MCGRATH RENTCORP
This Form 10-Q, including the following Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A"), contains forward-looking
statements under federal securities laws. Forward-looking statements are not
guarantees of future performance and involve a number of risks and
uncertainties. Our actual results could differ materially from those indicated
by forward-looking statements as a result of various factors. These factors
include, but are not limited to, those set forth under this Item, those
discussed in Part II-Item 1A, "Risk Factors" and elsewhere in this Form 10-Q and
those that may be identified from time to time in our reports and registration
statements filed with the SEC .
This discussion should be read in conjunction with the Condensed Consolidated
Financial Statements and related Notes included in Part I-Item 1 of this Form
10-Q and the Consolidated Financial Statements and related Notes and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2020 , as filed with the SEC on February 23, 2021 (the "2020 Annual
Report"). In preparing the following MD&A, we presume that readers have access
to and have read the MD&A in our 2020 Annual Report, pursuant to Instruction 2
to paragraph (b) of Item 303 of Regulation S-K. We undertake no duty to update
any of these forward-looking statements after the date of filing of this Form
10-Q to conform such forward-looking statements to actual results or revised
expectations, except as otherwise required by law.
The full impact of the COVID-19 pandemic continues to evolve as of the date of
this report. As such, there is continued uncertainty as to the full magnitude
that the pandemic will have on the Company's financial condition, liquidity, and
future results of operations. Management is actively monitoring the impact of
the global situation on its financial condition, liquidity, operations,
suppliers, industry, and workforce. Given the continuing evolution of the
COVID-19 pandemic, its variants and the global responses to curb its spread, the
Company is not able to fully estimate the effects of the COVID-19 outbreak on
its results of operations, financial condition, or liquidity for fiscal year
2021. The following discussions are subject to the future effects of the
COVID-19 pandemic and its variants.
General
The Company, incorporated in 1979, is a leading rental provider of relocatable
modular buildings for classroom and office space, electronic test equipment for
general purpose and communications needs, and liquid and solid containment tanks
and boxes. The Company's primary emphasis is on equipment rentals. The Company
is comprised of four reportable business segments: (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 Mobile Modular business segment includes the results of operations of the
Mobile Modular Portable Storage division, which represented approximately 11% of
the Company's total revenues in the six months ended June 30, 2021 . Mobile
Modular Portable Storage offers portable storage units and high security
portable office units for rent, lease and purchase. Kitchens To Go was acquired
on April 1, 2021 , with its results included in the Mobile Modular segment since
that date.
In the six months ended June 30, 2021 , Mobile Modular, TRS-RenTelco, Adler Tanks
and Enviroplex contributed 64%, 32%, 3% and 1% of the Company's income before
provision for taxes (the equivalent of "pretax income"), respectively, compared
to 65%, 27%, 6% and 2% for the same period in 2020.
The Company generates its revenues primarily from the rental of its equipment on
operating leases and from sales of equipment occurring in the normal course of
business. The Company requires significant capital outlay to purchase its rental
inventory and recovers its investment through rental and sales revenues. Rental
revenues and certain other service revenues negotiated as part of lease
agreements with customers and related costs are recognized on a straight-line
basis over the terms of the leases. Sales revenues and related costs are
recognized upon delivery and installation of the equipment to customers. Sales
revenues are less predictable and can fluctuate from quarter to quarter and year
to year depending on customer demands and requirements. Generally, rental
revenues less cash operating costs recover the equipment's capitalized cost in a
short period of time relative to the equipment's potential rental life and when
sold, sale proceeds are usually above its net book value.
The Company's modular revenues (consisting of revenues from Mobile Modular,
Mobile Modular Portable Storage, Kitchens To Go and Enviroplex) are derived from
rentals and sales to education and commercial customers, with a majority of
revenues generated by education customers. Modular revenues are primarily
affected by demand for classrooms, which in turn is affected by shifting and
fluctuating school populations, the levels of state funding to public schools,
the need for temporary classroom space during reconstruction of older schools
and changes in policies regarding class size. As a result of any reduced
funding, lower expenditures by these schools may result in certain planned
programs to increase the number of classrooms, such as those that the Company
provides, to be postponed or terminated. However, reduced expenditures may also
result in schools reducing their long-term facility construction projects in
favor of using the Company's modular classroom solutions. At this time, the
Company can provide no assurances as to whether public schools will either
reduce or increase their demand for the Company's modular classrooms as a result
of fluctuations in state funding of public schools.
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Looking forward, the Company believes that any interruption in the passage of
facility bonds or contraction of class size reduction programs by public schools
may have a material adverse effect on both rental and sales revenues of the
Company. (For more information, see "Item 1. Business - Relocatable Modular
Buildings - Classroom Rentals and Sales to Public Schools (K-12)" in the
Company's 2020 Annual Report and "Item 1A. Risk Factors - Significant reductions
of, or delays in, funding to public schools have caused the demand and pricing
for our modular classroom units to decline, which has in the past caused, and
may cause in the future, a reduction in our revenues and profitability" in Part
II - Other Information of this Form 10-Q.)
Revenues of TRS-RenTelco are derived from the rental and sale of general purpose
and communications test equipment to a broad range of companies, from Fortune
500 to middle and smaller market companies primarily in the aerospace, defense,
communications, manufacturing and semiconductor industries. Electronic test
equipment revenues are primarily affected by the business activity within these
industries related to research and development, manufacturing, and communication
infrastructure installation and maintenance.
Revenues of Adler Tanks are derived from the rental and sale of fixed axle tanks
("tanks") and vacuum containers, dewatering containers and roll-off containers
(collectively referred to as "boxes"). These tanks and boxes are rented to a
broad range of industries and applications including oil and gas exploration and
field services, refinery, chemical and industrial plant maintenance,
environmental remediation and field services, infrastructure building
construction, marine services, pipeline construction and maintenance, tank
terminals services, wastewater treatment, and waste management and landfill
services for the containment of hazardous and non-hazardous liquids and solids.
The Company's rental operations include rental and rental related service
revenues which comprised approximately 83% and 82% of consolidated revenues in
the six months ended June 30, 2021 and 2020, respectively. Of the total rental
operations revenues for the six months ended June 30, 2021 , Mobile Modular,
TRS-RenTelco and Adler Tanks comprised 59%, 25% and 16%, respectively, compared
to 58%, 25% and 17%, respectively, in the same period of 2020. The Company's
direct costs of rental operations include depreciation of rental equipment,
rental related service costs, impairment of rental equipment (if applicable),
and other direct costs of rental operations (which include direct labor,
supplies, repairs, insurance, property taxes, license fees, cost of sub-rentals
and amortization of certain lease costs).
The Company's Mobile Modular, TRS-RenTelco and Adler Tanks business segments
sell modular units, electronic test equipment and liquid and solid containment
tanks and boxes, respectively, which are either new or previously rented. In
addition, Enviroplex sells new modular buildings used primarily as classrooms in
California . For the six months ended June 30, 2021 and 2020, sales and other
revenues of modular, electronic test equipment and liquid and solid containment
tanks and boxes comprised approximately 17% and 18% of the Company's
consolidated revenues, respectively. Of the total sales and other revenues for
the six months ended June 30, 2021 and 2020, Mobile Modular and Enviroplex
together comprised 73% and 72%, respectively, TRS-RenTelco comprised 24% and
26%, respectively, and Adler Tanks comprised 3% and 2%, respectively. The
Company's cost of sales includes the carrying value of the equipment sold and
the direct costs associated with the equipment sold, such as delivery,
installation, modifications and related site work.
