UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
For the quarterly period ended
Commission file number
(Exact name of registrant as specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
Registrant’s telephone number: (
Securities registered pursuant to Section 12(b) of the Act
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of October 23, 2024,
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. 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 September 30, 2024, and the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity, for the three-month and nine-month periods ended September 30, 2024 and 2023, cash flows for the nine-month periods ended September 30, 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
October 24, 2024
3
MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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(in thousands, except per share amounts) |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenues |
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Rental |
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$ |
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$ |
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$ |
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$ |
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Rental related services |
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Rental operations |
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Sales |
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Other |
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Total revenues |
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Costs and Expenses |
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Direct costs of rental operations: |
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Depreciation of rental equipment |
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Rental related services |
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Other |
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Total direct costs of rental operations |
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Costs of sales |
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Total costs of revenues |
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Gross profit |
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Expenses: |
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Selling and administrative expenses |
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Other income, net |
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— |
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( |
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Income from operations |
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Interest expense |
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Foreign currency exchange (gain) loss |
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( |
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Gain on merger termination from WillScot Mobile Mini (Note 1) |
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( |
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— |
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( |
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WillScot Mobile Mini transaction costs |
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— |
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— |
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Income from continuing operations before provision for income taxes |
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Provision for income taxes from continuing operations |
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Income from continuing operations |
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Discontinued operations: |
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Income from discontinued operations before provision for income taxes |
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— |
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— |
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— |
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Provision for income taxes from discontinued operations |
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— |
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— |
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— |
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Gain on sale of discontinued operations, net of tax |
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— |
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— |
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— |
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Income from discontinued operations |
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— |
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— |
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— |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Earnings per share from continuing operations: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Earnings per share from discontinued operations: |
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Basic |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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Diluted |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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Earnings per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Shares used in per share calculation: |
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Basic |
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Diluted |
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Cash dividends declared per share |
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$ |
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$ |
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$ |
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$ |
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4
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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(in thousands) |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income: |
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Foreign currency translation adjustment, net of tax impact |
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Comprehensive income |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
McGrath RentCorp
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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September 30, |
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December 31, |
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(in thousands) |
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2024 |
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2023 |
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Assets |
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Cash |
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$ |
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$ |
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Accounts receivable, net of allowance for credit losses of $ |
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Rental equipment, at cost: |
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Relocatable modular buildings |
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Portable storage containers |
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Electronic test equipment |
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Less: accumulated depreciation |
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( |
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Rental equipment, net |
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Property, plant and equipment, net |
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Inventories |
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Prepaid expenses and other assets |
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Intangible assets, net |
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Goodwill |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders' Equity |
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Liabilities: |
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Notes payable |
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$ |
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$ |
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Accounts payable |
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Accrued liabilities |
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Deferred income |
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Deferred income taxes, net |
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Total liabilities |
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Shareholders’ equity: |
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Common stock, |
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Issued and outstanding - |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
McGrath RentCorp
CONDENSED Consolidated Statements OF SHAREHOLDERS’ EQUITY
(unaudited)
