Item 1. Financial Statements
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, 2022, and the related condensed consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the three-months ended March 31, 2022 and 2021, 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, 2021, 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 23, 2022, 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, 2021, 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 Jose, California
April 28, 2022
3
McGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended March 31,
(in thousands, except per share amounts)
2022
2021
Revenues
Rental
$
104,241
$
86,087
Rental related services
24,317
19,669
Rental operations
128,558
105,756
Sales
15,876
14,611
Other
939
828
Total revenues
145,373
121,195
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment
23,874
21,255
Rental related services
18,143
14,604
Other
27,823
19,707
Total direct costs of rental operations
69,840
55,566
Costs of sales
9,044
8,548
Total costs of revenues
78,884
64,114
Gross profit
66,489
57,081
Selling and administrative expenses
39,127
33,137
Income from operations
27,362
23,944
Other income (expense):
Interest expense
( 2,820
)
( 1,783
)
Foreign currency exchange gain (loss)
13
( 55
)
Income before provision for income taxes
24,555
22,106
Provision for income taxes
5,762
4,708
Net income
$
18,793
$
17,398
Earnings per share:
Basic
$
0.77
$
0.72
Diluted
$
0.77
$
0.71
Shares used in per share calculation:
Basic
24,285
24,153
Diluted
24,534
24,512
Cash dividends declared per share
$
0.455
$
0.435
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)
2022
2021
Net income
$
18,793
$
17,398
Other comprehensive income:
Foreign currency translation adjustment, net of tax impact
3
38
Comprehensive income
$
18,796
$
17,436
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)
2022
2021
Assets
Cash
$
1,603
$
1,491
Accounts receivable, net of allowance for credit losses of $ 2,125 in 2022 and 2021
151,564
159,499
Rental equipment, at cost:
Relocatable modular buildings
1,059,030
1,040,094
Electronic test equipment
378,766
361,391
Liquid and solid containment tanks and boxes
308,790
309,908
1,746,586
1,711,393
Less: accumulated depreciation
( 663,631
)
( 646,169
)
Rental equipment, net
1,082,955
1,065,224
Property, plant and equipment, net
138,515
135,325
Prepaid expenses and other assets
50,732
54,945
Intangible assets, net
45,566
47,049
Goodwill
132,305
132,393
Total assets
$
1,603,240
$
1,595,926
Liabilities and Shareholders' Equity
Liabilities:
Notes payable
$
423,974
$
426,451
Accounts payable and accrued liabilities
138,690
136,313
Deferred income
63,939
58,716
Deferred income taxes, net
238,749
242,425
Total liabilities
865,352
863,905
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,335 shares as of March 31, 2022 and 24,260 shares as
of December 31, 2021
106,765
108,610
Retained earnings
631,174
623,465
Accumulated other comprehensive loss
( 51
)
( 54
)
Total shareholders’ equity
737,888
732,021
Total liabilities and shareholders’ equity
$
1,603,240
$
1,595,926
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, 2021
24,260
$
108,610
$
623,465
$
( 54
)
$
732,021
Net income
—
—
18,793
—
18,793
Share-based compensation
—
1,760
—
—
1,760
Common stock issued under stock plans, net of shares
withheld for employee taxes
75
—
—
—
—
Taxes paid related to net share settlement of stock awards
—
( 3,605
)
—
—
( 3,605
)
Dividends accrued of $ 0.455 per share
—
—
( 11,084
)
—
( 11,084
)
Other comprehensive income
—
—
—
3
3
Balance at March 31, 2022
24,335
$
106,765
$
631,174
$
( 51
)
$
737,888
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, 2020
24,128
$
106,289
$
576,419
$
( 104
)
$
682,604
Net income
—
—
17,398
—
17,398
Share-based compensation
—
1,777
—
—
1,777
Common stock issued under stock plans, net of shares
withheld for employee taxes
78
—
—
—
—
Taxes paid related to net share settlement of stock awards
—
( 3,482
)
—
—
( 3,482
)
Dividends accrued of $ 0.435 per share
—
—
( 10,650
)
—
( 10,650
)
Other comprehensive income
—
—
—
38
38
Balance at March 31, 2021
24,206
$
104,584
$
583,167
$
( 66
)
$
687,685
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)
2022
2021
Cash Flows from Operating Activities:
Net income
$
18,793
$
17,398
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
27,584
23,460
Deferred income taxes
( 3,676
)
( 3,258
)
Provision for doubtful accounts
13
99
Share-based compensation
1,760
1,777
Gain on sale of used rental equipment
( 5,364