Selling and administrative expenses primarily include personnel and benefit
costs, which include share-based compensation, depreciation and amortization,
bad debt expense, advertising costs, and professional service fees. The Company
believes that sharing of common facilities, financing, senior management, and
operating and accounting systems by all of the Company's operations results in
an efficient use of overhead. Historically, the Company's operating margins have
been impacted favorably to the extent its costs and expenses are leveraged over
a large installed customer base. However, there can be no assurances as to the
Company's ability to maintain a large installed customer base or ability to
sustain its historical operating margins.
Adjusted EBITDA
To supplement the Company's financial data presented on a basis consistent with accounting principles generally accepted inthe United States of America ("GAAP"), the Company presents "Adjusted EBITDA", which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization and share-based compensation. The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company's liquidity and financial condition and because management, as well as the Company's lenders, use this measure in evaluating the performance of the Company. Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate period-to-period operating performance, compliance with financial covenants in the Company's revolving lines of credit and senior notes and the Company's ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including share-based compensation, is useful in measuring the Company's cash available for operations and performance of the Company. Because management finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in evaluating the Company's performance. 18 -------------------------------------------------------------------------------- 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 prepared in accordance with GAAP or as a measure of the Company's profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. Unlike EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation charges. The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow. In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA for purposes of comparison. The Company's presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incur expenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company's performance. Because Adjusted EBITDA is a non-GAAP financial measure, as defined by theSEC , the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Reconciliation of Net Income to Adjusted EBITDA
Three Months Ended Six Months Ended Twelve Months Ended
(dollar amounts in thousands) June 30, June 30, June 30,
2021 2020 2021 2020 2021 2020
Net income $ 20,608 $ 22,549 $ 38,006 $ 42,708 $ 97,282 $ 101,577
Provision for income taxes 6,739 8,076 11,447 14,531 26,976 34,571
Interest expense 2,257 2,184 4,040 4,836 7,991 10,921
Depreciation and amortization 27,099 23,801 50,559 47,663 97,539 94,052
EBITDA 56,703 56,610 104,052 109,738 229,788 241,121
Share-based compensation 1,820 1,501 3,597 3,224 5,922 6,370
Adjusted EBITDA 1 $ 58,523 $ 58,111 $ 107,649 $ 112,962 $ 235,710 $ 247,491
Adjusted EBITDA margin 2 40 % 42 % 40 % 42 % 41 % 42 %
Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities
Three Months Ended Six Months Ended Twelve Months Ended
(dollar amounts in thousands) June 30, June 30, June 30,
2021 2020 2021 2020 2021 2020
Adjusted EBITDA 1 $ 58,523 $ 58,111 $ 107,649 $ 112,962 $ 235,710 $ 247,491
Interest paid (2,362 ) (2,172 ) (3,987 ) (5,031 ) (8,006 ) (11,296 )
Income taxes paid, net of
refunds received (6,618 ) (1,790 ) (6,990 ) (2,153 ) (39,740 ) (13,508 )
Gain on sale of used rental
equipment (7,076 ) (4,814 ) (11,870 ) (9,602 ) (21,597 ) (21,743 )
Foreign currency exchange loss
(gain) 2 (117 ) 57 319 (340 ) 321
Amortization of debt issuance
costs 3 2 6 5 12 11
Change in certain assets and
liabilities:
Accounts receivable, net (6,464 ) (106 ) (5,356 ) 2,159 (2,732 ) (4,149 )
Prepaid expenses and other
assets (9,291 ) (2,004 ) (9,385 ) (1,641 ) (3,937 ) 6,075
Accounts payable and other
liabilities 30,785 5,858 20,400 (5,311 ) 28,940 (3,717 )
Deferred income 2,871 (1,128 ) 7,458 5,815 (7,346 ) (5,956 )
Net cash provided by operating
activities $ 60,373 $ 51,840 $ 97,982 $ 97,522 $ 180,964 $ 193,529 1. Adjusted EBITDA is defined as net income before interest expense, provision
for income taxes, depreciation, amortization and share-based compensation.
2. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total
revenues for the period.
Adjusted EBITDA is a component of two restrictive financial covenants for the
Company's unsecured Credit Facility, the Note Purchase Agreement, Series C
Senior Notes, Series D Senior Notes and Series E Senior Notes (as defined and
more fully described under the heading "Liquidity and Capital Resources" in this
MD&A). These instruments contain financial covenants requiring the Company to
not:
• Permit the Consolidated Fixed Charge Coverage Ratio (as defined in theCredit Facility and the Note Purchase Agreement (as defined and more fully
described under the heading "Liquidity and Capital Resources" in this
MD&A)) of Adjusted
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EBITDA (as defined in the Credit Facility and the Note Purchase Agreement)
to fixed charges as of the end of any fiscal quarter to be less than 2.50
to 1. At
• Permit the Consolidated Leverage Ratio of funded debt (as defined in the
Credit Facility and the Note Purchase Agreement) to Adjusted EBITDA at any
time during any period of four consecutive quarters to be greater than
2.75 to 1. At June 30, 2021 , the actual ratio was 2.01 to 1.
At June 30, 2021 , the Company was in compliance with each of the aforementioned
covenants. There are no anticipated trends that the Company is aware of that
would indicate non-compliance with these covenants, although, significant
deterioration in our financial performance could impact the Company's ability to
comply with these covenants.
Recent Developments
Dividends
OnJune 9, 2021 , the Company announced that the Board of Directors declared a quarterly cash dividend of$0.435 per common share for the quarter endedJune 30, 2021 , an increase of 4% over the prior year's comparable quarter.
Acquisitions
OnMay 17, 2021 , the Company completed the purchase of the assets ofDesign Space Modular Buildings PNW, LP ("Design Space") for$266.0 million in cash consideration and$0.5 million liability to the seller. Design Space provides modular buildings and portable storage container rental and sale solutions to customers in the West andPacific Northwest states in theU.S. Design Space became part of the Mobile Modular reporting segment. OnApril 1, 2021 the Company completed the purchase of assets ofGRS Holding LLC ,DBA Kitchens to Go ("Kitchens To Go") for$18.3 million cash consideration. Kitchens To Go provides interim and permanent modular kitchen solutions for foodservice providers that require flexible facilities to continue or expand operations. Kitchens To Go became part of the Mobile Modular division.
