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McGrath RentCorp Announces Results for Second Quarter 2022

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LIVERMORE, Calif., July 28, 2022--(BUSINESS WIRE)--McGrath RentCorp (NASDAQ: MGRC) (the "Company"), a diversified business-to-business rental company, today announced total revenues for the quarter ended June 30, 2022 of $177.0 million, an increase of 21%, compared to the second quarter of 2021. The Company reported net income of $26.1 million, or $1.07 per diluted share, for the second quarter of 2022, compared to net income of $20.6 million, or $0.84 per diluted share, for the second quarter of 2021.

SECOND QUARTER 2022 YEAR-OVER-YEAR COMPANY HIGHLIGHTS:

  • Rental revenues increased 17% to $110.6 million.

  • Total revenues increased 21% to $177.0 million.

  • Adjusted EBITDA1 increased 13% to $66.3 million.

  • Dividend rate increased 5% to $0.455 per share for the second quarter of 2022. On an annualized basis, this dividend represents a 2.2% yield on the July 27, 2022 close price of $81.18 per share.

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

"We were very pleased with our second quarter results. Our 21% growth in total company revenues was a result of strong performance in both rental operations and sales revenues. Demand was healthy across each of our rental segments. Mobile Modular rental revenues grew 22%, with approximately half of the growth attributable to our Design Space and Titan Storage Container acquisitions. Excluding the acquisitions, the modular segment rental revenues grew by 11%. Rental revenue growth was also strong at TRS-RenTelco and Adler Tanks, which grew 7% and 18%, respectively.

Mobile Modular saw broad-based strength across our commercial, education and portable storage customer bases. We responded to this strong rental demand with increased capital spending to organically grow our fleet to capture growth opportunities, while also improving overall fleet utilization and increasing pricing. Operating expenses were elevated as we continued to spend robustly to prepare modular equipment for rent as we enter what is typically our busiest time of year for new project shipments. Our initiatives to also grow modular sales showed progress as sales revenues increased by 68% compared to a year ago.

At TRS-RenTelco and Adler Tanks the positive trends we experienced earlier this year continued in the second quarter. TRS-RenTelco saw growth in both communications and general-purpose rentals. Adler Tanks continued to experience broad-based demand improvement across its regions and vertical markets.

We have delivered strong performance in the first half of the year, and we have entered the second half with good momentum across the business. As a result, we have increased our financial outlook for the full year."

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended June 30, 2022 to the quarter ended June 30, 2021 unless otherwise indicated.

MOBILE MODULAR

For the second quarter of 2022, the Company’s Mobile Modular division reported income from operations of $23.9 million, an increase of $5.8 million, or 32%, with Adjusted EBITDA increasing $6.3 million, or 21%, to $35.8 million. Rental revenues increased 22% to $64.9 million, depreciation expense increased 10% to $7.7 million and other direct costs increased 51% to $24.1 million, which resulted in an increase in gross profit on rental revenues of 9% to $33.1 million. The rental revenue increase reflects the 2021 Design Space and Titan Storage Containers customers that contributed approximately one half of the increase. Rental related services revenues increased 31% to $21.2 million, primarily attributable to higher delivery and pick up activities, and higher site related and other services performed during the lease with associated gross profit increasing 39% to $6.1 million. Sales revenues increased 68% to $24.8 million, from both higher used and new equipment sales. Gross margin on sales was 41% compared to 39% in 2021, resulting in a 75% increase in gross profit on sales revenues to $10.1 million. Selling and administrative expenses increased 14% to $25.8 million, primarily due to increased employee salaries and benefit costs totaling $1.5 million reflecting the addition of Design Space employees, and $1.3 million higher allocated corporate expenses.

TRS-RENTELCO

For the second quarter of 2022, the Company’s TRS-RenTelco division reported income from operations of $9.5 million, an increase of $1.0 million, or 12%, with Adjusted EBITDA increasing $1.1 million, or 5%, to $22.1 million. Rental revenues increased 7% to $29.7 million, depreciation expense increased 3% to $12.3 million and other direct costs increased 15% to $5.4 million, which resulted in a 6% increase in gross profit on rental revenues to $11.9 million. The rental revenue increase was the result of higher average equipment on rent and higher average monthly rental rates compared to the prior year. Sales revenues increased 35% to $6.4 million and gross profit on sales revenues increased 23% to $3.6 million. Selling and administrative expenses increased 9% to $6.6 million, primarily due to higher employees’ salaries and benefit costs.

ADLER TANKS

For the second quarter of 2022, the Company’s Adler Tanks division reported income from operations of $3.9 million, an increase of $2.2 million, with Adjusted EBITDA increasing $1.9 million, or 28%, to $8.6 million. Rental revenues increased $2.5 million, or 18%, to $16.0 million, depreciation expense decreased 4% to $4.0 million and other direct costs increased 24% to $3.3 million, which resulted in an increased gross profit on rental revenues of 30%, to $8.7 million. The rental revenue increase was broad based across regions and vertical markets served. Rental related services revenues increased 17% to $6.8 million, with gross profit on rental related services increasing 63%, to $1.7 million. Selling and administrative expenses increased 12% to $7.0 million primarily due to higher employees’ salaries and benefit costs.

