McGrath Rentp(MGRC) - 2020 Q3 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, showing decreased quarterly net income, slightly increased nine-month net income, reduced debt, and lower rental equipment purchases Condensed Consolidated Statements of Income Summarizes the company's revenues and net income for the three and nine months ended September 30, 2020, highlighting quarterly declines and nine-month stability - Total revenues decreased to $156.4 million from $173.6 million in Q3 2019, with net income falling to $28.1 million from $32.5 million year-over-year[15] - For the nine months ended September 30, 2020, total revenues were nearly flat at $423.6 million, and net income slightly increased to $70.8 million from $70.4 million[15] Earnings Per Share (Diluted) | Period | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $1.15 | $1.32 | -12.9% | | Nine Months Ended Sep 30 | $2.88 | $2.86 | +0.7% | - Cash dividends declared per share increased by 12% to $0.420 for Q3 2020, up from $0.375 in Q3 2019[15] Condensed Consolidated Balance Sheets Provides a snapshot of the company's financial position, including assets, liabilities, and equity, as of September 30, 2020, and December 31, 2019 Key Balance Sheet Items (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,295,380 | $1,309,875 | | Rental equipment, net | $948,125 | $967,500 | | Notes payable | $249,980 | $293,431 | | Total Liabilities | $633,766 | $675,839 | | Total Shareholders' Equity | $661,614 | $634,036 | - The company reduced notes payable by approximately $43.5 million from December 31, 2019, to September 30, 2020[20] Condensed Consolidated Statements of Cash Flows Details the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2020 Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $131,537 | $136,869 | | Net cash used in investing activities | $(41,463) | $(110,645) | | Net cash used in financing activities | $(90,649) | $(25,399) | - Cash used in investing activities decreased significantly, primarily due to a reduction in purchases of rental equipment to $65.7 million in 2020 from $127.2 million in 2019[25] - Cash used in financing activities increased substantially, driven by a $43.5 million net repayment of debt and $13.6 million in common stock repurchases in 2020[25] Notes to Condensed Consolidated Financial Statements Provides additional information and details regarding the accounting policies and specific items presented in the financial statements - The majority of revenues are from leases (Topic 842), with lease revenues at $300.8 million and non-lease revenues at $122.7 million for the nine months ended September 30, 2020[34][40] - The company repurchased 282,221 shares for $13.6 million during the first nine months of 2020, with 1,309,805 shares remaining authorized for repurchase as of September 30, 2020[44][45] Segment Revenues - Nine Months Ended Sep 30, 2020 (in thousands) | Segment | Total Revenues | Income from Operations | | :--- | :--- | :--- | | Mobile Modular | $245,373 | $64,914 | | TRS-RenTelco | $102,998 | $25,723 | | Adler Tanks | $58,587 | $7,118 | | Enviroplex | $16,616 | $1,973 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2020 revenue and net income decreases, flat nine-month revenues with slight net income growth, segment performance, strong liquidity, and the ongoing but not significantly impactful COVID-19 effects Overview and Adjusted EBITDA Provides an overview of the company's business segments and their contributions, along with a summary of Adjusted EBITDA performance and compliance with financial covenants - The company operates four segments: Mobile Modular, TRS-RenTelco, Adler Tanks, and Enviroplex, with Mobile Modular contributing 65% of pre-tax income for the first nine months of 2020[56][58] Adjusted EBITDA Performance (in thousands) | Period | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $62,720 | $70,839 | -11.4% | | Nine Months Ended Sep 30 | $175,682 | $173,134 | +1.5% | - The company was in compliance with key financial covenants as of September 30, 2020, with a Consolidated Fixed Charge Coverage Ratio of 4.30 to 1 and a Consolidated Leverage Ratio of 1.04 to 1[72] Recent Developments and COVID-19 Highlights recent corporate actions, including dividend declarations and credit facility renewals, and discusses the company's assessment of the COVID-19 pandemic's impact - The Board of Directors declared a quarterly cash dividend of $0.42 per share, representing a 12% increase over the prior year[73] - On March 31, 2020, the company renewed its $420 million credit facility maturing in 2025 and amended its $250 million note purchase agreement[74][75] - While the full impact of COVID-19 remains uncertain, the company has not seen a significant impact on Q3 2020 financial results, implementing precautionary measures for business continuity[77][80] Results of Operations - Three Months Ended September 30 Analyzes the company's financial performance for the third quarter of 2020, detailing consolidated revenues, net income, and segment-specific results - Consolidated revenues for Q3 2020 decreased 10% to $156.4 million, and net income decreased 13% to $28.1 million compared to Q3 2019[82] - Mobile Modular segment revenues increased 11% to $95.4 million, driven by a 76% increase in sales revenue[84][86] - TRS-RenTelco segment revenues increased 5% to $35.9 million, but pre-tax income fell 11% due to lower gross margins on rentals and sales[91] - Adler Tanks segment revenues decreased 22% to $19.3 million, with pre-tax income falling 46%, attributed to COVID-19 disruptions and weaker oil and gas sector activity[98][104] Results of Operations - Nine Months Ended September 30 Examines the company's financial performance for the first nine months of 2020, including consolidated revenues, net income, and segment-level contributions - For the nine months ended September 30, 2020, consolidated revenues were flat at $423.6 million, while net income increased 1% to $70.8 million[106] - Mobile Modular's pre-tax income increased 27% to $60.9 million, driven by a 12% increase in total revenues, particularly a 65% rise in sales[108][110] - TRS-RenTelco's pre-tax income decreased 4% to $23.9 million, despite a 6% increase in revenues, due to lower gross profit