Note Purchase Agreement
OnJune 16, 2021 , the Company issued and sold toPrudential Retirement Insurance and Annuity Company ,The Prudential Insurance Company of America andThe Prudential Insurance Company of America (collectively, the "Purchasers")$60 million aggregate principal amount of 2.35% Series E Notes (the "Series E Notes") pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, datedMarch 31, 2020 (the "Note Purchase Agreement"), among the Company,PGIM, Inc. and the noteholders party thereto. The Series E Notes are an unsecured obligation of the Company. The Notes bear interest at a rate of 2.35% per annum and mature onJune 16, 2026 . Interest on the Series E Notes is payable semi-annually beginning onDecember 16, 2021 and continuing thereafter onJune 16 andDecember 16 of each year until maturity. The Company may at any time prepay all or any portion of the Series D Notes; provided that such portion is at least$5,000,000 (and increments of$100,000 in excess thereof). In the event of a prepayment, the Company will pay an amount equal to 100% of the principal amount so prepaid, plus a make-whole amount. The full net proceeds from the Series E Notes was used to pay down the Company's credit facility. Covid-19 The outbreak of a new strain of coronavirus, COVID-19, which began inDecember 2019 , has continued to spread globally including to every state inthe United States .The Center for Disease Control ("CDC") andWorld Health Organization ("WHO") have recognized this outbreak as a pandemic, which has caused shutdowns to businesses and cities worldwide while disrupting supply chains, business operations, travel, consumer confidence and business sentiment. Each of the states in which the Company operates, and in some cases the localities as well, have previously issued orders requiring the closure of non-essential business and/or requiring residents to stay at home, however, currently none of the Company's locations are required to be closed by local or state order. The Company is following guidelines established by theCDC andWHO and orders issued by state and local governments where the Company operates. The Company has taken a number of precautionary health and safety measures to safeguard its employees and customers, while maintaining business continuity to enable each of its operating segments and branch locations to continue providing services to customers identified as essential businesses under the relevant state and local rules. The Company has implemented remote work policies, restricted travel, separated work groups, enhanced cleaning and hygiene protocols in all of its facilities, products and vehicles, and requires distancing protocols for production and logistical personnel. The Company is continuing to monitor and assessing orders issued by federal, state and local governments to ensure compliance with evolving COVID-19 guidelines. The Company also continues to monitor the impact of COVID-19 on its existing customerswho themselves may be impacted by governmental shutdowns and other impacts due to the governmental orders. As of the date of this filing, significant uncertainty continues to exist concerning the magnitude of the impact and duration of the COVID-19 pandemic and its variants. While the Company's operating segments and branch locations currently continue to operate, the Company's results of operations may be negatively impacted by project delays; early returns of equipment currently on rent with 20
-------------------------------------------------------------------------------- customers; overall decreased customer demand for new rental orders, rental related services and sales of new and used rental equipment; and payment delay, or non-payment, by customerswho are significantly impacted by COVID-19. In light of the uncertain and rapidly evolving situation relating to the COVID-19 pandemic, the Company has taken a number of precautionary measures to manage its resources conservatively by reducing and/or deferring non-essential capital expenditures and operating expenses to mitigate the adverse impact of the pandemic. The Company will continue to assess its capital expenditure needs against its cash availability during the crisis to make the most strategic decisions for its business. Furthermore, the Company believes that its recently renewed$420 million credit facility, coupled with its ability to access additional capital through the issuance of additional senior notes, will strengthen the Company's liquidity position and serve to mitigate some of the operational risk related to decreased customer demand for new rental orders and sales resulting from the COVID-19 pandemic. While the Company has not seen a significant impact from COVID-19 in the financial results for the three and six months endedJune 30, 2021 as set forth in the below section discussing the results of operations for the quarter endedJune 30, 2021 , the Company is currently unable to determine or predict the full nature, duration or scope of the overall impact the COVID-19 pandemic will have on its business, results of operations, liquidity or capital resources. The Company will continue to actively monitor the situation and may take further actions that alter its business operations as may be required by federal, state or local authorities or that the Company determines are in the best interests of employees, customers and shareholders. 21
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Results of Operations
Three Months Ended June 30, 2021 Compared to
Three Months Ended June 30, 2020
Overview
Consolidated revenues for the three months ended June 30, 2021 increased 6% to
$146.4 million from $137.7 million in the same period in 2020. Consolidated net
income for the three months ended June 30, 2021 decreased 9% to $20.6 million ,
from $22.5 million for the same period in 2020. Earnings per diluted share for
the three months ended June 30, 2021 decreased 9% to $0.84 from $0.92 for the
same period in 2020.
For the three months ended
• Gross profit increased
2021. Mobile Modular's gross profit increased $3.3 million , or 9%,
primarily due to higher gross profit on rental and sales
revenues. TRS-RenTelco's gross profit increased $0.4 million , or 3%,primarily due to higher gross profit on rental and sales revenues, partly
offset by lower gross profit on rental related services revenues. Adler
Tanks' gross profit decreased
gross profit on rental related services and rental revenues, partly offset
by higher gross profit on sales revenues. Enviroplex's gross profit
decreased
in 2021 and lower gross margins of 31.0% compared to 38.3% in 2020.
• Selling and administrative expenses increased
salaries and benefit costs totaling
addition of Design Space and Kitchens To Go employees,
amortization of intangible assets from the Design Space and Kitchens To Go
acquisitions and
• Interest expense increased 3%, to
same period in 2020, due to 24% higher average debt levels of the Company
partly offset by 17% lower net average interest rates of 2.52% in 2021
compared to 3.02% in 2020.
• Pre-tax income contribution by Mobile Modular, TRS-RenTelco and Adler
Tanks was 61%, 29% and 5%, respectively, compared to 63%, 26% and 4%,
respectively, for the comparable 2020 period. These results are discussed
on a segment basis below. Enviroplex pre-tax income contribution was 5%
and 7% in 2021 and 2020, respectively.
• The provision for income taxes resulted in an effective tax rate of 24.6%
and 26.4% for the quarters ended
• Adjusted EBITDA increased
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Mobile Modular
For the three months ended June, 2021, Mobile Modular's total revenues increased$7.8 million , or 10%, to$84.6 million compared to the same period in 2020, primarily due to higher rental and rental related services revenues, partly offset by lower sales revenues. Higher selling and administrative expenses, partly offset by higher gross profit on rental, rental related services and sales revenues, resulted in a 13% decrease in pre-tax income to$16.8 million for the three months endedJune 30, 2021 , from$19.3 million for the same period in 2020.
The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.
Mobile Modular - Three Months Ended
Three Months Ended
(dollar amounts in thousands) June 30, Increase (Decrease)
2021 2020 $ %
Revenues
Rental $ 53,238 $ 46,628 $ 6,610 14 %
Rental related services 16,207 14,463 1,744 12 %
Rental operations 69,445 61,091 8,354 14 %
Sales 14,784 15,316 (532 ) (3 )%
Other 343 355 (12 ) (3 )%
Total revenues 84,572 76,762 7,810 10 %
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment 7,074 5,737 1,337 23 %
Rental related services 11,804 10,362 1,442 14 %
Other 15,901 12,376 3,525 28 %Total direct costs of rental operations 34,779 28,475
6,304 22 % Costs of sales 9,034 10,845 (1,811 ) (17 )% Total costs of revenues 43,813 39,320 4,493 11 % Gross Profit Rental 30,264 28,514 1,750 6 % Rental related services 4,401 4,101 300 7 % Rental operations 34,665 32,615 2,050 6 % Sales 5,751 4,471 1,280 29 % Other 343 356 (13 ) (4 )% Total gross profit 40,759 37,442 3,317 9 % Selling and administrative expenses 22,602 16,857 5,745 34 % Income from operations 18,157 20,585 (2,428 ) (12 )% Interest expense allocation (1,380 ) (1,279 ) (101 ) 8 % Pre-tax income$ 16,777 $ 19,306 $ (2,529 ) (13 )% Other Selected Information Average rental equipment 1$ 906,653 $ 822,743 $ 83,910 10 % Average rental equipment on rent$ 684,789 $ 639,218 $ 45,571 7 % Average monthly total yield 2 1.96 % 1.89 % 4 % Average utilization 3 75.5 % 77.7 % (3 )% Average monthly rental rate 4 2.59 % 2.43 % 7 % Period end rental equipment 1$ 969,852 $ 825,093 $ 144,759 18 % Period end utilization 3 76.3 % 76.8 % (1 )% 1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
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. Period end utilization is calculated by dividing the cost of rental equipment
on rent by the total cost of rental equipment, excluding new equipment
inventory and accessory equipment. Average utilization for the period is
calculated using the average month end 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.
