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McGrath RentCorp Announces Results for Second Quarter 2017

LIVERMORE, Calif., Aug. 02, 2017 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ:MGRC) (the “Company”), a diversified business to business rental company, today announced total revenues for the quarter ended June 30, 2017 of $109.6 million, an increase of 6%, compared to the second quarter of 2016. The Company reported net income of $11.5 million, or $0.48 per diluted share for the second quarter of 2017, compared to net income of $9.1 million, or $0.38 per diluted share, in the second quarter of 2016.

SECOND QUARTER 2017 COMPANY HIGHLIGHTS:

  • Income from operations increased 21% year-over-year to $21.8 million.
  • Rental revenues increased 5% year-over-year to $70.0 million.
  • Adjusted EBITDA1 increased 7% million to $41.9 million for the second quarter of 2017.
  • Dividend rate increased 2% year-over-year to $0.26 per share for the second quarter of 2017. On an annualized basis, this dividend represents a 2.8% yield on the August 1, 2017 close price of $36.54 per share.

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

“We were pleased with our second quarter performance. Mobile Modular accounted for the majority of the Company’s 21% operating profit increase compared to a year ago, as a result of higher gross profit from rental operations and higher sales gross profit. TRS-RenTelco also achieved operating profit growth through effective management of depreciation expense, while the contribution from Adler Tank Rentals was down slightly compared to a year ago.

Mobile Modular rental revenues for the quarter increased 11% from a year ago as rental rates, fleet utilization and equipment on rent all increased. Rental revenue growth continued to be healthy across commercial and education markets, as well as in our Portable Storage business.

TRS-RenTelco rental revenues for the quarter declined 2% as a result of lower communications test equipment business activity. Communications test equipment rental revenues declined by 9%, but were partly offset by a 5% increase for general-purpose test equipment. While average equipment utilization increased, average rental rates declined for the quarter, primarily due to the business activity mix shift from communications to general-purpose test equipment.

Adler Tank Rentals rental revenues for the quarter increased 2% from a year ago. Upstream oil and natural gas rental revenue declined from 11% to 9% of total Adler rental revenues, but was more than offset by growth in other market verticals. Average equipment on rent increased 10% to $167 million from $152 million a year ago and average utilization improved, although rental rates declined as a result of competitive price pressure and product mix shifts.

Our second quarter results are beginning to reflect some impact from initiatives that we have launched through our return on invested capital (or ROIC) work, particularly for Mobile Modular. We are also maintaining discipline on new rental equipment capital spending while selectively selling some non-core equipment.

While end market conditions remain challenging for Adler Tank Rentals, and to a lesser extent TRS-RenTelco, we are encouraged by our second quarter and year to date results. Based on these results and our current outlook for the second half of the year we are raising our financial outlook and expect 2017 total Company operating profit to increase 9% to 12% above 2016, compared to our prior expectation of a 3% to 5% increase.”

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

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended June 30, 2017 to the quarter ended June 30, 2016 unless otherwise indicated.

MOBILE MODULAR

For the second quarter of 2017, the Company’s Mobile Modular division reported income from operations of $11.3 million, an increase of $3.0 million, or 36%. Rental revenues increased 11% to $35.0 million, depreciation expense increased 2% to $5.3 million and other direct costs decreased 9% to $10.2 million, which resulted in an increase in gross profit on rental revenues of 28% to $19.5 million. Rental related services revenues decreased 1% to $12.0 million, with associated gross profit decreasing 20% to $3.0 million. Sales revenues increased 64% to $9.5 million and gross margin on sales of 26% was comparable to 2016, resulting in increased gross profit on sales revenues of $1.0 million. Selling and administrative expenses increased 12% to $13.8 million, primarily due to increased salaries and employee benefit costs and higher allocated corporate expenses.

TRS-RENTELCO

For the second quarter of 2017, the Company’s TRS-RenTelco division reported income from operations of $7.1 million, an increase of $1.1 million, or 19%. Rental revenues decreased 2% to $19.8 million, depreciation expense decreased 11% to $8.0 million and other direct costs decreased 2% to $3.3 million, which resulted in an increase in gross profit on rental revenues of 8% to $8.6 million. Sales revenues decreased 13% to $5.6 million. Gross margin on sales increased to 61% from 47% in 2016 primarily due to higher margins on used equipment sales, resulting in a 13% increase in gross profit on sales revenues to $3.4 million. Selling and administrative expenses decreased 4% to $5.3 million, primarily due to lower allocated corporate expenses.

