McGrath RentCorp engages in the provision of diversified business-to-business rental services. It operates through the following segments: Mobile Modular, TRS-RenTelco, Adler Tanks, and Enviroplex. The Mobile Modular segment operates inventory centers, at which relocatable modular buildings and storage containers are displayed, refurbished, and stored. The TRS-RenTelco segment includes electronic test equipment rental and sales operations and provides containment solutions for the storage of hazardous and non-hazardous liquids and solids. The Adler Tanks segment operates from branch offices serving the Northeast, Mid-Atlantic, Midwest, Southeast, Southwest, and West. The Enviroplex segment manufactures modular buildings used primarily as classrooms. The company was founded by Robert P. McGrath in 1979 and is headquartered in Livermore, CA.
Our future operating results may fluctuate, fail to match past performance or fail to meet expectations, which may result in a decrease in our stock price.
Our stock price has fluctuated and may continue to fluctuate in the future, which may result in a decline in the value of your investment in our common stock.
Our ability to retain our executive management and to recruit, retain and motivate key employees is critical to the success of our business.
Failure by third parties to manufacture and deliver our products to our specifications or on a timely basis may harm our reputation and financial condition.
A breach of our information technology systems could subject us to liability, reputational damage or interrupt the operation of our business.
We have engaged in acquisitions and may engage in future acquisitions that could negatively impact our results of operations, financial condition and business.
If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which would negatively impact our operating results.
Our rental equipment is subject to residual value risk upon disposition, and may not sell at the prices or in the quantities we expect.
If we do not effectively manage our credit risk, collect on our accounts receivable or recover our rental equipment from our customers’ sites, it could have a material adverse effect on our operating results.
The nature of our businesses, including the ownership of industrial property, exposes us to the risk of litigation and liability under environmental, health and safety and products liability laws. Violations of environmental or health and safety related laws or associated liability could have a material adverse effect on our business, financial condition and results of operations.
If we suffer loss to our facilities, equipment or distribution system due to catastrophe, our insurance policies could be inadequate or depleted, our operations could be seriously harmed, which could negatively affect our operating results.
Our debt instruments contain covenants that restrict or prohibit our ability to enter into a variety of transactions and may limit our ability to finance future operations or capital needs. If we have an event of default under these instruments, our indebtedness could be accelerated and we may not be able to refinance such indebtedness or make the required accelerated payments.
Our effective tax rate may change and become less predictable as our business expands, making our future earnings less predictable.
Changes in financial accounting standards may cause lower than expected operating results and affect our reported results of operations.
Failure to comply with internal control attestation requirements could lead to loss of public confidence in our financial statements and negatively impact our stock price.
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.
Public policies that create demand for our products and services may change, resulting in decreased demand for or the pricing of our products and services, which could negatively affect our revenues and operating income.
Failure to comply with applicable regulations could harm our business and financial condition, resulting in lower operating results and cash flows.
Expansions of our modular operations into new markets may negatively affect our operating results.
We are subject to laws and regulations governing government contracts. These laws and regulations make these government contracts more favorable to government entities than other third parties and any changes in these laws and regulations, or our failure to comply with these laws and regulations could harm our business.
Seasonality of our educational business may have adverse consequences for our business.
We face strong competition in our modular building markets and we may not be able to effectively compete.
We may not be able to quickly redeploy modular units returning from leases, which could negatively affect our financial performance and our ability to expand, or utilize, our rental fleet.
Failure by third parties to manufacture our products timely or properly may harm our reputation and financial condition.
Failure to properly design, manufacture, repair and maintain the modular product may result in impairment charges, potential litigation and reduction of our operating results and cash flows.
Our warranty costs may increase and warranty claims could damage our reputation and negatively impact our revenues and operating income.
Market risk and cyclical downturns in the industries using test equipment may result in periods of low demand for our product resulting in excess inventory, impairment charges and reduction of our operating results and cash flows.
Seasonality of our electronic test equipment business may impact quarterly results.
Our rental test equipment may become obsolete or may no longer be supported by a manufacturer, which could result in an impairment charge.
If we do not effectively compete in the rental equipment market, our operating results will be materially and adversely affected.
If we are not able to obtain equipment at favorable rates, there could be a material adverse effect on our operating results and reputation.
Unfavorable currency exchange rates may negatively impact our financial results in U.S. dollar terms.
We may be brought into tort or environmental litigation or held responsible for cleanup of spills if the customer fails to perform, or an accident occurs in the use of our rental products, which could materially adversely affect our business, future operating results or financial position.
Market risk, commodity price volatility, regulatory changes or interruptions and cyclical downturns in the industries using tanks and boxes may result in periods of low demand for our products resulting in excess inventory, impairment charges and reduction of our operating results and cash flows.
Changes in regulatory, or governmental, oversight of hydraulic fracturing could materially adversely affect the demand for our rental products and reduce our operating results and cash flows.
Significant increases in raw material, fuel and labor costs could increase our acquisition and operating costs of rental equipment, which would increase operating costs and decrease profitability.
Failure by third parties to manufacture our products timely or properly may harm our ability to meet customer demand and harm our financial condition.
We derive a meaningful amount of our revenue in our liquid and solid containment tank and boxes business from a limited number of customers, the loss of one or more of which could have an adverse effect on our business.
We may not be able to quickly redeploy equipment returning from leases at equivalent prices.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 26, 2019 (the “2018 Annual Report”) 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 2018 Annual Report. In preparing the following MD&A, we presume that readers have access to and have read the MD&A in our 2018 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.