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Mobile Modular's gross profit for the three months ended June 30, 2021 increased
$3.3 million , or 9%, to $40.8 million . For the three months ended June 30, 2021
compared to the same period in 2020:
• Gross Profit on Rental Revenues - Rental revenues increased
or 14%, primarily due to 7% higher average rental equipment on rent and 7%
higher average monthly rental rate in 2021, with over half of the increase
due to revenues earned during the quarter from new Design Space and
Kitchens To Go customers. As a percentage of rental revenues, depreciation
was 13% in 2021 and 12% in 2020, and other direct costs were 30% in 2021
and 27% in 2020, which resulted in gross margin percentages of 57% in 2021
compared to 61% in 2020. The higher rental revenues and lower rental
margins, resulted in gross profit on rental revenues increasing
$1.8 million , or 6%, to $30.3 million in 2021.
• Gross Profit on Rental Related Services - Rental related services revenues
increased
revenues are negotiated with the initial modular building lease and are
recognized on a straight-line basis with the associated costs over the
initial term of the lease. The increase in rental related servicesrevenues was primarily attributable to increased delivery and return
delivery revenues at Portable Storage and higher amortization of modular
building delivery and return delivery and dismantle revenues. The higher
revenues, partly offset by lower gross margin percentage of 27% in 2021,
compared to 28% in 2020, resulted in rental related services gross profit
increasing
• Gross Profit on Sales - Sales revenues decreased $0.5 million , or 3%,
compared to 2020, due to lower new equipment sales. The higher gross
margin percentage of 39% in 2021 compared to 29% in 2020, and lower sales
revenue resulted in gross profit on sales increasing
to
higher mix of used sales with higher gross margins, compared to sales of
new equipment. Sales occur routinely as a normal part of Mobile Modular's
rental business; however, these sales and related gross margins can
fluctuate from quarter to quarter and year to year depending on customer
requirements, equipment availability and funding.
For the three months endedJune 30, 2021 , selling and administrative expenses increased$5.7 million , or 34%, to$22.6 million , primarily due to increased employee salaries and benefit costs totaling$2.0 million , primarily due to the addition of Design Space and Kitchens To Go employees during the quarter,$1.7 million higher amortization of intangible assets due to the Design Space and Kitchens To Go acquisitions and$0.9 million acquisition related transaction costs in 2021. 24
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TRS-RenTelco
For the three months endedJune 30, 2021 , TRS-RenTelco's total revenues increased$0.7 million , or 2%, to$33.8 million compared to the same period in 2020, primarily due to higher rental and rental related services revenues, partly offset by lower sales revenues. Pre-tax income increased$0.1 million , or 1%, to$8.0 million for the three months endedJune 30, 2021 compared to the same period in 2020, primarily due to higher gross profit on rental revenues, partly offset by lower gross profit on sales revenues and higher selling and administrative expenses.
The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.
TRS-RenTelco - Three Months Ended6/30/21 compared to Three Months Ended6/30/20 (Unaudited) Three Months Ended (dollar amounts in thousands) June 30, Increase (Decrease) 2021 2020 $ % Revenues Rental$ 27,860 $ 26,012 $ 1,848 7 % Rental related services 710 670 40 6 % Rental operations 28,570 26,682 1,888 7 % Sales 4,757 5,922 (1,165 ) (20 )% Other 456 475 (19 ) (4 )% Total revenues 33,783 33,079 704 2 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 11,916 11,750 166 1 % Rental related services 745 517 228 44 % Other 4,718 3,562 1,156 32 %
Total direct costs of rental operations 17,379 15,829
1,550 10 % Costs of sales 1,792 3,049 (1,257 ) (41 )% Total costs of revenues 19,171 18,878 293 2 % Gross Profit Rental 11,225 10,700 525 5 % Rental related services (33 ) 153 (186 ) (122 )% Rental operations 11,192 10,853 339 3 % Sales 2,964 2,873 91 3 % Other 456 475 (19 ) (4 )% Total gross profit 14,612 14,201 411 3 % Selling and administrative expenses 6,073 5,875 198 3 % Income from operations 8,539 8,326 213 3 % Interest expense allocation (500 ) (500 ) - - Foreign currency exchange (loss) gain (2 ) 117 (119 ) nm Pre-tax income$ 8,037 $ 7,943 $ 94 1 % Other Selected Information Average rental equipment 1$ 349,480 $ 338,919 $ 10,561 3 % Average rental equipment on rent$ 236,503 $ 216,583 $ 19,920 9 % Average monthly total yield 2 2.66 % 2.56 % 4 % Average utilization 3 67.7 % 63.9 % 6 % Average monthly rental rate 4 3.93 % 4.00 % (2 )% Period end rental equipment 1$ 358,611 $ 337,227 $ 21,384 6 % Period end utilization 3 66.9 % 65.7 % 2 % 1. Average and Period end rental equipment represents the cost of rental equipment, excluding accessory equipment.
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. Period end utilization is calculated by dividing the cost of rental equipment
on rent by the total cost of rental equipment, excluding accessory equipment.
Average utilization for the period is calculated using the average month end
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.
25
-------------------------------------------------------------------------------- TRS-RenTelco's gross profit for the three months endedJune 30, 2021 increased$0.4 million , or 3%, to$14.6 million . For the three months endedJune 30, 2021 compared to the same period in 2020:
• Gross Profit on Rental Revenues - Rental revenues increased
or 7%, depreciation expense increased
direct costs increased
gross profit on rental revenues to $11.2 million . As a percentage of
rental revenues, depreciation was 43% in 2021 and 45% in 2020, and other
direct costs were 17% in 2021 and 14% in 2020, which resulted in a gross
margin percentage of 40% in 2021 compared to 41% in 2020. The rental
revenues increase was due to 9% higher average rental equipment on rent,partly offset by 2% lower average monthly rental rates in 2021 as compared
to 2020. The lower rental rates were primarily related to business mix,
with more general purpose equipment on rent compared to the prior year.
• Gross Profit on Sales - Sales revenues decreased
to
49% in 2020. Sales occur as a normal part of TRS-RenTelco's rental
business; however, these sales and related gross margins can fluctuate
from quarter to quarter depending on customer requirements and related mix
of equipment sold, equipment availability and funding.
For the three months ended
26
--------------------------------------------------------------------------------For the three months endedJune 30, 2021 ,Adler Tanks' total revenues increased$1.3 million , or 7%, to$20.0 million compared to the same period in 2020, due to higher rental, rental related services and sales revenues. Higher gross profit on sales revenues and lower selling and administrative expenses, partly offset by lower gross profit on rental related services revenues, resulted in a 3% increase in pre-tax income to$1.2 million for the three months endedJune 30, 2021 , compared to the same period in 2020.