)
( 4,794
)
Foreign currency exchange (gain) loss
( 13
)
55
Amortization of debt issuance costs
4
3
Change in:
Accounts receivable
7,922
1,009
Prepaid expenses and other assets
4,213
( 94
)
Accounts payable and accrued liabilities
( 4,716
)
( 2,633
)
Deferred income
5,223
4,587
Net cash provided by operating activities
51,743
37,609
Cash Flows from Investing Activities:
Purchases of rental equipment
( 39,430
)
( 17,984
)
Purchases of property, plant and equipment
( 5,417
)
( 981
)
Proceeds from sales of used rental equipment
10,308
10,418
Net cash used in investing activities
( 34,539
)
( 8,547
)
Cash Flows from Financing Activities:
Net repayment under bank lines of credit
( 2,482
)
( 13,931
)
Taxes paid related to net share settlement of stock awards
( 3,605
)
( 3,482
)
Payment of dividends
( 11,006
)
( 10,554
)
Net cash used in financing activities
( 17,093
)
( 27,967
)
Effect of foreign currency exchange rate changes on cash
1
( 4
)
Net increase in cash
112
1,091
Cash balance, beginning of period
1,491
1,238
Cash balance, end of period
$
1,603
$
2,329
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period
$
2,137
$
1,625
Net income taxes paid, during the period
$
420
$
372
Dividends accrued during the period, not yet paid
$
11,357
$
9,810
Rental equipment acquisitions, not yet paid
$
12,869
$
11,095
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, 2022
NOTE 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The condensed consolidated financial statements for the three months ended March 31, 2022 and 2021 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, 2022 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 23, 2022 for the year ended December 31, 2021 (the “2021 Annual Report”).
NOTE 2. 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 (ASC) 842, Leases. Revenues determined to be non-lease related are accounted for in accordance with ASC 606, Revenue from Contracts with Customers. 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.
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. These contract liabilities are included in Deferred income on the Company’s consolidated balance sheet and totaled $ 21.8 million and $ 16.8 million at March 31, 2022 and December 31, 2021, respectively. Sales revenues totaling $ 2.2 million were recognized during the three months ended March 31, 2022, which were included in the contract liability balance at December 31, 2021. For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, which results in revenue earned in excess of billings. These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $ 0.9 million and $ 1.3 million at March 31, 2022 and December 31, 2021, respectively.
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 and liquid and solid containment tanks and boxes leases. 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. Other revenues include interest income on finance leases and rental income on facility leases.
In the three months ended March 31, 2022, the Company’s lease revenues were $ 118.5 million, consisting of $ 117.8 million of operating lease revenues and $ 0.7 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, 2022 include $ 0.6 million of sales revenues and $ 0.1 million of interest income.
9
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 liquid and solid containment solutions, 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.
The following table disaggregates the Company’s revenues by lease (within the scope of ASC 842) and non-lease revenues (within the scope of ASC 606) and the underlying service provided for the three months ended March 31, 2022 and 2021:
(in thousands)
Mobile
Modular
TRS-
RenTelco
Adler
Tanks
Enviroplex
Consolidated
Three Months Ended March 31,
2022
Leasing
$
74,595
$
29,411
$
14,478
$
—
$
118,484
Non-lease:
Rental related services
5,650
551
5,185
—
11,386
Sales
10,375
3,278
657
917
15,227
Other
25
251
—
—
276
Total non-lease
16,050
4,080
5,842
917
26,889
Total revenues
$
90,645
$
33,491
$
20,320
$
917
$
145,373
2021
Leasing
$
57,803
$
27,813
$
12,339
$
—
$
97,955
Non-lease:
Rental related services
3,206
608
4,761
—
8,575
Sales
7,620
4,877
608
1,234
14,339
Other
19
305
2
—
326
Total non-lease
10,845
5,790
5,371
1,234
23,240
Total revenues
$
68,648
$
33,603
$
17,710
$
1,234
$
121,195
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, electronic test equipment and related accessories and liquid and solid containment tanks and boxes 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.