on sales[115] - Adler Tanks' pre-tax income decreased 53% to $5.5 million, as revenues fell 21% due to COVID-19 disruptions and a decline in oil and gas prices[122][128] Liquidity and Capital Resources Assesses the company's ability to generate and manage cash, including operating cash flow, capital expenditures, available credit, and share repurchases - Net cash from operations was $131.5 million for the first nine months of 2020, a slight decrease from $136.9 million in 2019[129] - The company significantly reduced capital expenditures, with purchases of rental equipment falling to $65.7 million in the first nine months of 2020 from $127.2 million in 2019[130] - As of September 30, 2020, the company had $432.0 million in available credit lines, with $150.0 million outstanding, leaving $282.0 million of borrowing capacity[135] - During the first nine months of 2020, the company repurchased 282,221 shares of common stock for $13.6 million[145] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures were reported compared to the 2019 Annual Report on Form 10-K - There have been no material changes in the Company's market risk exposures from those reported in the 2019 Annual Report[148] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2020[149] - There were no material changes in the Company's internal control over financial reporting during the quarter[149] Part II - Other Information Legal Proceedings The company does not expect current legal proceedings to materially adversely affect its financial condition, operating results, or cash flows - Management does not expect current legal proceedings to have a material adverse effect on financial condition, operating results, or cash flows[152] Risk Factors This section outlines significant general, operational, and segment-specific risks, including COVID-19 impacts, operating fluctuations, and financial risks like debt covenants and goodwill impairment General Business and Economic Risks Identifies broad risks affecting the company, such as the COVID-19 pandemic, potential fluctuations in operating results, and reliance on information technology systems - The COVID-19 pandemic could materially and adversely affect business, financial condition, and results of operations due to economic slowdowns and supply chain disruptions[154][155] - Future operating results may fluctuate and fail to match past performance due to economic conditions, legislative policies, and seasonality[159][160] - Reliance on information technology systems means a breach or disruption could lead to liability, reputational damage, and operational interruption[167][168] Strategic and Operational Risks Addresses risks related to the company's strategic decisions and day-to-day operations, including acquisitions, residual value of rental equipment, and environmental liabilities - Future acquisitions involve risks such as integration difficulties, diversion of management's attention, and failure to realize anticipated synergies[172][173] - The market value of used rental equipment is subject to residual value risk, potentially being less than its depreciated value and impacting sales gains or losses[175] - The business is exposed to environmental, health, and safety litigation and liability, potentially resulting in significant costs, penalties, and remediation expenses[178][181] Risks Specific to Relocatable Modular Buildings Business Details risks unique to the modular buildings segment, such as dependence on public school funding, intense competition, and compliance with evolving building codes - A significant portion of revenue from public schools (K-12) makes the business highly dependent on and vulnerable to reductions or delays in public funding and bond measures[194][196] - The modular building industry is highly competitive, with larger competitors like WillScot Corporation potentially leading to pricing pressures[205][206] - The business is subject to numerous and evolving building codes and regulations, with non-compliance potentially leading to increased costs, penalties, or equipment obsolescence[198][201] Risks Specific to Electronic Test Equipment Business Outlines risks specific to the electronic test equipment segment, including cyclical demand, technological obsolescence, and intense competition - Demand is subject to cyclical downturns in key industries like aerospace, defense, and communications, potentially leading to excess inventory and reduced operating results[212] - Changing technology and evolving industry standards may render existing rental equipment obsolete, potentially causing impairment charges[214] - The business faces intense competition from established entities, and failure to anticipate demand for new products could adversely affect operating results[216] Risks Specific to Liquid and Solid Containment Business Covers risks particular to the liquid and solid containment segment, such as environmental liability, commodity price volatility, and market competition - The company could be held responsible for cleanup of spills or tort litigation if an accident occurs with rental tanks and boxes, potentially exceeding insurance coverage[221][222] - Demand is subject to commodity price volatility and cyclical downturns in industries like oil and gas, potentially leading to excess inventory and reduced cash flows[226] - The industry is highly competitive, with large national competitors potentially leading to decreased market share or rental rates[224] Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2020, the company repurchased 2,355 shares for $0.1 million, with 1,309,805 shares remaining available for repurchase Share Repurchases - Q3 2020 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 1 - July 31 | 2,355 | $49.61 | | August 1 - Aug 31 | — | $— | | Sept 1 - Sept 30 | — | $— | | Total | 2,355 | $49.61 | - As of September 30, 2020, 1,309,805 shares remained authorized for repurchase under the Company's Repurchase Plan[236] Other Items This section confirms no defaults on senior securities, no mine safety disclosures, no other material information, and lists filed exhibits - The company reported no defaults upon senior securities, no mine safety disclosures, and no other information required under Item 5[238][239][240]