The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.
Adler Tanks - Three Months Ended6/30/21 compared to Three Months Ended6/30/20 (Unaudited) Three Months Ended (dollar amounts in thousands) June 30, Increase (Decrease) 2021 2020 $ % Revenues Rental$ 13,483 $ 12,989 $ 494 4 % Rental related services 5,771 5,342 429 8 % Rental operations 19,254 18,331 923 5 % Sales 593 232 361 156 % Other 111 70 41 59 % Total revenues 19,958 18,633 1,325 7 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 4,169 4,096 73 2 % Rental related services 4,727 4,015 712 18 % Other 2,659 2,227 432 19 %
Total direct costs of rental operations 11,555 10,338
1,217 12 % Costs of sales 427 228 199 87 % Total costs of revenues 11,982 10,566 1,416 13 % Gross Profit Rental 6,655 6,666 (11 ) (0 )% Rental related services 1,044 1,327 (283 ) (21 )% Rental operations 7,699 7,993 (294 ) (4 )% Sales 166 4 162 nm Other 111 70 41 59 % Total gross profit 7,976 8,067 (91 ) (1 )% Selling and administrative expenses 6,253 6,353 (100 ) (2 )% Income from operations 1,723 1,714 9 1 % Interest expense allocation (491 ) (518 ) (27 ) (5 )% Pre-tax income$ 1,232 $ 1,196 $ 36 3 % Other Selected Information Average rental equipment 1$ 313,108 $ 314,780 $ (1,672 ) (1 )% Average rental equipment on rent$ 137,615 $ 139,464 $ (1,849 ) (1 )% Average monthly total yield 2 1.44 % 1.38 % 4 % Average utilization 3 44.0 % 44.3 % (1 )% Average monthly rental rate 4 3.27 % 3.10 % 5 % Period end rental equipment 1$ 312,713 $ 314,905 $ (2,192 ) (1 )% Period end utilization 3 45.8 % 43.1 % 6 % 1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
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. Period end utilization is calculated by dividing the cost of rental equipment
on rent by the total cost of rental equipment, excluding new equipment
inventory and accessory equipment. Average utilization for the period is
calculated using the average month end 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.
27
--------------------------------------------------------------------------------Adler Tanks' gross profit for the three months endedJune 30, 2021 decreased$0.1 million , or 1%, to$8.0 million . For the three months endedJune 30, 2021 compared to the same period in 2020:
• Gross Profit on Rental Revenues - Rental revenues increased
or 4%, primarily due to 5% higher average monthly rental rates in 2021
compared to 2020. As a percentage of rental revenues, depreciation was 31%
in 2021 and 32% in 2020, and other direct costs were 20% and 17% in 2021
and 2020, respectively, which resulted in gross margin percentages of 49%
and 51% in 2021 and 2020, respectively. The higher rental revenues and
lower rental margins resulted in a comparable gross profit on rental
revenues of
• Gross Profit on Rental Related Services - Rental related services revenues
increased
gross margin percentage of 18% in 2021 compared to 25% in 2020 resulted in
rental related services gross profit decreasing $0.3 million to $1.0
million in 2021.
For the three months ended
28
--------------------------------------------------------------------------------
Six Months Ended June 30, 2021 Compared to
Six Months Ended June 30, 2020
Overview
Consolidated revenues for the six months ended June 30, 2021 increased to $267.6
million from $267.1 million for the same period in 2020. Consolidated net income
for the six months ended June 30, 2021 decreased 11% to $38.0 million , from
$42.7 million for the same period in 2020. Earnings per diluted share for the
six months ended June 30, 2021 decreased 11% to $1.55 from $1.74 for the same
period in 2020.
For the six months ended
• Gross profit decreased
2021. Mobile Modular's gross profit increased
primarily due to higher gross profit on sales and rental revenues, partly
offset by lower gross profits on rental related services
revenues. TRS-RenTelco's gross profit increased $0.4 million , or 1%,
primarily due to higher gross profit on rental and sales servicesrevenues, partly offset by lower gross profit on rental related services
revenues.
primarily due to lower gross profit on rental and rental related services
revenues, partly offset by higher gross profits on sales
revenues. Enviroplex's gross profit decreased
to
• Selling and administrative expenses increased 11% to
employee salaries and employee benefit costs of
due to the addition of Design Space and Kitchens To Go employees,
million higher amortization of intangible assets from the Design Space and
Kitchens to Go acquisitions and $0.9 million of acquisition related
transaction costs.
• Interest expense decreased 16% to
average interest rates of 2.81% in 2021 compared to 3.34% in 2020, and 1%
lower debt levels of the Company.
• Pre-tax income contribution by Mobile Modular, TRS-RenTelco and Adler
Tanks was 64%, 32% and 3%, respectively, compared to 65%, 27% and 6%,
respectively, for the comparable 2020 period. These results are discussed
on a segment basis below. Pre-tax income contribution by Enviroplex was 1%
in 2021, compared to 3% in 2020.
• The provision for income taxes resulted in an effective tax rate of 23.1%
and 25.4% for the six months ended
• Adjusted EBITDA decreased
29
--------------------------------------------------------------------------------
Mobile Modular
For the six months endedJune 30, 2021 , Mobile Modular's total revenues increased$3.3 million , or 2%, to$153.2 million compared to the same period in 2020, primarily due to higher rental revenues, partly offset by lower rental related services and sales revenues. The revenue increase, together with higher gross profit on sales and rental revenues, offset by higher selling and administrative expenses and lower gross profit on rental related services revenues, resulted in a 16% decrease in pre-tax income to$31.4 million for the six months endedJune 30, 2021 , from$37.2 million for the same period in 2020.
The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.
Mobile Modular - Six Months Ended6/30/21 compared to Six Months Ended6/30/20 (Unaudited) Six Months Ended (dollar amounts in thousands) June 30, Increase (Decrease) 2021 2020 $ % Revenues Rental$ 99,895 $ 94,038 $ 5,857 6 % Rental related services 30,258 32,607 (2,349 ) (7 )% Rental operations 130,153 126,645 3,508 3 % Sales 22,404 22,572 (168 ) (1 )% Other 663 743 (80 ) (11 )% Total revenues 153,220 149,960 3,260 2 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 12,893 11,406 1,487 13 % Rental related services 21,876 23,712 (1,836 ) (8 )% Other 28,776 24,993 3,783 15 %
Total direct costs of rental operations 63,545 60,111
3,434 6 % Costs of sales 13,982 15,548 (1,566 ) (10 )% Total costs of revenues 77,527 75,659 1,868 2 % Gross Profit Rental 58,227 57,638 589 1 % Rental related services 8,380 8,895 (515 ) (6 )% Rental operations 66,607 66,533 74 0 % Sales 8,423 7,024 1,399 20 % Other 663 744 (81 ) (11 )% Total gross profit 75,693 74,301 1,392 2 % Selling and administrative expenses 41,839 34,275 7,564 22 % Income from operations 33,854 40,026 (6,172 ) (15 )% Interest expense allocation (2,426 ) (2,826 ) (400 ) (14 )% Pre-tax income$ 31,428 $ 37,200 $ (5,772 ) (16 )% Other Selected Information Average rental equipment 1$ 876,529 $ 819,212 $ 57,317 7 % Average rental equipment on rent$ 663,122 $ 640,272 $ 22,850 4 % Average monthly total yield 2 1.90 % 1.90 % - Average utilization 3 75.7 % 78.2 % (3 )% Average monthly rental rate 4 2.44 % 2.45 % (0 )% Period end rental equipment 1$ 969,852 $ 825,093 $ 144,759 18 % Period end utilization 3 76.3 % 76.8 % (1 )% 1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
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. Period end utilization is calculated by dividing the cost of rental equipment
on rent by the total cost of rental equipment, excluding new equipment
inventory and accessory equipment. Average utilization for the period is
calculated using the average month end 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.