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.
10
NOTE 3. 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)
2022
2021
Weighted-average number of shares of common stock for
calculating basic earnings per share
24,285
24,153
Effect of potentially dilutive securities from equity-based
compensation
249
359
Weighted-average number of shares of common stock for
calculating diluted earnings per share
24,534
24,512
There were no anti-dilutive securities excluded from the computation of diluted earnings per share in the three months ended March 31, 2022 and 2021.
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. In August 2015, the Company’s Board of Directors authorized the Company to repurchase up to 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”). The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock. 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, 2022 and 2021. As of March 31, 2022, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.
NOTE 4. INTANGIBLE ASSETS
Intangible assets consist of the following:
(dollar amounts in thousands)
Estimated
useful life
in years
Average remaining life in years
Cost
Accumulated amortization
Net book value
March 31, 2022
Customer relationships
8 to 11
7.1
$
50,285
$
( 14,271
)
$
36,014
Non-compete agreements
5
4.0
3,296
( 665
)
2,631
Customer backlog
0.5
—
1,900
( 1,900
)
—
Trade name
8
7.0
1,200
( 150
)
1,050
Total amortizing
56,681
( 16,986
)
39,695
Trade name - non-amortizing
Indefinite
5,871
—
5,871
Total
$
62,552
$
( 16,986
)
$
45,566
December 31, 2021
Customer relationships
8 to 11
7.3
$
50,285
$
( 12,991
)
$
37,294
Non-compete agreements
5
4.2
3,296
( 499
)
2,797
Customer backlog
0.5
—
1,900
( 1,900
)
—
Trade name
8
7.3
1,200
( 113
)
1,087
Total amortizing
56,681
( 15,503
)
41,178
Trade name - non-amortizing
Indefinite
5,871
—
5,871
Total
$
62,552
$
( 15,503
)
$
47,049
11
The Company assesses potential impairment of its goodwill and intangible assets when there is evidence that events or circumstances have occurred that would indicate the recovery of an asset’s carrying value is unlikely. The Company also assesses potential impairment of its goodwill and intangible assets with indefinite lives on an annual basis regardless of whether there is evidence of impairment. If indicators of impairment were to be present in intangible assets used in operations and future discounted cash flows were not expected to be sufficient to recover the asset’s carrying amount, an impairment loss would be charged to expense in the period identified. The amount of an impairment loss that would be recognized is the excess of the asset’s carrying value over its fair value. Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results. The Company last conducted a qualitative analysis of its goodwill and intangible assets in the fourth quarter 2021, with no indicators of impairment. In addition, no impairment triggering events occurred during the three months ended March 31, 2022. Determining fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions. The Company bases its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions.
Intangible assets with finite useful lives are amortized over their respective useful lives. Amortization expense in the three months ended March 31, 2022 and 2021, was $ 1.5 million and $ 0.1 million, respectively. Based on the carrying values at March 31, 2022 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 4.4 million for the remainder of fiscal year 2022, $ 5.9 million annually in 2023 through 2025, $ 5.4 million in 2026 and $ 5.2 million in 2027.
