What changed in this filing

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Item 1. Financial Statements

2024-07-25 compared with 2024-04-25 · 77 added, 58 removed, 471 unchanged (22% of the section changed)

4 unchanged sentences

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”).

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation) and subsidiaries (the “Company”) as of June 30, 2024, and the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity, for the three-month and six-month periods ended June 30, 2024 and 2023, cash flows for the six month periods ended June 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.

12 unchanged sentences

San Francisco, California

April 25, 2024

July 25, 2024

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except per share amounts)

30 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

6 unchanged sentences

(in thousands)

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

Accounts receivable, net of allowance for credit losses of $ 2,866 at June 30, 2024 and $ 2,801 at December 31, 2023

Rental equipment, at cost:

16 unchanged sentences

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

Issued and outstanding - 24,550 shares as of June 30, 2024 and 24,496 shares as of December 31, 2023

Retained earnings

17 unchanged sentences

Balance at March 31, 2024

Share-based compensation

Common stock issued under stock plans, net of shares

withheld for employee taxes

Dividends accrued of $ 0.475 per share

Other comprehensive income

Balance at June 30, 2024

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

11 unchanged sentences

Balance at March 31, 2023

Share-based compensation

Common stock issued under stock plans, net of shares

withheld for employee taxes

Taxes paid related to net share settlement of stock awards

Dividends accrued of $ 0.465 per share

Other comprehensive income

Balance at June 30, 2023

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

1 unchanged sentence

CONDENSED Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

26 unchanged sentences

Cash Flows from Financing Activities:

Net borrowings under bank lines of credit

Net (payments) borrowings under bank lines of credit

Borrowings under term note agreement

Taxes paid related to net share settlement of stock awards

2 unchanged sentences

Effect of foreign currency exchange rate changes on cash

Net increase (decrease) in cash

Net increase in cash

Cash balance, beginning of period

2 unchanged sentences

Interest paid, during the period

Net income taxes paid, during the period

Net income taxes (refunded) paid, during the period

Dividends accrued during the period, not yet paid

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

June 30, 2024

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 condensed consolidated financial statements for the six months ended June 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 months ended March 31, 2024, should not be considered as necessarily indicative of the consolidated results for the entire fiscal year.

The consolidated results for the three and six months ended June 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”).

8 unchanged sentences

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.

76 unchanged sentences

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 .

The trade name intangible acquired from the Vesta Modular acquisition will be amortized over its 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 following table reports the actual results of the Company for the six months ended June 30, 2024, and the unaudited pro forma financial information for the six months ended June 30, 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.

1 unchanged sentence

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

The pro forma results for the six months ended June 30, 2023, have been adjusted to include

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:

Three months ended March 31,

Six months ended June 30,

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

17 unchanged sentences

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:

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 six months ended June 30, 2023:

(dollar amounts in thousands)

Three Months Ended

Six Months Ended June 30,

Rental related services

12 unchanged sentences

Selling and administrative expenses

Operating income

Income from operations

Interest expense allocation

13 unchanged sentences

Total liabilities of discontinued operations

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

For the six months ended June 30, 2023, significant operating and investing items related to Adler Tanks were as follows:

(in thousands)

6 unchanged sentences

Purchases of property, plant and equipment

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

The following table presents the reconciliation of income from discontinued operations to Adjusted EBITDA for the six months ended June 30, 2023:

(in thousands)

20 unchanged sentences

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.

The contract liabilities included in Deferred income on the Company’s Consolidated Balance Sheets totaled $ 65.8 million and $ 40.7 million at June 30, 2024 and December 31, 2023, respectively.

Sales revenues totaling $ 7.7 million and $ 17.4 million were recognized during the three and six months ended June 30, 2024, respectively, 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.

These unbilled contract assets are included in Accounts receivable on the Company’s Consolidated Balance Sheets and totaled $ 9.6 million and $ 8.7 million at June 30, 2024 and December 31, 2023, respectively.

The Company did not recognize any material contract asset impairments during the periods ended June 30, 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

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.

As of June 30, 2024, approximately $ 51.7 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 these

unsatisfied or partially satisfied performance obligations over the next 12 months, with the remaining balance recognized thereafter.

For the three and six months ended June 30, 2024, approximately $ 61.8 million and $ 102.0 million of revenue was recognized for sales and non-lease services transferred at a point in time, respectively, and approximately $ 4.2 million and $ 11.6 million of revenue was recognized for sales and non-lease services transferred over time, respectively.

The Company generally rents and sells to customers on 30 day payment terms.

11 unchanged sentences

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.

As of the six months ended June 30, 2024, the Company’s future minimum lease payments to be received under non-cancelable finance leases were $ 2.7 million.

Of the total investment in sales-type leases, future minimum lease payments are expected to be $ 1.9 million in 2025, $ 0.6 million in 2026, and $ 0.2 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 six months ended June 30, 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.

In the three and six months ended June 30, 2024, the Company’s lease revenues were $ 146.6 million and $ 286.8 million, respectively, consisting of $ 145.9 million and $ 285.7 million of operating lease revenues, respectively, and $ 0.7 million and $ 1.1 million of finance lease revenues, respectively.

The Company has entered into finance leases to finance certain equipment sales to customers.

1 unchanged sentence

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.

The Company’s finance lease revenues for the three and six months ended June 30, 2024 include $ 0.6 million and $ 0.9 million of sales revenues, respectively, and $ 0.1 million and $ 0.2 million of interest income, respectively.