30
--------------------------------------------------------------------------------
Mobile Modular's gross profit for the six months ended June 30, 2021 increased
$1.4 million , or 2%, to $75.7 million . For the six months ended June 30, 2021
compared to the same period in 2020:
• Gross Profit on Rental Revenues - Rental revenues increased
or 6%, primarily due to 4% higher average rental equipment on rent in
2021, the rental revenue increase was due in part to the Design Space and
Kitchens To Go, acquisitions. As a percentage of rental revenues,
depreciation was 13% and 12% in 2021 and 2020, respectively and other
direct costs were 29% in 2021 and 27% in 2020, which resulted in gross
margin percentages of 58% in 2021 and 61% in 2020. The higher rental
revenues, partly offset by lower rental margins resulted in gross profit
on rental revenues increasing $0.6 million , or 1%, to $58.2 million in
2021.
• Gross Profit on Rental Related Services - Rental related services revenues
decreased
revenues are negotiated with the initial modular building lease and are
recognized on a straight-line basis with the associated costs over the
initial term of the lease. The decrease in rental related servicesrevenues was primarily attributable to decreased site related services,
partly offset by increased delivery and return delivery revenues at
Portable Storage. The lower revenues, partly offset by higher gross margin
percentage of 28% in 2021, compared to 27% in 2020, resulted in rental
related services gross profit decreasing $0.6 million , or 6%, to
$8.4 million in 2021.
• Gross Profit on Sales - Sales revenues decreased
compared to 2020, due to lower new equipment sales, partly offset by
higher sales of used equipment. The higher gross margin percentage of 38%
in 2021 compared to 31% in 2020, due to a higher mix of used equipment
sales and lower sales revenues, resulted in gross profit on sales
increasing
a normal part of Mobile Modular's rental business; however, these sales
and related gross margins can fluctuate from quarter to quarter and year
to year depending on customer requirements, equipment availability and
funding.
For the six months ended June 30, 2021 , selling and administrative expenses
increased $7.6 million , or 22%, to $41.8 million , primarily due to increased
employee salaries and benefit costs of $2.2 million , primarily due to the
addition of Design Space and Kitchens To Go employees, a $2.1 million
non-operating legal expense recorded in 2021, $1.7 million higher amortization
of intangible assets due to the Design Space and Kitchens To Go acquisitions and
$0.9 of million acquisition related transaction costs in 2021.
31
--------------------------------------------------------------------------------TRS-RenTelco
For the six months endedJune 30, 2021 , TRS-RenTelco's total revenues increased$0.2 million , to$67.4 million compared to the same period in 2020, primarily due to higher rental revenues, partly offset by lower sales revenues. Pre-tax income increased$0.8 million , or 5%, to$16.0 million for the six months endedJune 30, 2021 compared to the same period in 2020, primarily due to higher gross profit on rental and sales revenues, lower foreign currency exchange loss and lower interest expense allocation.
The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.
TRS-RenTelco - Six Months Ended6/30/21 compared to Six Months Ended6/30/20 (Unaudited) Six Months Ended (dollar amounts in thousands) June 30, Increase (Decrease) 2021 2020 $ % Revenues Rental$ 55,136 $ 53,548 $ 1,588 3 % Rental related services 1,450 1,496 (46 ) (3 )% Rental operations 56,586 55,044 1,542 3 % Sales 9,906 11,031 (1,125 ) (10 )% Other 894 1,067 (173 ) (16 )% Total revenues 67,386 67,142 244 0 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 23,278 23,582 (304 ) (1 )% Rental related services 1,398 1,163 235 20 % Other 9,252 7,942 1,310 16 %
Total direct costs of rental operations 33,928 32,687
1,241 4 % Costs of sales 4,093 5,497 (1,404 ) (26 )% Total costs of revenues 38,021 38,184 (163 ) (0 )% Gross Profit Rental 22,605 22,024 581 3 % Rental related services 54 333 (279 ) (84 )% Rental operations 22,659 22,357 302 1 % Sales 5,812 5,534 278 5 % Other 894 1,067 (173 ) (16 )% Total gross profit 29,365 28,958 407 1 % Selling and administrative expenses 12,371 12,236 135 1 % Income from operations 16,994 16,722 272 2 % Interest expense allocation (920 ) (1,147 ) (227 ) (20 )% Foreign currency exchange loss (57 ) (319 ) (262 ) (82 )% Pre-tax income$ 16,017 $ 15,256 $ 761 5 % Other Selected Information Average rental equipment 1$ 342,526 $ 338,066 $ 4,460 1 % Average rental equipment on rent$ 231,792 $ 218,714 $ 13,078 6 % Average monthly total yield 2 2.68 % 2.64 % 2 % Average utilization 3 67.7 % 64.7 % 5 % Average monthly rental rate 4 3.96 % 4.08 % (3 )% Period end rental equipment 1$ 358,611 $ 337,227 $ 21,384 6 % Period end utilization 3 66.9 % 65.7 % 2 % 1. Average and Period end rental equipment represents the cost of rental equipment, excluding accessory equipment.
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. Period end utilization is calculated by dividing the cost of rental equipment
on rent by the total cost of rental equipment, excluding accessory equipment.
Average utilization for the period is calculated using the average month end
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.
32
-------------------------------------------------------------------------------- TRS-RenTelco's gross profit for the six months endedJune 30, 2021 increased$0.4 million , or 1%, to$29.4 million . For the six months endedJune 30, 2021 compared to the same period in 2020:
• Gross Profit on Rental Revenues - Rental revenues increased
or 3%, and depreciation expense decreased
in a 3% increase in gross profit on rental revenues to
percentage of rental revenues, depreciation was 42% in 2021 and 44% in
2020, and other direct costs were 17% in 2021 and 15% in 2020, which
resulted in a gross margin percentage of 41% in 2021 and 2020. The rental
revenues increase was due to 6% higher average rental equipment on rent,partly offset by 3% lower average monthly rental rates in 2021 as compared
to 2020. The lower rental rates were primarily related to business mix,
with more general purpose equipment on rent compared to the prior year.
• Gross Profit on Sales - Sales revenues decreased
to
50% in 2020. Sales occur as a normal part of TRS-RenTelco's rental
business; however, these sales and related gross margins can fluctuate
from quarter to quarter depending on customer requirements and related mix
of equipment sold, equipment availability and funding.
