McGrath Rentp(MGRC) - 2024 Q3 - Quarterly Results

Executive Summary / Q3 2024 Highlights Overall Company Performance McGrath RentCorp achieved significant net income growth in Q3 2024, primarily due to a $180 million merger termination payment, despite a modest 1% increase in rental revenue, with total revenue growing 10% year-over-year Q3 2024 Key Financial Highlights (Continuing Operations): | Metric | Q3 2024 | Q3 2023 | Year-over-Year Growth | | :--------------------------------------- | :------------- | :------------- | :------- | | Total Revenue | $266.8 Million | $243.5 Million | 10% | | Rental Revenue | $124.2 Million | $122.7 Million | 1% | | Net Income from Continuing Operations | $149.3 Million | $40.4 Million | 269.55% | | Diluted EPS from Continuing Operations | $6.08 | $1.65 | 268.48% | | Adjusted EBITDA | $104.0 Million | $91.8 Million | 13% | | Quarterly Dividend | $0.475 per share | $0.465 per share | 2.15% | - Company received $180 million merger termination payment from WillScot Mobile Mini, contributing $103.5 million to net income or $4.21 diluted EPS for the quarter, after deducting $39.4 million in transaction costs and income tax provisions[1][2] - Excluding the merger termination payment and transaction costs, net income from continuing operations was $45.9 million, or $1.87 diluted EPS[1] CEO Commentary CEO Joe Hanna expressed satisfaction with Q3 results, highlighting strong modular business growth and increased total revenue, while portable storage and TRS-RenTelco faced demand challenges leading to revenue declines, with the company focusing on pricing optimization, fleet utilization, and growth initiatives - Modular business was a highlight this quarter, with rental revenue growing 9%, driven by growth in both commercial and education customer segments[3] - Portable storage experienced soft demand, with rental revenue decreasing 11% year-over-year, primarily due to reduced commercial construction project activity[3] - TRS-RenTelco continued to face demand challenges, with rental revenue decreasing 10% year-over-year, leading the company to implement strict new equipment capital expenditure controls and efforts to right-size its fleet to market demand[3] - The company is committed to multi-year growth opportunities in both modular and portable storage businesses by expanding its customer base, geographic reach, and value-added services[4] Segment Performance (Q3 2024) Mobile Modular The Mobile Modular segment showed strong performance in Q3 2024, with significant growth in Adjusted EBITDA, rental revenue, rental-related services, and sales revenue, driven by increased new equipment sales and improved gross margins Q3 2024 Mobile Modular Segment Performance Highlights: | Metric | Amount (Million USD) | Year-over-Year Growth | | :----------------------- | :--------------- | :------- | | Adjusted EBITDA | $71.4 | 23% | | Rental Revenue | $81.5 | 9% | | Rental-Related Services Revenue | $42.4 | 23% | | Sales Revenue | $66.0 | 14% | | Sales Gross Margin | 34% | 2 percentage points | - Growth in rental-related services revenue was primarily attributed to higher delivery and pickup activity and increased on-site related services[5] - Sales revenue growth primarily stemmed from increased new equipment sales, with sales gross profit growing 20%[5] Portable Storage The Portable Storage segment experienced a decline in Q3 2024, with Adjusted EBITDA and rental revenue decreasing due to weak demand, though sales revenue slightly increased and selling and administrative expenses were reduced Q3 2024 Portable Storage Segment Performance Highlights: | Metric | Amount (Million USD) | Year-over-Year Change | | :----------------------- | :--------------- | :------- | | Adjusted EBITDA | $10.8 | -10% | | Rental Revenue | $17.0 | -11% | | Sales Revenue | $1.4 | +$0.3 | | Sales Gross Margin | 36% | 4 percentage points | | Selling and Administrative Expenses | $6.8 | -15% | - Rental revenue gross profit decreased 9% to $14.7 million[6] - Sales revenue growth was primarily driven by increased used equipment sales[6] TRS-RenTelco The TRS-RenTelco segment continued to face demand challenges in Q3 2024, resulting in a 10% decrease in both Adjusted EBITDA and rental revenue, despite a significant improvement in sales gross margin Q3 2024 TRS-RenTelco Segment Performance Highlights: | Metric | Amount (Million USD) | Year-over-Year Change | | :----------------------- | :--------------- | :------- | | Adjusted EBITDA | $18.9 | -10% | | Rental Revenue | $25.7 | -10% | | Sales Revenue | $7.6 | -13% | | Sales Gross Margin | 52% | 17 percentage points | | Selling and Administrative Expenses | $6.6 | -5% | - The decline in rental revenue was primarily due to continued softness in end markets, resulting in a lower average number of rental units compared to the prior year[7] - Sales revenue decreased primarily due to lower used equipment sales, but sales gross profit increased 27%[7] Financial Outlook McGrath RentCorp anticipates full-year 2024 total revenue between $910 million and $920 million, with Adjusted EBITDA projected to be between $345 million and $351 million, alongside total rental equipment capital expenditures of $180 million to $190 million Full-Year 2024 Financial Outlook (Continuing Operations): | Metric | Range | | :-------------------------------- | :---------------- | | Adjusted EBITDA | $345 to $351 Million | | Total Rental Equipment Capital Expenditures | $180 to $190 Million | | Total Revenue | $910 to $920 Million | - Adjusted EBITDA is defined as net income before interest expense, income tax provision, depreciation, amortization, non-cash impairment costs, stock-based compensation, transaction costs, other net income, and non-operating transactions such as the WillScot Mobile Mini merger termination benefit[9] Company Information About McGrath RentCorp Founded in 1979, McGrath RentCorp is a leading North American B2B rental company specializing in modular solutions (Mobile Modular and Mobile Modular Portable Storage) and electronic test equipment rental (TRS-RenTelco), known for customer experience and over 30 years of consecutive annual dividend growth - McGrath RentCorp was founded in 1979 and is headquartered in Livermore, California[10] - The company's core businesses are modular solutions (Mobile Modular and Mobile Modular Portable Storage) and electronic test equipment rental (TRS-RenTelco)[10] - The company has a track record of over 30 years of consecutive annual dividend increases[10] Conference Call Details McGrath RentCorp held a conference call on October 24, 2024, at 5:00 PM ET to discuss Q3 2024 results, with a replay available via phone and the company's investor relations website - The conference call was held on October 24, 2024, at 5:00 PM ET (2:00 PM PT)[11] - Participants could listen by dialing a specified phone number or accessing the company's investor relations website[11] - A replay of the call was available for seven days after the conference call by dialing a specified number or visiting the company's website[11] Forward-Looking Statements and Risks This press release contains "forward-looking statements" regarding future performance, strategies, and objectives, particularly growth opportunities in modular and portable storage businesses and the 2024 financial outlook, which are subject to significant risks and uncertainties including market health, acquisition impacts, competition, and operational execution - Forward-looking statements include the CEO's comments on the company's opportunities to expand its customer base, geographic reach, and value-added services in the modular and portable storage businesses, as well as statements in the "Financial Outlook" section regarding the full year 2024[12] - Significant risks and uncertainties include: the health of the education and commercial markets for the modular building division; unforeseen liabilities and integration challenges related to the Vesta, Brekke Storage, Dixie Storage, and Inland Storage acquisitions; any adverse impacts from the termination of the WillScot Mobile Mini merger; internal competition within the modular business; activity levels in the semiconductor and general and communications test equipment markets for TRS-RenTelco; the level of commercial construction project activity and its impact on the portable storage division; the ability to continue executing strategic performance improvement initiatives; the ability to successfully implement price increases to offset cost increases; and the ability to effectively manage rental assets[13][14] Consolidated Financial Statements Condensed Consolidated Statements of Operations In Q3 2024, total revenue increased 10% year-over-year to $266.8 million, driven by growth in rental and sales revenue, with net income from continuing operations surging from $40.4 million in Q3 2023 to $149.3 million, primarily due to a $180 million merger termination benefit Condensed Consolidated Statements of Operations (Continuing Operations, in thousands): | Metric | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------------------------------- | :------------- | :------------- | :------------- | :------------- | | Total Revenue | $266,758 | $243,506 | $667,196 | $610,254 | | Total Cost of Sales | $142,779 | $131,972 | $346,534 | $326,743 | | Gross Profit | $123,979 | $111,534 | $320,661 | $283,511 | | Operating Income | $74,682 | $66,585 | $181,178 | $134,038 | | Merger Termination Benefit (WillScot Mobile Mini) | $(180,000) | $— | $(180,000) | $— | | WillScot Mobile Mini Transaction Costs | $39,436 | $— | $61,157 | $— | | Income from Continuing Operations Before Income Taxes | $202,821 | $55,518 | $261,691 | $105,770 | | Income Tax Provision from Continuing Operations | $53,504 | $15,152 | $68,913 | $25,934 | | Net Income from Continuing Operations | $149,317 | $40,366 | $192,778 | $79,836 | | Diluted EPS from Continuing Operations | $6.08 | $1.65 | $7.85 | $3.26 | Condensed Consolidated Balance Sheets As of September 30, 2024, total assets increased to $2.286 billion from $2.217 billion on December 31, 2023, with a significant reduction in notes payable and an increase in total stockholders' equity, reflecting an improved financial position Condensed Consolidated Balance Sheets (in thousands): | Metric | Sep 30, 2024 | Dec 31, 2023 | Change Rate | | :--------------------------------------- | :------------- | :--------------- | :----- | | Cash | $4,056 | $877 | 362.49% | | Accounts Receivable, Net | $224,529 | $227,368 | -1.25% | | Rental Equipment, Net | $1,391,682 | $1,329,323 | 4.69% | | Property, Plant, and Equipment, Net | $195,593 | $169,114 | 15.66% | | Total Assets | $2,285,636 | $2,217,283 | 3.08% | | Notes Payable | $608,562 | $762,975 | -20.23% | | Total Liabilities | $1,191,576 | $1,283,481 | -7.16% | | Total Stockholders' Equity | $1,094,060 | $933,802 | 17.16% | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash provided by operating activities significantly increased to $337.6 million from $118.9 million in the prior year, primarily influenced by the merger termination benefit, while net cash used in investing activities decreased, and financing activities shifted from a net inflow to a net outflow Condensed Consolidated Statements of Cash Flows (in thousands): | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change Rate | | :--------------------------------------- | :------------- | :------------- | :----- | | Net Cash Provided by Operating Activities | $337,596 | $118,903 | 184.09% | | Net Cash Used in Investing Activities | $(140,818) | $(331,547) | 57.54% | | Net Cash (Used in) Provided by Financing Activities | $(193,599) | $213,624 | N/A | | Cash Balance, End of Period | $4,056 | $1,946 | 108.43% | | Net Merger Termination Benefit (Supplemental Disclosure) | $118,843 | $— | N/A | Segment Financial Data Three Months Ended September 30, 2024 In Q3 2024, the Mobile Modular segment was the top performer with total revenue of $191.4 million and Adjusted EBITDA of $71.4 million, while Portable Storage and TRS-RenTelco segments experienced year-over-year declines in both revenue and Adjusted EBITDA, reflecting market challenges Q3 2024 Segment Revenue (in thousands): | Segment | Rental | Rental-Related Services | Sales | Other | Total Revenue | | :----------------- | :------- | :----------- | :----- | :--- | :----- | | Mobile Modular | $81,508 | $42,396 | $65,994 | $1,509 | $191,407 | | Portable Storage | $17,040 | $4,405 | $1,411 | $195 | $23,051 | | TRS-RenTelco | $25,655 | $900 | $7,604 | $642 | $34,801 | | Enviroplex | $— | $— | $17,499 | $— | $17,499 | | Consolidated Total | $124,203 | $47,701 | $92,508 | $2,346 | $266,758 | Q3 2024 Segment Adjusted EBITDA (in thousands): | Segment | Adjusted EBITDA | | :----------------- | :------------- | | Mobile Modular | $71,420 | | Portable Storage | $10,796 | | TRS-RenTelco | $18,945 | | Enviroplex | $2,822 | | Consolidated Total | $103,983 | Three Months Ended September 30, 2023 In Q3 2023, the Mobile Modular segment also led in revenue and Adjusted EBITDA, with Portable Storage and TRS-RenTelco showing higher rental revenues compared to Q3 2024, indicating a decline in these segments over the past year Q3 2023 Segment Revenue (in thousands): | Segment | Rental | Rental-Related Services | Sales | Other | Total Revenue | | :----------------- | :------- | :----------- | :----- | :--- | :----- | | Mobile Modular | $74,796 | $34,429 | $57,723 | $1,908 | $168,856 | | Portable Storage | $19,232 | $5,287 | $1,144 | $363 | $26,026 | | TRS-RenTelco | $28,658 | $776 | $8,733 | $942 | $39,109 | | Enviroplex | $— | $— | $9,515 | $— | $9,515 | | Consolidated Total | $122,686 | $40,492 | $77,115 | $3,213 | $243,506 | Q3 2023 Segment Adjusted EBITDA (in thousands): | Segment | Adjusted EBITDA | | :----------------- | :------------- | | Mobile Modular | $58,166 | | Portable Storage | $12,047 | | TRS-RenTelco | $21,039 | | Enviroplex | $517 | | Consolidated Total | $91,769 | Nine Months Ended September 30, 2024 For the nine months ended September 30, 2024, the Mobile Modular segment remained the primary contributor to revenue and Adjusted EBITDA, with consolidated total revenue reaching $667.2 million and Adjusted EBITDA at $259.7 million Nine Months Ended September 30, 2024 Segment Revenue (in thousands): | Segment | Rental | Rental-Related Services | Sales | Other | Total Revenue | | :----------------- | :------- | :----------- | :----- | :--- | :----- | | Mobile Modular | $236,040 | $95,450 | $127,251 | $4,795 | $463,536 | | Portable Storage | $53,270 | $13,768 | $3,889 | $907 | $71,835 | | TRS-RenTelco | $76,398 | $2,422 | $20,261 | $2,153 | $101,234 | | Enviroplex | $— | $— | $30,591 | $— | $30,591 | | Consolidated Total | $365,708 | $111,640 | $181,992 | $7,855 | $667,196 | Nine Months Ended September 30, 2024 Segment Adjusted EBITDA (in thousands): | Segment | Adjusted EBITDA | | :----------------- | :------------- | | Mobile Modular | $168,165 | | Portable Storage | $33,333 | | TRS-RenTelco | $55,426 | | Enviroplex | $2,799 | | Consolidated Total | $259,723 | Nine Months Ended September 30, 2023 For the nine months ended September 30, 2023, consolidated total revenue was $610.3 million and Adjusted EBITDA was $230.5 million, with Mobile Modular as the largest contributor, and Portable Storage and TRS-RenTelco showing higher rental revenues than in the corresponding 2024 period Nine Months Ended September 30, 2023 Segment Revenue (in thousands): | Segment | Rental | Rental-Related Services | Sales | Other | Total Revenue | | :----------------- | :------- | :----------- | :----- | :--- | :----- | | Mobile Modular | $209,622 | $83,799 | $112,939 | $5,249 | $411,609 | | Portable Storage | $54,776 | $15,359 | $2,890 | $1,167 | $74,192 | | TRS-RenTelco | $86,375 | $2,323 | $21,368 | $3,008 | $113,074 | | Enviroplex | $— | $— | $11,379 | $— | $11,379 | | Consolidated Total | $350,773 | $101,481 | $148,576 | $9,424 | $610,254 | Nine Months Ended September 30, 2023 Segment Adjusted EBITDA (in thousands): | Segment | Adjusted EBITDA | | :----------------- | :------------- | | Mobile Modular | $135,107 | | Portable Storage | $34,375 | | TRS-RenTelco | $63,212 | | Enviroplex | $(2,207) | | Consolidated Total | $230,487 | Non-GAAP Financial Measures Reconciliation (Adjusted EBITDA) Adjusted EBITDA Definition and Use Adjusted EBITDA is a non-GAAP financial measure defined as net income before interest expense, income taxes, depreciation, amortization, non-cash impairment costs, stock-based compensation, transaction costs, gains on asset sales, and non-operating transactions like merger termination benefits, used by management to assess operating performance, liquidity, and financial covenant compliance - Adjusted EBITDA is defined as net income before interest expense, income tax provision, depreciation, amortization, non-cash impairment costs, stock-based compensation, transaction costs, gains on asset sales, and non-operating transactions such as the WillScot Mobile Mini merger termination benefit[23] - Management uses Adjusted EBITDA to assess period operating performance, comply with financial covenants in revolving credit facilities and senior notes, and evaluate the ability to meet future capital expenditure and working capital needs[24] - Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data under GAAP, nor is it a measure of the company's profitability or liquidity[25] Reconciliation of Income from Continuing Operations to Adjusted EBITDA This reconciliation table illustrates how income from continuing operations is adjusted to Adjusted EBITDA, which was $104.0 million for Q3 2024 and $259.7 million for the nine months ended September 30, 2024, with the merger termination benefit significantly impacting the adjustment Reconciliation of Income from Continuing Operations to Adjusted EBITDA (in thousands): | Metric | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------------------------------- | :------------- | :------------- | :------------- | :------------- | | Income from Continuing Operations | $149,317 | $40,366 | $192,778 | $79,836 | | Income Tax Provision from Continuing Operations | $53,502 | $15,152 | $68,913 | $25,934 | | Interest Expense | $12,642 | $11,025 | $38,383 | $28,434 | | Depreciation and Amortization | $26,693 | $26,884 | $80,824 | $80,385 | | EBITDA | $242,154 | $93,427 | $380,898 | $214,589 | | Stock-Based Compensation | $2,393 | $1,891 | $6,949 | $5,155 | | Transaction Costs | $39,436 | $10 | $61,157 | $14,302 | | Other Net Income | $— | $(3,559) | $(9,281) | $(3,559) | | Merger Termination Benefit (WillScot Mobile Mini) | $(180,000) | $— | $(180,000) | $— | | Adjusted EBITDA | $103,983 | $91,769 | $259,723 | $230,487 | | Adjusted EBITDA Margin | 39% | 39% | 38% | 38% | Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities This reconciliation table details the adjustments from Adjusted EBITDA to net cash provided by operating activities, which amounted to $199.0 million for Q3 2024 and $337.6 million for the nine months ended September 30, 2024 Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities (in thousands): | Metric | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------------------------------- | :------------- | :------------- | :------------- | :------------- | | Adjusted EBITDA | $103,983 | $91,769 | $259,723 | $234,169 | | Interest Paid | $(13,944) | $(11,016) | $(40,338) | $(27,818) | | Income Taxes Paid, Net | $(773) | $(2,616) | $3,826 | $(9,547) | | Gain on Sale of Used Rental Equipment | $(9,648) | $(8,714) | $(25,185) | $(22,964) | | Foreign Currency Exchange Loss | $(216) | $42 | $(53) | $(166) | | Amortization of Debt Issuance Costs | $2 | $2 | $6 | $6 | | Change in Accounts Receivable, Net | $(7,150) | $(26,223) | $2,839 | $(25,939) | | Change in Prepaid Expenses and Other Assets | $14,171 | $1,114 | $19,988 | $(7,390) | | Change in Accounts Payable and Other Liabilities | $123,241 | $4,476 | $104,293 | $(29,356) | | Change in Deferred Revenue | $(10,699) | $(1,382) | $12,497 | $7,908 | | Net Cash Provided by Operating Activities | $198,967 | $47,452 | $337,596 | $118,903 |