FINANCIAL OUTLOOK:

Based upon the Company’s year-to-date results and current outlook for the remainder of the year, the Company is raising its financial outlook. For the full-year 2022, the Company expects:

Previous

Current

Total revenue:

$675 million to $705 million

$695 million to $720 million

Adjusted EBITDA1, 2:

$260 million to $275 million

$266 million to $276 million

Gross rental equipment capital expenditures:

$117 million to $127 million

$145 million to $155 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 June 30, 2022, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on July 28, 2022 to discuss the second quarter 2022 results. To participate in the teleconference, dial 1-800-445-7795 (in the U.S.), or 1-203-518-9848 (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 1-800-839-6975 (in the U.S.), or 1-402-220-6061 (outside the U.S.). 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 spending robustly to prepare modular equipment for rent and the expectation of demand in the following quarter due to seasonality, as well as the statements regarding the full year 2022 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 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 June 30,

Six Months Ended June 30,

(in thousands, except per share amounts)

2022

2021

2022

2021

Revenues

Rental

$

110,624

$

94,581

$

214,865

$

180,668

Rental related services

28,819

22,688

53,136

42,357

Rental operations

139,443

117,269

268,001

223,025

Sales

36,471

28,256

52,347

42,867

Other

1,117

910

2,056

1,738

Total revenues

177,031

146,435

322,404

267,630

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

24,064

23,159

47,938

44,414

Rental related services

20,853

17,276

38,996

31,880

Other

32,825

23,278

60,648

42,985

Total direct costs of rental operations

77,742

63,713

147,582

119,279

Costs of sales

21,452

16,855

30,496

25,403

Total costs of revenues

99,194

80,568

178,078

144,682

Gross profit

77,837

65,867

144,326

122,948

Selling and administrative expenses

40,788

36,261

79,915

69,398

Income from operations

37,049

29,606

64,411

53,550

Other expense:

Interest expense

(3,001

)

(2,257

)

(5,821

)

(4,040

)

Foreign currency exchange loss

(181

)

(2

)

(168

)

(57

)

Income before provision for income taxes

33,867

27,347

58,422

49,453

Provision for income taxes

7,730

6,739

13,492

11,447

Net income

$

26,137

$

20,608

$

44,930

$

38,006

Earnings per share:

Basic

$

1.07

$

0.85

$

1.85

$

1.57

Diluted

$

1.07

$

0.84

$

1.83

$

1.55

Shares used in per share calculation:

Basic

24,360

24,229

24,323

24,191

Diluted

24,509

24,494

24,522

24,505

Cash dividends declared per share

$

0.455

$

0.435

$

0.910

$

0.870

MCGRATH RENTCORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

June 30,

December 31,

(in thousands)

2022

2021

Assets

Cash

$

874

$

1,491

Accounts receivable, net of allowance for credit losses of $2,125 in 2022

and 2021

167,329

159,499

Rental equipment, at cost:

Relocatable modular buildings

1,075,898

1,040,094

Electronic test equipment

389,383

361,391

Liquid and solid containment tanks and boxes

309,010

309,908

1,774,291

1,711,393

Less: accumulated depreciation

(676,766

)

(646,169

)

Rental equipment, net

1,097,525

1,065,224

Property, plant and equipment, net

137,465

135,325

Prepaid expenses and other assets

65,800

54,945

Intangible assets, net

44,086

47,049

Goodwill

132,305

132,393

Total assets

$

1,645,384

$

1,595,926

Liabilities and Shareholders' Equity

Liabilities:

Notes payable

$

441,460

$

426,451

Accounts payable and accrued liabilities

137,729

136,313

Deferred income

77,551

58,716

Deferred income taxes, net

236,610

242,425

Total liabilities

893,350

863,905

Shareholders’ equity:

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

Issued and outstanding - 24,378 shares as of June 30, 2022 and 24,260 shares as of December 31, 2021

105,894

108,610

Retained earnings

646,130

623,465

Accumulated other comprehensive income (loss)

10

(54

)

Total shareholders’ equity

752,034

732,021

Total liabilities and shareholders’ equity

$

1,645,384

$

1,595,926

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Six Months Ended June 30,

(in thousands)

2022

2021

Cash Flows from Operating Activities:

Net income

$

44,930

$

38,006

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

55,355

50,559

Deferred income taxes

(5,815

)

7,268

Provision for doubtful accounts

49

138

Share-based compensation

3,412

3,597

Gain on sale of used rental equipment

(16,093

)

(11,870

)

Foreign currency exchange loss

168

57

Amortization of debt issuance costs

9

6

Change in:

Accounts receivable

(7,879

)

(5,494

)

Prepaid expenses and other assets

(10,855

)

(9,385

)

Accounts payable and accrued liabilities

(73

)

17,642

Deferred income

18,835

7,458

Net cash provided by operating activities

82,043

97,982

Cash Flows from Investing Activities:

Purchases of rental equipment

(94,820

)

(58,902

)

Purchases of property, plant and equipment

(6,594

)

(2,272

)

Cash paid for acquisition of businesses

(284,341

)

Proceeds from sales of used rental equipment

31,830

24,674

Net cash used in investing activities

(69,584

)

(320,841

)

Cash Flows from Financing Activities:

Net borrowings under bank lines of credit

15,000

189,983

Borrowings under note purchase agreement

60,000

Taxes paid related to net share settlement of stock awards

(6,128

)

(4,828

)

Payment of dividends

(22,083

)

(21,089

)

Net cash (used in) provided by financing activities

(13,211

)

224,066

Effect of foreign currency exchange rate changes on cash

135

(33

)

Net (decrease) increase in cash

(617

)

1,174

Cash balance, beginning of period

1,491

1,238

Cash balance, end of period

$

874

$

2,412

Supplemental Disclosure of Cash Flow Information:

Interest paid, during the period

$

5,821

$

3,987

Net income taxes paid, during the period

$

17,078

$

6,990

Dividends accrued during the period, not yet paid

$

11,009

$

9,918

Rental equipment acquisitions, not yet paid

$

6,906

$

8,502

...