For the six months ended
33
--------------------------------------------------------------------------------For the six months endedJune 30, 2021 ,Adler Tanks' total revenues decreased$1.7 million , or 4%, to$37.7 million compared to the same period in 2020, primarily due to lower rental, rental related services revenues, partly offset by higher sales revenues. Lower gross profit on rental and rental related services revenues, partly offset by lower selling and administrative expenses and higher gross profit on sales, resulted in a$1.6 million , or 51%, decrease in pre-tax income to$1.6 million for the six months endedJune 30, 2021 , compared to the same period in 2020.
The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.
Six Months Ended
(dollar amounts in thousands) June 30, Increase (Decrease)
2021 2020 $ %
Revenues
Rental $ 25,637 $ 27,549 $ (1,912 ) (7 )%
Rental related services 10,649 10,883 (234 ) (2 )%
Rental operations 36,286 38,432 (2,146 ) (6 )%
Sales 1,201 730 471 65 %
Other 181 160 21 13 %
Total revenues 37,668 39,322 (1,654 ) (4 )%
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment 8,243 8,233 10 0 %
Rental related services 8,606 8,282 324 4 %
Other 4,957 4,683 274 6 %Total direct costs of rental operations 21,806 21,198
608 3 %
Costs of sales 843 548 295 54 %
Total costs of revenues 22,649 21,746 903 4 %
Gross Profit
Rental 12,437 14,633 (2,196 ) (15 )%
Rental related services 2,043 2,601 (558 ) (21 )%
Rental operations 14,480 17,234 (2,754 ) (16 )%
Sales 358 182 176 97 %
Other 181 160 21 13 %
Total gross profit 15,019 17,576 (2,557 ) (15 )%
Selling and administrative expenses 12,520 13,177 (657 ) (5 )%
Income from operations 2,499 4,399 (1,900 ) (43 )%
Interest expense allocation (922 ) (1,179 ) (257 ) (22 )%
Pre-tax income $ 1,577 $ 3,220 $ (1,643 ) (51 )%
Other Selected Information
Average rental equipment 1 $ 313,498 $ 314,823 $ (1,325 ) (0 )%
Average rental equipment on rent $ 131,578 $ 144,512 $ (12,934 ) (9 )%
Average monthly total yield 2 1.36 % 1.46 % (7 )%
Average utilization 3 42.1 % 45.9 % (8 )%
Average monthly rental rate 4 3.24 % 3.18 % 2 %
Period end rental equipment 1 $ 312,713 $ 314,905 $ (2,192 ) (1 )%
Period end utilization 3 45.8 % 43.1 % 6 %
1. Average and Period end rental equipment represents the cost of rental
equipment, excluding new equipment inventory and accessory equipment.
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. Period end utilization is calculated by dividing the cost of rental equipment
on rent by the total cost of rental equipment, excluding new equipment
inventory and accessory equipment. Average utilization for the period is
calculated using the average month end 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.
34
--------------------------------------------------------------------------------
• Gross Profit on Rental Revenues - Rental revenues decreased
or 7%, due to 9% lower average rental equipment on rent, partly offset by
2% higher average monthly rental rates in 2021 compared to 2020. Weaker
business activity levels in multiple geographic and market segments
resulted in decreased rental revenues compared to 2020, with some
improvement experienced during the second quarter of 2021. As a percentage
of rental revenues, depreciation was 32% in 2021 and 30% in 2020, and
other direct costs were 19% and 17% in 2021 and 2020, respectively, which
resulted in gross margin percentages of 49% and 53% in 2021 and 2020,respectively. The lower rental revenues and lower rental margins resulted
in a 15% decrease in gross profit on rental revenues to
2021.
• Gross Profit on Rental Related Services - Rental related services revenues
decreased $0.2 million , or 2%, to $10.6 million compared to 2020. Lower
rental related services revenues and lower gross margin percentage of 19%in 2021, compared to 24% in 2020 resulted in rental related services gross
profit decreasing 21% to
For the six months ended
35
--------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's rental businesses are capital intensive and generate significant cash flows. Cash flows for the Company for the six months endedJune 30, 2021 compared to the same period in 2020 are summarized as follows: Cash Flows from Operating Activities: The Company's operations provided net cash of$98.0 million in 2021, compared to$97.5 million in 2020. The 1% increase in net cash provided by operating activities was primarily attributable to an increase in accounts payable and accrued liabilities, deferred income and deferred income taxes, partly offset by increased prepaid and other expenses and lower income from operations in 2021. Cash Flows from Investing Activities: Net cash used in investing activities was$320.8 million in 2021, compared to$42.5 million in 2020. The$278.3 million increase was primarily due to$284.3 million cash paid for acquisition of businesses during 2021. Cash Flows from Financing Activities: Net cash provided by financing activities was$224.1 million in 2021, compared to cash used in financing activities of$56.7 million in 2020. The$280.7 million change was due to$211.3 million higher net borrowing under bank lines of credit to fund the Design Space and Kitchens To Go acquisitions,$60 million borrowing under private placement and$13.5 million lower repurchase of common stock in 2021. Significant capital expenditures are required to maintain and grow the Company's rental assets. During the last three years, the Company has financed its working capital and capital expenditure requirements through cash flow from operations, proceeds from the sale of rental equipment and from borrowings. Sales occur routinely as a normal part of the Company's rental business. However, these sales can fluctuate from period to period depending on customer requirements and funding. Although the net proceeds received from sales may fluctuate from period to period, the Company believes its liquidity will not be adversely impacted from lower sales in any given year because it believes it has the ability to increase its bank borrowings and conserve its cash in the future by reducing the amount of cash it uses to purchase rental equipment, pay dividends, or repurchase the Company's common stock.
Unsecured Revolving Lines of Credit
OnMarch 31, 2020 , the Company entered into an amended and restated credit agreement withBank of America, N.A ., as Administrative Agent, SwingLine Lender , L/C Issuer and lender, and other lenders named therein (the "Credit Facility"). The Credit Facility provides for a$420.0 million unsecured revolving credit facility (which may be further increased to$670.0 million by adding one or more tranches of term loans and/or increasing the aggregate revolving commitments), which includes a$25.0 million sublimit for the issuance of standby letters of credit and a$10.0 million sublimit for swingline loans. The proceeds of the Credit Facility are available to be used for general corporate purposes, including permitted acquisitions. The Credit Facility permits the Company's existing indebtedness to remain, which includes the Company's$12.0 million Treasury Sweep Note dueMarch 31, 2025 , the Company's existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement withPrudential Investment Management, Inc. , dated as ofApril 21, 2011 (as amended, the "the Prior NPA"): (i) the$40.0 million aggregate outstanding principal of notes issuedMarch 17, 2014 which were repaid onMarch 17, 2021 , and (ii) the$60.0 million aggregate outstanding principal of notes issuedNovember 5, 2015 and dueNovember 5, 2022 . In addition, the Company may incur additional senior note indebtedness in an aggregate amount not to exceed$250.0 million . The Credit Facility matures onMarch 31, 2025 and replaced the Company's prior$420.0 million credit facility datedMarch 31, 2016 withBank of America, N.A ., as agent, as amended. All obligations outstanding under the prior credit facility as of the date of the Credit Facility were refinanced by the Credit Facility onMarch 31, 2020 . OnMarch 30, 2020 , the Company entered into an amended and restated Credit Facility Letter Agreement and a CreditLine Note in favor ofMUFG Union Bank, N.A. , which provides for a$12.0 million line of credit facility related to its cash management services ("Sweep Service Facility"). The Sweep Service Facility matures on the earlier ofMarch 31, 2025 , or the date the Company ceases to utilizeMUFG Union Bank, N.A. for its cash management services. The Sweep Service Facility replaced the Company's prior$12.0 million sweep service facility, dated as ofMarch 31, 2016 . AtJune 30, 2021 , under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to$432.0 million of which$312.7 million was outstanding, and had capacity to borrow up to an additional$119.3 million . The Credit Facility contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Credit Facility):
• Permit the Consolidated Fixed Charge Coverage Ratio as of the end of any
fiscal quarter to be less than 2.50 to 1. At
ratio was 4.23 to 1.