12
NOTE 5. SEGMENT REPORTING
The Company’s four reportable segments are (1) its modular building and portable storage container rental segment (“Mobile Modular”); (2) its electronic test equipment segment (“TRS-RenTelco”); (3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”); and (4) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”). The operations of each of these segments are described in Part I – Item 1, “Business,” and the accounting policies of the segments are described in “Note 1 – Summary of Significant Accounting Policies” in the Company’s 2021 Annual Report. Management focuses on several key measures to evaluate and assess each segment’s performance, including rental revenue growth, gross profit and gross margins, income from operations, income before provision for income taxes and adjusted EBITDA. Excluding interest expense, allocations of revenue and expense not directly associated with one of these segments are generally allocated to Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of direct revenues. Interest expense is allocated amongst Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of average rental equipment at cost, intangible assets, accounts receivable, deferred income and customer security deposits. The Company does not report total assets by business segment. Summarized financial information for the three months ended March 31, 2022 and 2021 for the Company’s reportable segments is shown in the following table:
(dollar amounts in thousands)
Mobile
Modular
TRS-
RenTelco
Adler
Tanks
Enviroplex 1
Consolidated
Three Months Ended March 31,
2022
Rental revenues
$
61,538
$
28,512
$
14,191
$ —
$
104,241
Rental related services revenues
18,361
671
5,285
—
24,317
Sales and other revenues
10,746
4,308
844
917
16,815
Total revenues
90,645
33,491
20,320
917
145,373
Depreciation of rental equipment
7,833
12,029
4,012
—
23,874
Gross profit
43,141
14,690
8,454
204
66,489
Selling and administrative expenses
24,692
6,590
6,522
1,323
39,127
Income (loss) from operations
18,449
8,100
1,932
( 1,119
)
27,362
Interest (expense) income allocation
( 1,821
)
( 586
)
( 544
)
131
( 2,820
)
Income (loss) before provision for income taxes
16,628
7,527
1,388
( 988
)
24,555
Adjusted EBITDA
30,405
20,653
6,707
( 1,046
)
56,719
Rental equipment acquisitions
23,088
23,351
109
—
46,548
Accounts receivable, net (period end)
106,682
25,124
14,788
4,970
151,564
Rental equipment, at cost (period end)
1,059,030
378,766
308,790
—
1,746,586
Rental equipment, net book value (period end)
763,710
171,863
147,382
—
1,082,955
Utilization (period end) 2
77.6
%
64.7
%
50.4
%
Average utilization 2
77.1
%
64.6
%
48.3
%
2021
Rental revenues
$
46,657
$
27,276
$
12,154
$ —
$
86,087
Rental related services revenues
14,051
740
4,878
—
19,669
Sales and other revenues
7,940
5,587
678
1,234
15,439
Total revenues
68,648
33,603
17,710
1,234
121,195
Depreciation of rental equipment
5,819
11,362
4,074
—
21,255
Gross profit
34,934
14,753
7,043
351
57,081
Selling and administrative expenses
19,237
6,298
6,267
1,335
33,137
Income (loss) from operations
15,697
8,455
776
( 984
)
23,944
Interest (expense) income allocation
( 1,046
)
( 420
)
( 431
)
114
( 1,783
)
Income (loss) before provision for income taxes
14,651
7,980
345
( 870
)
22,106
Adjusted EBITDA
23,955
20,392
5,700
( 921
)
49,126
Rental equipment acquisitions
8,428
16,380
( 102
)
—
24,706
Accounts receivable, net (period end)
81,378
21,367
13,030
6,433
122,208
Rental equipment, at cost (period end)
886,299
342,105
314,444
—
1,542,848
Rental equipment, net book value (period end)
611,097
159,410
165,436
—
935,943
Utilization (period end) 2
75.8
%
69.2
%
43.0
%
Average utilization 2
75.8
%
68.1
%
40.3
%
1.
Gross Enviroplex sales revenues were $ 917 and $ 2,090 for the three months ended March 31, 2022 and 2021, respectively. There were $ 0 and $ 856 inter-segment sales to Mobile Modular in the three months ended March 31, 2022 and 2021, respectively, which required elimination in consolidation.
2.
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 for Mobile Modular and Adler Tanks, excluding new equipment inventory. The Average utilization for the period is calculated using the average costs of rental equipment.
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No single customer accounted for more than 10% of total revenues for the three months ended March 31, 2022 and 2021. Revenues from foreign country customers accounted for 4 % and 5 % of the Company’s total revenues for the same periods, respectively.