Non-Lease Revenues

4 unchanged sentences

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

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)

Portable Storage

Three Months Ended March 31,

Three Months Ended June 30,

Rental related services

4 unchanged sentences

Total revenues

Six Months Ended June 30,

Rental related services

Total non-lease

Total revenues

Rental related services

Total non-lease

Total revenues

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.

7 unchanged sentences

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 .

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.

4 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands)

4 unchanged sentences

calculating diluted earnings per share

There were 73,190 and 96,241 anti-dilutive securities excluded from the computation of diluted earnings per share for the three months ended March 31, 2024 and 2023, respectively.

There were 73,190 and 697 anti-dilutive securities excluded from the computation of diluted earnings per share for the six months ended June 30, 2024 and 2023, respectively.

The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market (NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934.

3 unchanged sentences

There can be no assurance that any authorized shares will be repurchased, and the Repurchase Plan may be modified, extended or terminated by the Company’s Board of Directors at any time.

There were no shares repurchased during the three months ended March 31, 2024 and 2023.

As of March 31, 2024, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

There were no shares repurchased during the three and six months ended June 30, 2024 and 2023.

As of June 30, 2024, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

Inventories consist of raw materials, supplies and work-in-process.

11 unchanged sentences

Net book value

March 31, 2024

June 30, 2024

Customer relationships

13 unchanged sentences

The Company last conducted a qualitative analysis of its goodwill and intangible assets in the fourth quarter 2023, with no indicators of impairment.

In addition, no impairment triggering events occurred during the three months ended March 31, 2024, and there were no changes to the carrying value of goodwill during this period.

In addition, no impairment triggering events occurred during the six months ended June 30, 2024, and there were no changes to the carrying value of goodwill during this period.

Determining fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions.

1 unchanged sentence

Intangible assets with finite useful lives are amortized over their respective useful lives.

Amortization expense in the three months ended March 31, 2024 and 2023, was $ 2.6 million and $ 2.3 million, respectively.

Based on the carrying values at March 31, 2024 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 7.7 million for the remainder of fiscal year 2024, $ 10.2 million in 2025, $ 9.8 million in 2026, $ 9.6 million in 2027, $ 8.2 million in 2028 and $ 4.7 million in 2029.

Amortization expense in the six months ended June 30, 2024 and 2023, was $ 5.1 million and $ 5.0 million, respectively.

Based on the carrying values at June 30, 2024 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 5.1 million for the remainder of fiscal year 2024, $ 10.2 million in 2025, $ 9.8 million in 2026, $ 9.6 million in 2027, $ 8.2 million in 2028 and $ 4.7 million in 2029.

SEGMENT REPORTING

4 unchanged sentences

Additional information regarding the divestiture of Adler Tanks can be found in Note 5 of the condensed consolidated financial statements.

At March 31, 2024, the Company was comprised of four reportable segments:

At June 30, 2024, the Company was comprised of four reportable segments:

(1) its modular building segment (“Mobile Modular”);

7 unchanged sentences

The Company does not report total assets by business segment.

Summarized financial information for the three months ended March 31, 2024 and 2023 for the Company’s reportable segments are shown in the following table:

Summarized financial information for the six months ended June 30, 2024 and 2023 for the Company’s reportable segments are shown in the following table:

(dollar amounts in thousands)

Portable Storage

Three Months Ended March 31,

Six Months Ended June 30,

Rental revenues

6 unchanged sentences

Interest expense (income) allocation

Income (loss) before provision for income taxes

Income before provision for income taxes

Rental equipment acquisitions

19 unchanged sentences

Average utilization 2

Gross Enviroplex sales revenues were $ 1,719 and $ 941 for the three months ended March 31, 2024 and 2023, respectively.

There were no inter-segment sales to Mobile Modular in the three months ended March 31, 2024 and 2023, which required elimination in consolidation.

Gross Enviroplex sales revenues were $ 13,093 and $ 1,871 for the six months ended June 30, 2024 and 2023, respectively.

There were $ 2 and $ 7 of inter-segment sales to Mobile Modular in the six months ended June 30, 2024 and 2023, respectively, which required elimination in consolidation.

Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding accessory equipment, and new equipment inventory.

The Average utilization for the period is calculated using the average costs of rental equipment.

No single customer accounted for more than 10% of total revenues for the three months ended March 31, 2024 and 2023.

No single customer accounted for more than 10% of total revenues for the six months ended June 30, 2024 and 2023.

Revenues from foreign country customers accounted for 2 % and 3 % of the Company’s total revenues for the same periods, respectively.

SUBSEQUENT EVENT

On April 23, 2024, the Company entered into a first incremental facility amendment with Bank of America, N.A., as Administrative Agent and the first incremental lender (“BoA”) and the guarantors named therein (the “First Incremental Amendment”).

The First Incremental Amendment amends the Second Amended and Restated Credit Agreement, dated as of July 15, 2022, as amended, by and among the Company, BoA, the other lenders named therein, and the guarantors named therein (the “Credit Agreement”) to institute an incremental term loan “A” facility in an aggregate principal amount of $ 75.0 million (the “Incremental Credit Facility”).

The proceeds from the Incremental Credit Facility will be used for general corporate purposes.

Concurrently with entry into the First Incremental Amendment, the Company repaid revolving loans issued under the Credit Agreement in an aggregate amount equal to $ 75.0 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements