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McGrath RentCorp Announces Results for Third Quarter 2021

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LIVERMORE, Calif., October 28, 2021--(BUSINESS WIRE)--McGrath RentCorp (NASDAQ: MGRC) (the "Company"), a diversified business-to-business rental company, today announced total revenues for the quarter ended September 30, 2021 of $173.3 million, an increase of 11%, compared to the third quarter of 2020. The Company reported net income of $23.3 million, or $0.95 per diluted share, for the third quarter of 2021, compared to net income of $28.1 million, or $1.15 per diluted share, for the third quarter of 2020.

THIRD QUARTER 2021 COMPANY HIGHLIGHTS:

  • Rental revenues increased 17% year-over-year to $103.3 million.

  • Total revenues increased 11% year-over-year to $173.3 million.

  • Adjusted EBITDA1 increased 5% to $66.0 million.

  • Dividend rate increased 4% year-over-year to $0.435 per share for the third quarter of 2021. On an annualized basis, this dividend represents a 2.3% yield on the October 27, 2021 close price of $75.24 per share.

Joe Hanna, President and CEO of McGrath RentCorp, made the following comments regarding these results and future expectations:

"Our third quarter results reflect improved end market conditions in each of our three rental business segments. Companywide rental revenues increased 17% year over year. Modular rental revenues grew 26%, with the majority of the growth attributable to our Design Space and Kitchens To Go acquisitions. Rental revenues at TRS and Adler grew 6% and 11%, respectively.

Our teams continued working through the integration of Design Space and Kitchens To Go during the quarter and I am very pleased with their progress. These acquisitions will provide additional long-term growth opportunities, as we expect to deploy more rental equipment capital in our expanded geographic coverage and to expand the breadth of products and services we bring to our customers.

We continued to see some cost pressures from elevated material and labor expenses, and some project delays, reflecting supply chain challenges. As business activity level increased, these factors pressured modular rental and sales margins during the quarter, and pushed completion of some modular sales projects to later in the current year, and in to next year. Partly offsetting these pressures, we are increasing pricing as demand improves.

The overall positive rental demand trends that we have seen in recent months have continued into the fourth quarter. We are fully focused on solid execution for the remainder of the year."

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended September 30, 2021 to the quarter ended September 30, 2020 unless otherwise indicated.

MOBILE MODULAR

For the third quarter of 2021, the Company’s Mobile Modular division reported income from operations of $23.5 million, a decrease of $1.4 million, or 5%. Rental revenues increased 26% to $59.2 million, depreciation expense increased 31% to $7.5 million and other direct costs increased 40% to $16.5 million, which resulted in an increase in gross profit on rental revenues of 19% to $35.1 million. The rental revenue increase reflects in part the new Design Space and Kitchens To Go customers that contributed approximately three quarters of the increase. Rental related services revenues increased 31% to $24.5 million, primarily attributable to higher amortization of modular building delivery and return delivery and dismantle revenues, higher site related and other services performed during the lease and increased delivery and return delivery revenues at Portable Storage, with associated gross profit increasing 15% to $6.0 million. Sales revenues decreased 10% to $26.4 million, primarily due to lower new equipment sales. Gross margin on sales was 31% compared to 26% in 2020, resulting in a 9% increase in gross profit on sales revenues to $8.2 million. Selling and administrative expenses increased 47% to $26.1 million, primarily due to increased employee salaries and benefit costs totaling $2.5 million, mostly due to the addition of Design Space and Kitchens To Go employees, $2.4 million higher amortization of intangible assets associated with the Design Space and Kitchens To Go acquisitions and $1.4 million higher allocated corporate expenses.

TRS-RENTELCO

For the third quarter of 2021, the Company’s TRS-RenTelco division reported income from operations of $9.5 million, an increase of $0.5 million, or 5%. Rental revenues increased 6% to $29.2 million, depreciation expense increased 5% to $12.2 million and other direct costs increased 4% to $5.0 million, which resulted in a 7% increase in gross profit on rental revenues to $12.0 million. The rental revenue increase was primarily the result of increased demand for general purpose equipment compared to the prior year. Sales revenues decreased 31% to $4.8 million. Gross margin on sales was 63% in 2021 compared to 44% in 2020, resulting in a 1% decrease in gross profit on sales revenues to $3.0 million. Selling and administrative expenses increased 1% to $6.0 million.

ADLER TANKS

For the third quarter of 2021, the Company’s Adler Tanks division reported income from operations of $2.8 million, an increase of 4% compared to the prior year. Rental revenues increased 11% to $14.8 million, depreciation expense was comparable to the prior year and other direct costs increased 62% to $3.2 million, which resulted in an increased gross profit on rental revenues of 3%, to $7.6 million. Rental related services revenues increased 14% to $6.3 million, with gross profit on rental related services increasing 2%, to $1.2 million. Selling and administrative expenses increased 9% to $6.3 million primarily due to higher allocated corporate expenses.

FINANCIAL OUTLOOK:

Based upon the Company’s year-to-date results and current outlook for the remainder of the year, the Company is updating its financial outlook.

For the full-year 2021, the Company expects:

Previous

Current

$610 million to $640 million

$245 million to $260 million

$100 million to $120 million

$618 million to $628 million

$245 million to $249 million

$108 million to $118 million

1.

Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation. A reconciliation of actual net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this release.

2.

Information reconciling forward-looking Adjusted EBITDA to the comparable GAAP financial measures is unavailable to the Company without unreasonable effort because certain items required for such reconciliations are outside of the Company’s control and/or cannot be reasonably predicted, such as the provision for income taxes. Therefore, no reconciliation to the most comparable GAAP measures is provided. The Company provides Adjusted EBITDA guidance because it believes that Adjusted EBITDA, when viewed with the Company’s results under GAAP, provides useful information for the reasons noted in the reconciliation of actual Adjusted EBITDA to the most directly comparable GAAP measures at the end of this release.

ABOUT MCGRATH RENTCORP:

Founded in 1979, McGrath RentCorp (Nasdaq: MGRC) is a diversified business-to-business rental company providing modular buildings, electronic test equipment, portable storage and tank containment solutions across the United States and other select North American regions. The Company’s rental operations consist of four divisions: Mobile Modular rents and sells modular buildings to fulfill customers’ temporary and permanent classroom and office space needs; TRS-RenTelco rents and sells electronic test equipment; Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids; and Mobile Modular Portable Storage provides portable storage rental solutions. For more information on McGrath RentCorp and its operating units, please visit our websites:

Corporate – www.mgrc.com
Modular Buildings – www.mobilemodular.com
Electronic Test Equipment – www.trsrentelco.com
Tanks and Boxes – www.adlertankrentals.com
Portable Storage – www.mobilemodularcontainers.com
School Facilities Manufacturing – www.enviroplex.com

You should read this press release in conjunction with the financial statements and notes thereto included in the Company’s latest Forms 10-K, 10-Q and other SEC filings. You can visit the Company’s web site at www.mgrc.com to access information on McGrath RentCorp, including the latest Forms 10-K, 10-Q and other SEC filings.

CONFERENCE CALL NOTE:

As previously announced in its press release of October 1, 2021, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 28, 2021 to discuss the third quarter 2021 results. To participate in the teleconference, dial 1-844-707-0666 (in the U.S.), or 1-703-639-1220 (outside the U.S.), or to listen only, access the simultaneous webcast at the investor relations section of the Company’s website at https://investors.mgrc.com/. A replay will be available for 7 days following the call by dialing 1-855-859-2056 (in the U.S.), or 1-404-537-3406 (outside the U.S.). The pass code for the conference call replay is 5485029. In addition, a live audio webcast and replay of the call may be found in the investor relations section of the Company’s website at https://investors.mgrc.com/events-and-presentations.

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrath RentCorp’s expectations, strategies, prospects or targets are forward looking statements. These forward-looking statements also can be identified by the use of forward-looking terminology such as "anticipates," "believes," "continues," "could," "estimates," "expects," "intends," "may," "plan," "predict," "project," or "will," or the negative of these terms or other comparable terminology. In particular, Mr. Hanna’s statements about the Design Space and Kitchens To Go acquisitions providing additional long-term growth opportunities and the expectation to deploy more rental equipment capital and to expand the breadth of products and services to the Company’s customers, optimism about the overall positive rental demand trends, as well as the statements regarding the full year 2021 in the "Financial Outlook" section, are forward-looking.

These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected including: the duration of the COVID-19 pandemic and its economic impact, the extent and length of the restrictions associated with COVID-19 pandemic, the health of the education and commercial markets in our modular building division; the activity levels in the general purpose and communications test equipment markets at TRS-RenTelco; the ability to obtain the synergies expected from the Design Space and Kitchens To Go acquisitions and the success of integrating such acquisitions; the utilization levels and rental rates of our Adler Tanks liquid and solid containment tank and box rental assets; continued execution of our performance improvement initiatives; our ability to successfully increase prices to offset cost increases; and our ability to effectively manage our rental assets, as well as the factors disclosed under "Risk Factors" in the Company’s Form 10-K and other SEC filings.

Forward-looking statements are made only as of the date hereof. Except as otherwise required by law, we assume no obligation to update any of the forward-looking statements contained in this press release.

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share amounts)

2021

2020

2021

2020

Revenues

Rental

$

103,269

$

88,138

$

283,937

$

263,273

Rental related services

31,513

25,040

73,870

70,026

Rental operations

134,782

113,178

357,807

333,299

Sales

37,636

42,331

80,503

87,366

Other

874

939

2,612

2,909

Total revenues

173,292

156,448

440,922

423,574

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

23,802

21,419

68,216

64,640

Rental related services

24,356

18,603

56,236

51,760

Other

24,711

18,553

67,696

56,171

Total direct costs of rental operations

72,869

58,575

192,148

172,571

Costs of sales

24,618

29,669

50,021

57,911

Total costs of revenues

97,487

88,244

242,169

230,482

Gross profit

75,805

68,204

198,753

193,093

Selling and administrative expenses

39,907

30,871

109,305

93,365

Income from operations

35,898

37,333

89,448

99,728

Other income (expense):

Interest expense

(3,168

)

(1,968

)

(7,208

)

(6,804

)

Foreign currency exchange (loss) gain

(128

)

130

(185

)

(189

)

Income before provision for income taxes

32,602

35,495

82,055

92,735

Provision for income taxes

9,350

7,394

20,797

21,926

Net income

$

23,252

$

28,101

$

61,258

$

70,809

Earnings per share:

Basic

$

0.96

$

1.17

$

2.53

$

2.93

Diluted

$

0.95

$

1.15

$

2.50

$

2.88

Shares used in per share calculation:

Basic

24,245

24,097

24,209

24,170

Diluted

24,507

24,443

24,506

24,558

Cash dividends declared per share

$

0.435

$

0.420

$

1.305

$

1.260

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

September 30,

December 31,

(in thousands)

2021

2020

Assets

Cash

$

2,380

$

1,238

Accounts receivable, net of allowance for doubtful accounts of $2,225 in 2021

and $2,100 in 2020

168,831

123,316

Rental equipment, at cost:

Relocatable modular buildings

1,023,344

882,115

Electronic test equipment

363,799

333,020

Liquid and solid containment tanks and boxes

311,677

315,706

1,698,820

1,530,841

Less: accumulated depreciation

(635,358

)

(592,725

)

Rental equipment, net

1,063,462

938,116

Property, plant and equipment, net

135,055

136,210

Prepaid expenses and other assets

59,523

41,549

Intangible assets, net

48,715

7,118

Goodwill

132,387

28,197

Total assets

$

1,610,353

$

1,275,744

Liabilities and Shareholders' Equity

Liabilities:

Notes payable

$

459,475

$

222,754

Accounts payable and accrued liabilities

137,308

108,334

Deferred income

69,634

45,975

Deferred income taxes, net

231,480

216,077

Total liabilities

897,897

593,140

Shareholders’ equity:

Common stock, no par value - Authorized 40,000 shares

Issued and outstanding - 24,247 shares as of September 30, 2021 and 24,128 shares as of December 31, 2020

106,744

106,289

Retained earnings

605,754

576,419

Accumulated other comprehensive loss

(42

)

(104

)

Total shareholders’ equity

712,456

682,604

Total liabilities and shareholders’ equity

$

1,610,353

$

1,275,744

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

Nine Months Ended September 30,

(in thousands)

2021

2020

Cash Flows from Operating Activities:

Net income

$

61,258

$

70,809

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

79,047

71,249

Provision for doubtful accounts

193

1,227

Share-based compensation

5,302

4,894

Gain on sale of used rental equipment

(17,788

)

(14,110

)

Foreign currency exchange loss

185

189

Amortization of debt issuance costs

11

8

Change in:

Accounts receivable

(33,471

)

(2,561

)

Prepaid expenses and other assets

(11,409

)

(1,314

)

Accounts payable and accrued liabilities

17,428

(582

)

Deferred income

20,128

3,591

Deferred income taxes

15,403

(1,863

)

Net cash provided by operating activities

136,287

131,537

Cash Flows from Investing Activities:

Purchases of rental equipment

(90,379

)

(65,661

)

Purchases of property, plant and equipment

(969

)

(9,639

)

Cash paid for acquisition of businesses

(285,624

)

Proceeds from sales of used rental equipment

41,556

33,837

Net cash used in investing activities

(335,416

)

(41,463

)

Cash Flows from Financing Activities:

Net borrowing (repayment) under bank lines of credit

176,758

(43,460

)

Borrowings under note purchase agreement

100,000

Principal payment of Series B senior notes

(40,000

)

Repurchase of common stock

(13,617

)

Taxes paid related to net share settlement of stock awards

(4,847

)

(3,930

)

Payment of dividends

(31,635

)

(29,642

)

Net cash provided by (used in) financing activities

200,276

(90,649

)

Effect of foreign currency exchange rate changes on cash

(5

)

(224

)

Net increase (decrease) in cash

1,142

(799

)

Cash balance, beginning of period

1,238

2,342

Cash balance, end of period

$

2,380

$

1,543

Supplemental Disclosure of Cash Flow Information:

Interest paid, during the period

$

6,477

$

6,829

Net income taxes paid, during the period

$

8,074

$

24,704

Dividends accrued during the period, not yet paid

$

10,002

$

10,355

Rental equipment acquisitions, not yet paid

$

2,199

$

5,827

1.

Average rental equipment represents the cost of rental equipment, excluding accessory equipment. For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.

2.

Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.

3.

Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.

4.

Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

MCGRATH RENTCORP

...

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