ADLER TANKS

For the second quarter of 2017, the Company’s Adler Tanks division reported income from operations of $3.0 million, a decrease of $0.2 million, or 7%. Rental revenues increased 2% to $15.1 million, depreciation expense decreased 2% to $3.9 million and other direct costs increased 17% to $2.5 million, which together resulted in a comparable gross profit on rental revenues of $8.7 million. Rental related services revenues decreased 4% to $6.2 million, with gross profit on rental related services increasing 1% to $1.5 million. Selling and administrative expenses increased 5% to $7.3 million, primarily due to increased salaries and benefit costs.

FINANCIAL OUTLOOK:

Based upon the Company’s year to date results and current outlook for the second half of the year, the Company is raising its financial outlook and expects 2017 total Company operating profit to increase 9% to 12% above 2016, compared to our prior expectation of a 3% to 5% increase.

ABOUT MCGRATH RENTCORP:

Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company with four rental divisions. Mobile Modular rents and sells modular buildings to fulfill customers' temporary and permanent classroom and office space needs in California, Texas, Florida, and the Mid-Atlantic from Washington D.C. to Georgia. TRS-RenTelco rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations serving key markets throughout the United States. Mobile Modular Portable Storage provides portable storage solutions in the California, Texas, Florida, Northern Illinois, New Jersey, North Carolina and Georgia markets. 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 July 6, 2017, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on August 2, 2017 to discuss the second quarter 2017 results. To participate in the teleconference, dial 1-844-707-0666 (in the U.S.), or 1-703-639-1220 (outside the U.S.), or to listen only, access the simultaneous webcast at the investor relations section of the Company’s website at www.mgrc.com. A 7-day replay will be available following the call by dialing 1-855-859-2056 (in the U.S.), or 1-404-537-3406 (outside the U.S.). The pass code for the call replay is 51612343. 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 http://mgrc.com/Investor/EventsAndArchive

FORWARD-LOOKING STATEMENTS:

Statements in this press release which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, regarding McGrath RentCorp’s business strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives are forward looking statements. These forward-looking statements appear in a number of places and can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “hopes,” “goals” or “certain” or the negative of these terms or other variations or comparable terminology. In particular, the full year 2017 operating profit outlook in the CEO comments and “Financial Outlook” sections are forward-looking.

Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements including, without limitation, the following: the extent of and timetable for the recovery underway in our modular building division; the continued recovery of the California market; the impact of the bond initiative passed in California on the modular building division; the state of the wireless communications network upgrade environment; the utilization levels of our Adler Tanks liquid and sold containment tank and box rental assets; the potential for continuing softness in communications test equipment rental demand in our electronics division; our customers’ need and ability to rent our products; failure by third parties to manufacture and deliver our products in a timely manner and to our specifications; our ability to successfully integrate and operate acquisitions, as well as manage expansions; our ability to effectively manage our rental assets; the risk that we may be subject to litigation under environmental, health and safety and product liability laws and claims from employees, vendors and other third parties; effect on our businesses from reductions to the price of oil or gas or the volatility of the oil industry generally; new or modified statutory or regulatory requirements; success of our strategic growth initiatives; risks associated with doing business with government entities; seasonality of our businesses; intense industry competition including increasing price pressure; our ability to timely deliver, install and redeploy our rental products; significant increases in raw materials, labor, and other costs; and risks associated with operating internationally.

Our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth above, those discussed in Part II—Item 1A “Risk Factors” and elsewhere in our Form 10-K for the year ended December 31, 2016, and those that may be identified from time to time in our reports and registration statements filed with the SEC. Forward-looking statements are made only as of the date of this press release and are based on management’s reasonable assumptions; however, these assumptions can be wrong or affected by known or unknown risks and uncertainties. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. Except as otherwise required by law, we do not undertake any duty to update any of the forward-looking statements after the date of this press release to conform such statements to actual results or to changes in our expectations.