NOTE 6. ACQUISITIONS
On May 17, 2021, the Company completed the purchase of substantially all of the assets of Design Space Modular Buildings PNW, LP (“Design Space”) for $ 267.3 million in cash consideration on the closing date. Design Space provides modular buildings and portable storage containers rental and sale solutions to customers in the West and Pacific Northwest states in the U.S. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in 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 Design Space were a part of the Mobile Modular segment since May 17, 2021, including $ 1.7 million of transaction costs.
On April 1, 2021 the Company completed the purchase of assets of GRS Holding LLC, DBA Kitchens To Go (“Kitchens To Go”) for $ 18.3 million in cash consideration. Kitchens To Go provides interim and permanent modular kitchen solutions for foodservice providers that require flexible facilities to continue or expand operations. 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 Kitchens To Go were a part of the Mobile Modular segment since April 1, 2021, including $ 0.3 million of transaction costs.
The following tables summarize the purchase price allocations reflecting estimated fair values of assets acquired and liabilities assumed in the Design Space and Kitchens To Go acquisitions, with excess amounts allocated to goodwill. 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.
Design Space:
(dollar amounts in thousands)
Rental equipment
$
116,272
Intangible assets:
Goodwill
101,874
Customer relationships
37,900
Non-compete
2,500
Customer backlog
1,600
Accounts receivable
12,025
Property, plant and equipment
4,139
Prepaid expenses and other assets
5,366
Accounts payable and accrued liabilities
( 11,613
)
Deferred income
( 2,784
)
Total purchase price
$
267,279
Kitchens To Go:
(dollar amounts in thousands)
Rental equipment
$
12,853
Intangible assets:
Goodwill
2,322
Customer relationships
1,700
Trade name
1,200
Non-compete
600
Customer backlog
300
Accounts receivable
212
Property, plant and equipment
365
Prepaid expenses and other assets
1,199
Accounts payable and accrued liabilities
( 1,659
)
Deferred income
( 747
)
Total purchase price
$
18,345
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The value assigned to identifiable intangible assets have been determined based on discounted estimated future cash flows associated with such assets to their present value. The combined acquired goodwill of $ 104,196 reflects the strategic fit of Design Space and Kitchens to Go with the Company’s modular business operations. The Company will amortize the acquired customer relationships, tradename, non-compete and customer backlog over their expected useful lives of 8 years, 8 years, 5 years and 6 months, respectively. 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 unaudited pro forma financial information shows the combined results of operations of the Company, Design Space and Kitchens To Go as if the acquisitions occurred as of the beginning of the periods 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 28 % on the acquisitions’ combined net income. The pro forma results for the three months ended March 31, 2021 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:
(Unaudited)
Three months ended March 31,
(dollar amounts in thousands, except for per share amounts)
2022
2021
Pro-forma total revenues
$
145,373
$
141,304
Pro-forma net income
$
18,793
$
18,890
Pro-forma basic earnings per share
$
0.77
$
0.78
Pro-forma diluted earnings per share
$
0.77
$
0.77
Design Space and Kitchens To Go
Actual total revenues
$
18,174
Actual net income
$
1,543
Actual basic earnings per share
$
0.06
Actual diluted earnings per share
$
0.06
On December 31, 2021 the Company completed the purchase of the assets of Titan Storage Containers, LLC (“Titan”) for $ 6.6 million in cash consideration on the closing date and $ 0.3 million remaining liability to the seller. The acquisition was accounted for as a purchase of “assets” in accordance with criteria in ASC 805 and the initial assessment of the fair value of the purchased assets was allocated primarily to rental equipment totaling $ 6.2 million and rolling stock assets totaling $ 0.8 million, partially offset by accrued liabilities of $ 0.2 million. The rolling stock assets include delivery trucks, delivery trailers, trucks and forklifts. Supplemental pro forma prior year information has not been provided as the historical financial results of Titan were not significant. Incremental transaction costs associated with the asset purchase were not significant.
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