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, warranty costs have not been significant to date.

 

The Company’s incremental cost of obtaining lease contracts, which consists of salesperson commissions, are deferred and amortized over the initial lease term for modular leases. Incremental costs for obtaining a contract for all other operating segments are expensed in the period incurred because the lease term is typically less than 12 months.

Other Income, net

Other income, net consists of the net gain on sales of property, plant and equipment. These sales are generally recognized at a point in time, with contractually defined performance obligations that are typically transferred upon the closing date of the sale. These types of sales are infrequent in occurrence and reported on the condensed consolidated statements of income within the scope of ASC 610, Other Income. Proceeds to be received from the sale of property, plant and equipment are included in Accounts receivable on the Company's condensed consolidated balance sheets.

 

 

16


 

NOTE 7. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed as net income divided by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS is computed assuming conversion of all potentially dilutive securities including the dilutive effect of stock options, unvested restricted stock awards and other potentially dilutive securities. The table below presents the weighted-average number of shares of common stock used to calculate basic and diluted earnings per share:

 

 

 

Three Months Ended
March 31,

 

(in thousands)

 

2024

 

 

2023

 

Weighted-average number of shares of common stock for
   calculating basic earnings per share

 

 

24,513

 

 

 

24,416

 

Effect of potentially dilutive securities from equity-based
   compensation

 

 

51

 

 

 

126

 

Weighted-average number of shares of common stock for
   calculating diluted earnings per share

 

 

24,564

 

 

 

24,542