• Permit the Consolidated Leverage Ratio at any time during any period of
four consecutive fiscal quarters to be greater than 2.75 to 1. At
2021, the actual ratio was 2.01 to 1.
36
-------------------------------------------------------------------------------- AtJune 30, 2021 , the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impact the Company's ability to comply with these covenants.
Note Purchase and Private Shelf Agreement
OnMarch 31, 2020 , the Company entered into an Amended and Restated Note Purchase and Private Shelf Agreement (the "Note Purchase Agreement") withPGIM, Inc. ("PGIM") and the holders of Series B and Series C Notes previously issued pursuant to the Prior NPA, among the Company and the other parties to the Note Purchase Agreement. The Note Purchase Agreement amended and restated, and superseded in its entirety, the Prior NPA. Pursuant to the Prior NPA, the Company issued (i)$40.0 million aggregate principal amount of its 3.68% Series B Senior Notes, which were repaid onMarch 17, 2021 , and (ii)$60.0 million aggregate principal amount of its 3.84% Series C Senior Notes dueNovember 5, 2022 , to which the terms of the Note Purchase Agreement shall apply. In addition, pursuant to the Note Purchase Agreement, the Company may authorize the issuance and sale of additional senior notes (the "Shelf Notes") in the aggregate principal amount of (x)$250 million minus (y) the amount of other notes (such as the Series C Senior Notes, Series D Senior Notes and Series E Senior Notes, each defined below) then outstanding, to be dated the date of issuance thereof, to mature, in case of each Shelf Note so issued, no more than 15 years after the date of original issuance thereof, to have an average life, in the case of each Shelf Note so issued, of no more than 15 years after the date of original issuance thereof, to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf Note so issued, in accordance with the Note Purchase Agreement. Shelf Notes may be issued and sold from time to time at the discretion of the Company's Board of Directors and in such amounts as the Board of Directors may determine, subject to prospective purchasers' agreement to purchase the Shelf Notes. The Company will sell the Shelf Notes directly to such purchasers. The full net proceeds of each Shelf Note will be used in the manner described in the applicable Request for Purchase with respect to such Shelf Note.
3.84% Senior Notes Due in 2022
OnNovember 5, 2015 , the Company issued and sold to the purchaser a$60.0 million aggregate principal amount of its 3.84% Series C Senior Notes (the "Series C Senior Notes") pursuant to the terms of the Prior NPA. The Series C Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 3.84% per annum and mature onNovember 5, 2022 . Interest on the Series C Senior Notes is payable semi-annually beginning onMay 5, 2016 and continuing thereafter onNovember 5 andMay 5 of each year until maturity. The principal balance is due when the notes mature onNovember 5, 2022 . The full net proceeds from the Series C Senior Notes were used to reduce the outstanding balance on the Company's revolving credit line. AtJune 30, 2021 , the principal balance outstanding under the Series C Senior Notes was$60.0 million .
2.57% Senior Notes Due in 2028
OnMarch 17, 2021 , the Company issued and sold toPrudential Retirement Insurance and Annuity Company ,The Prudential Insurance Company of America andThe Prudential Insurance Company of America (collectively, the "Purchasers")$40 million aggregate principal amount of 2.57% Series D Notes (the "Series D Senior Notes") pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, datedMarch 31, 2020 (the "Note Purchase Agreement"), among the Company,PGIM, Inc. and the noteholders party thereto. The Series D Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.57% per annum and mature onMarch 17, 2028 . Interest on the Series D Senior Notes is payable semi-annually beginning onSeptember 17, 2021 and continuing thereafter onMarch 17 andSeptember 17 of each year until maturity. The principal balance is due when the notes mature onMarch 17, 2028 . The full net proceeds from the Series D Senior Notes were used to pay off the Company's$40 million Series B Senior Notes. AtJune 30, 2021 , the principal balance outstanding under the Series D Senior Notes was$40.0 million .
2.35% Senior Notes Due in 2026
OnJune 16, 2021 , the Company issued and sold toPrudential Retirement Insurance and Annuity Company ,The Prudential Insurance Company of America andThe Prudential Insurance Company of America (collectively, the "Purchasers")$60 million aggregate principal amount of 2.35% Series E Notes (the "Series E Notes") pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, datedMarch 31, 2020 (the "Note Purchase Agreement"), among the Company,PGIM, Inc. and the noteholders party thereto. The Series E Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.35% per annum and mature onJune 16, 2026 . Interest on the Series E Senior Notes is payable semi-annually beginning onDecember 16, 2021 and continuing thereafter onJune 16 andDecember 16 of each year until maturity. The principal balance is due when the notes mature onJune 16, 2026 . The full net proceeds from the Series E Senior Notes were used to pay down the Company's credit facility. AtJune 30, 2021 , the principal balance outstanding under the Series E Senior Notes was$60.0 million . 37 -------------------------------------------------------------------------------- Among other restrictions, the Note Purchase Agreement, which has superseded in its entirety the Prior NPA, under which the Series C Senior Notes, Series D Senior Notes and Series E Senior Notes were sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Note Purchase Agreement): • Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1. AtJune 30, 2021 , the actual ratio was 4.23 to 1.
• Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any
time during any period of four consecutive quarters to be greater than
2.75 to 1. At June 30, 2021 , the actual ratio was 2.01 to 1.
At June 30, 2021 , the Company was in compliance with each of the aforementioned
covenants. There are no anticipated trends that the Company is aware of that
would indicate non-compliance with these covenants, although significant
deterioration in our financial performance could impact the Company's ability to
comply with these covenants.
Although no assurance can be given, the Company believes it will continue to be
able to negotiate general bank lines of credit and issue senior notes adequate
to meet capital requirements not otherwise met by operational cash flows and
proceeds from sales of rental equipment. Furthermore, the Company believes it
has the financial resources to weather any short-term impacts of COVID-19.
However, the Company has limited insight into the extent to which its business
may be impacted by COVID-19, and there are many uncertainties, including how
long and how severely the Company will be impacted. An extended and severe
impact may materially and adversely affect the Company's future operations,
financial position and liquidity.
Common Stock Purchase
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. InAugust 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 in the six months endedJune 30, 2021 . There were 279,866 shares of common stock repurchased during the six months ended June, 2020 for the aggregate purchase price of$13.5 million or an average price of$48.24 per repurchased share. As ofJune 30, 2021 , 1,309,805 shares remained authorized for repurchase under the Repurchase Plan. Contractual Obligations
We believe that our contractual obligations have not changed materially from those included in our 2020 Annual Report.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of
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