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Common Stock |
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Retained |
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Accumulated |
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Total |
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(in thousands, except per share amounts) |
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Shares |
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Amount |
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Earnings |
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Income (Loss) |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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Common stock issued under stock plans, net of shares |
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— |
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— |
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— |
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— |
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Taxes paid related to net share settlement of stock awards |
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— |
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( |
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— |
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— |
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( |
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Dividends accrued of $ |
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— |
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— |
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( |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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Common stock issued under stock plans, net of shares |
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— |
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— |
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— |
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— |
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Dividends accrued of $ |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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Common stock issued under stock plans, net of shares |
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— |
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— |
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— |
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— |
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Dividends accrued of $ |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
8
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Common Stock |
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Retained |
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Accumulated |
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Total |
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(in thousands, except per share amounts) |
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Shares |
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Amount |
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Earnings |
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Income (Loss) |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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Common stock issued under stock plans, net of shares |
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— |
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— |
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— |
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— |
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Taxes paid related to net share settlement of stock awards |
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— |
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( |
) |
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— |
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— |
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( |
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Dividends accrued of $ |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation |
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— |
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|
— |
|
|
|
— |
|
|
|
|
||
Common stock issued under stock plans, net of shares |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Taxes paid related to net share settlement of stock awards |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Dividends accrued of $ |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Share-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Common stock issued under stock plans, net of shares |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dividends accrued of $ |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
McGrath RentCorp
CONDENSED Consolidated Statements of Cash Flows
(unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
( |
) |
|
Provision for credit losses |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Gain on sale of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Gain on sale of discontinued operations |
|
|
— |
|
|
|
( |
) |
Gain on sale of used rental equipment |
|
|
( |
) |
|
|
( |
) |
Foreign currency exchange gain |
|
|
( |
) |
|
|
( |
) |
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Change in: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
( |
) |
|
Inventories |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Deferred income |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
||
Proceeds from sale of discontinued operations |
|
|
— |
|
|
|
|
|
Purchases of rental equipment |
|
|
( |
) |
|
|
( |
) |
Purchases of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Cash paid for acquisition of businesses |
|
|
— |
|
|
|
( |
) |
Cash paid for acquisition of business assets |
|
|
— |
|
|
|
( |
) |
Proceeds from sales of used rental equipment |
|
|
|
|
|
|
||
Proceeds from sales of property, plant and equipment |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
||
Net (payments) borrowings under bank lines of credit |
|
|
( |
) |
|
|
|
|
Borrowings under term note agreement |
|
|
— |
|
|
|
|
|
Taxes paid related to net share settlement of stock awards |
|
|
( |
) |
|
|
( |
) |
Payment of dividends |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Effect of foreign currency exchange rate changes on cash |
|
|
— |
|
|
|
|
|
Net increase in cash |
|
|
|
|
|
|
||
Cash balance, beginning of period |
|
|
|
|
|
|
||
Cash balance, end of period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
||
Gain on merger termination, net of transaction costs, presented under net cash provided by operating activities |
|
$ |
|
|
$ |
— |
|
|
Interest paid, during the period |
|
$ |
|
|
$ |
|
||
Net income taxes (refunded) paid, during the period |
|
$ |
( |
) |
|
$ |
|
|
Dividends accrued during the period, not yet paid |
|
$ |
|
|
$ |
|
||
Rental equipment acquisitions, not yet paid |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
MCGRATH RENTCORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2024
NOTE 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The condensed consolidated financial statements for the nine months ended September 30, 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 and nine months ended September 30, 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”).
Mutual decision to terminate Merger Agreement with WillScot Mobile Mini Holdings Corp.
As previously disclosed, 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, and Brunello Merger Sub II, LLC, a Delaware limited liability company and direct wholly owned subsidiary of WillScot Mobile Mini. On September 17, 2024, the Company and WillScot Mobile Mini mutually agreed to terminate the Merger Agreement, effective upon WillScot Mobile Mini's cash payment of $
Transaction costs attributed to the Merger Agreement are reported in the Company's Corporate segment. Expenses recognized as a result of the terminated Merger Agreement during the three and nine months ended September 30, 2024, were $
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 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
11
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 $
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 $
On April 1, 2023, the Company completed the acquisition of Dixie Temporary Storage, LLC ("Dixie Storage"), for a purchase price of $
On July 1, 2023, the Company completed the purchase of assets of Inland Leasing and Storage, LLC ("Inland Leasing"), for a purchase price of $
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 assets acquired and liabilities assumed were based upon their fair values on the closing date. The valuation of intangible assets acquired is based on certain valuation assumptions including cash flow projections, discount rates, contributory asset 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.
12
Vesta Modular:
(dollar amounts in thousands) |
|
|
|
|
Rental equipment |
|
$ |
|
|
Intangible assets: |
|
|
|
|
Goodwill |
|
|
|
|
Customer relationships |
|
|
|
|
Non-compete |
|
|
|
|
Trade name |
|
|
|
|
Cash |
|
|
|
|
Accounts receivable |
|
|
|
|
Property, plant and equipment |
|
|
||