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands, except per share amounts)2017
2016
2017
2016
Revenues
Rental$69,953 $66,747 $137,931 $133,279
Rental related services 18,796 19,315 36,731 36,906
Rental operations 88,749 86,062 174,662 170,185
Sales 20,187 16,396 28,482 25,430
Other 646 647 1,275 1,189
Total revenues 109,582 103,105 204,419 196,804
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment 17,242 18,231 34,621 36,771
Rental related services 14,312 14,677 28,145 28,402
Other 16,039 16,020 31,398 31,302
Total direct costs of rental operations 47,593 48,928 94,164 96,475
Costs of sales 12,778 10,421 17,374 15,918
Total costs of revenues 60,371 59,349 111,538 112,393
Gross profit 49,211 43,756 92,881 84,411
Selling and administrative expenses 27,365 25,683 55,213 52,080
Income from operations 21,846 18,073 37,668 32,331
Other income (expense):
Interest expense (2,949) (2,990) (5,738) (6,546)
Foreign currency exchange gain (loss) 11 (77) 237 74
Income before provision for income taxes 18,908 15,006 32,167 25,859
Provision for income taxes 7,447 5,927 12,733 10,214
Net income$11,461 $9,079 $19,434 $15,645
Earnings per share:
Basic$0.48 $0.38 $0.81 $0.66
Diluted$0.48 $0.38 $0.80 $0.65
Shares used in per share calculation:
Basic 23,985 23,900 23,968 23,881
Diluted 24,092 23,949 24,164 23,931
Cash dividends declared per share$0.260 $0.255 $0.520 $0.510


MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30,
December 31,
(in thousands) 2017 2016
Assets
Cash $1,871 $852
Accounts receivable, net of allowance for doubtful accounts of $1,987 in 2017
and $2,087 in 2016
96,539 96,877
Rental equipment, at cost:
Relocatable modular buildings 782,503 769,190
Electronic test equipment 249,935 246,325
Liquid and solid containment tanks and boxes 309,784 308,542
1,342,222 1,324,057
Less accumulated depreciation (479,015) (467,686)
Rental equipment, net 863,207 856,371
Property, plant and equipment, net 118,117 112,190
Prepaid expenses and other assets 34,422 25,583
Intangible assets, net 8,159 8,595
Goodwill 27,808 27,808
Total assets $1,150,123 $1,128,276
Liabilities and Shareholders' Equity
Liabilities:
Notes payable $330,287 $326,266
Accounts payable and accrued liabilities 82,332 78,205
Deferred income 42,533 37,499
Deferred income taxes, net 292,606 292,019
Total liabilities 747,758 733,989
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 23,992 shares as of June 30, 2017 and 23,948
shares as of December 31, 2016
103,040 101,821
Retained earnings 299,452 292,521
Accumulated other comprehensive loss (127) (55)
Total shareholders’ equity 402,365 394,287
Total liabilities and shareholders’ equity $1,150,123 $1,128,276


MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
(in thousands) 2017 2016
Cash Flows from Operating Activities :
Net income $19,434 $15,645
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 38,752 41,417
Provision for doubtful accounts 597 987
Share-based compensation 1,538 1,586
Gain on sale of used rental equipment (7,914) (6,282)
Foreign currency exchange gain (237) (74)
Amortization of debt issuance costs 25 26
Change in:
Accounts receivable (259) (1,584)
Income taxes receivable 11,000
Prepaid expenses and other assets (8,839) (2,863)
Accounts payable and accrued liabilities 680 4,361
Deferred income 5,034 2,061
Deferred income taxes 587 6,105
Net cash provided by operating activities 49,398 72,385
Cash Flows from Investing Activities:
Purchases of rental equipment (46,118) (45,715)
Purchases of property, plant and equipment (9,623) (8,698)
Proceeds from sales of used rental equipment 16,057 13,059
Net cash used in investing activities (39,684) (41,354)
Cash Flows from Financing Activities:
Net borrowings under bank lines of credit 23,996 1,814
Principal payments on Series A senior notes (20,000) (20,000)
Proceeds from the exercise of stock options 37
Taxes paid related to net share settlement of stock awards (319) (486)
Payment of dividends (12,390) (12,253)
Net cash used in financing activities (8,713) (30,888)
Effect of foreign currency exchange rate changes on cash 18 (8)
Net increase in cash 1,019 135
Cash balance, beginning of period 852 1,103
Cash balance, end of period $1,871 $1,238
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period $5,817 $6,646
Net income taxes paid, during the period $18,141 $5,679
Dividends accrued during the period, not yet paid $6,214 $6,135
Rental equipment acquisitions, not yet paid $6,359 $3,935


MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended June 30, 2017
(dollar amounts in thousands) Mobile
Modular
TRS-
RenTelco
Adler Tanks Enviroplex Consolidated
Revenues
Rental $35,030 $19,805 $15,118 $ $69,953
Rental related services 11,966 654 6,176 18,796
Rental operations 46,996 20,459 21,294 88,749
Sales 9,504 5,605 926 4,152 20,187
Other 138 475 33 646
Total revenues 56,638 26,539 22,253 4,152 109,582
Costs and Expenses
Direct costs of rental operations:
Depreciation 5,333 7,980 3,929 17,242
Rental related services 8,930 657 4,725 14,312
Other 10,247 3,272 2,520 16,039
Total direct costs of rental operations 24,510 11,909 11,174 47,593
Costs of sales 6,994 2,176 802 2,806 12,778
Total costs of revenues 31,504 14,085 11,976 2,806 60,371
Gross Profit (Loss)
Rental 19,451 8,553 8,669 36,673
Rental related services 3,036 (3) 1,450 4,483
Rental operations 22,487 8,550 10,119 41,156
Sales 2,509 3,429 125 1,346 7,409
Other 138 475 33 646
Total gross profit 25,134 12,454 10,277 1,346 49,211
Selling and administrative expenses 13,817 5,330 7,261 957 27,365
Income from operations $11,317 $7,124 $3,016 $389 21,846
Interest expense (2,949)
Foreign currency exchange gain 11
Provision for income taxes (7,447)
Net income $11,461
Other Information
Average rental equipment 1 $746,358 $248,117 $307,263
Average monthly total yield 2 1.56% 2.66% 1.64%
Average utilization 3 76.5% 62.4% 54.4%
Average monthly rental rate 4 2.05% 4.27% 3.01%

  1. Average rental equipment represents the cost of rental equipment excluding accessory equipment. For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.
  2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
  3. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
  4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.


MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended June 30, 2016
(dollar amounts in thousands) Mobile
Modular
TRS-
RenTelco
Adler Tanks Enviroplex Consolidated
Revenues
Rental $31,637 $20,269 $14,841 $ $66,747
Rental related services 12,132 717 6,466 19,315
Rental operations 43,769 20,986 21,307 86,062
Sales 5,785 6,428 184 3,999 16,396
Other 125 494 28 647
Total revenues 49,679 27,908 21,519 3,999 103,105
Costs and Expenses
Direct costs of rental operations:
Depreciation 5,221 8,998 4,012 18,231
Rental related services 9,024 629 5,024 14,677
Other 10,536 3,337 2,147 16,020
Total direct costs of rental operations 24,781 12,964 11,183 48,928
Costs of sales 4,264 3,402 201 2,554 10,421
Total costs of revenues 29,045 16,366 11,384 2,554 59,349
Gross Profit (Loss)
Rental 15,881 7,933 8,682 32,496
Rental related services 3,108 88 1,442 4,638
Rental operations 18,989 8,021 10,124 37,134
Sales 1,520 3,027 (17) 1,445 5,975
Other 125 494 28 647
Total gross profit 20,634 11,542 10,135 1,445 43,756
Selling and administrative expenses 12,336 5,546 6,893 908 25,683
Income from operations $8,298 $5,996 $3,242 $537 18,073
Interest expense (2,990)
Foreign currency exchange loss (77)
Provision for income taxes (5,927)
Net income $9,079
Other Information
Average rental equipment 1 $717,755 $254,970 $307,868
Average monthly total yield 2 1.47% 2.65% 1.61%
Average utilization 3 75.8% 59.5% 49.4%
Average monthly rental rate 4 1.94% 4.45% 3.25%

  1. Average rental equipment represents the cost of rental equipment excluding accessory equipment. For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.
  2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
  3. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
  4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.


MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Six months ended June 30, 2017
(dollar amounts in thousands) Mobile
Modular
TRS-
RenTelco
Adler Tanks Enviroplex Consolidated
Revenues
Rental $68,684 $39,551 $29,696 $ $137,931
Rental related services 23,554 1,312 11,865 36,731
Rental operations 92,238 40,863 41,561 174,662
Sales 12,468 9,988 1,115 4,911 28,482
Other 235 1,002 38 1,275
Total revenues 104,941 51,853 42,714 4,911 204,419
Costs and Expenses
Direct costs of rental operations:
Depreciation 10,666 16,071 7,884 34,621
Rental related services 17,727 1,254 9,164 28,145
Other 19,894 6,605 4,899 31,398
Total direct costs of rental operations 48,287 23,930 21,947 94,164
Costs of sales 9,076 4,076 935 3,287 17,374
Total costs of revenues 57,363 28,006 22,882 3,287 111,538
Gross Profit
Rental 38,125 16,875 16,913 71,913
Rental related services 5,827 58 2,700 8,585
Rental operations 43,952 16,933 19,613 80,498
Sales 3,391 5,912 181 1,624 11,108
Other 235 1,002 38 1,275
Total gross profit 47,578 23,847 19,832 1,624 92,881
Selling and administrative expenses 27,617 11,019 14,528 2,049 55,213
Income (loss) from operations $19,961 $12,828 $5,304 $(425) 37,668
Interest expense (5,738)
Foreign currency exchange gain 237
Provision for income taxes (12,733)
Net income $19,434
Other Information
Average rental equipment 1 $745,508 $247,099 $307,048
Average monthly total yield 2 1.54% 2.67% 1.61%
Average utilization 3 76.7% 62.3% 53.4%
Average monthly rental rate 4 2.00% 4.28% 3.02%

  1. Average rental equipment represents the cost of rental equipment excluding accessory equipment. For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.
  2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
  3. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
  4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.


MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Six months ended June 30, 2016
(dollar amounts in thousands) Mobile
Modular
TRS-
RenTelco
Adler Tanks Enviroplex Consolidated
Revenues
Rental $62,792 $41,197 $29,290 $ $133,279
Rental related services 23,337 1,501 12,068 36,906
Rental operations 86,129 42,698 41,358 170,185
Sales 8,432 12,262 589 4,147 25,430
Other 202 932 55 1,189
Total revenues 94,763 55,892 42,002 4,147 196,804
Costs and Expenses
Direct costs of rental operations:
Depreciation 10,347 18,386 8,038 36,771
Rental related services 17,559 1,265 9,578 28,402
Other 19,552 6,976 4,774 31,302
Total direct costs of rental operations 47,458 26,627 22,390 96,475
Costs of sales 6,018 6,707 535 2,658 15,918
Total costs of revenues 53,476 33,334 22,925 2,658 112,393
Gross Profit
Rental 32,894 15,834 16,478 65,206
Rental related services 5,778 236 2,490 8,504
Rental operations 38,672 16,070 18,968 73,710
Sales 2,413 5,556 54 1,489 9,512
Other 202 932 55 1,189
Total gross profit 41,287 22,558 19,077 1,489 84,411
Selling and administrative expenses 24,798 11,343 14,155 1,784 52,080
Income (loss) from operations $16,489 $11,215 $4,922 $(295) 32,331
Interest expense (6,546)
Foreign currency exchange gain 74
Provision for income taxes (10,214)
Net income $15,645
Other Information
Average rental equipment 1 $713,503 $257,767 $307,752
Average monthly total yield 2 1.47% 2.66% 1.60%
Average utilization 3 76.0% 59.5% 49.7%
Average monthly rental rate 4 1.93% 4.48% 3.19%

  1. Average rental equipment represents the cost of rental equipment excluding accessory equipment. For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.
  2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
  3. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
  4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.


Reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures

To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the 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 the Company’s 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.

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 the SEC, 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

(dollar amounts in thousands) Three Months Ended
June 30,
Six Months Ended
June 30,
Twelve Months Ended
June 30,
2017
2016 2017 2016 2017 2016
Net income $11,461 $9,079 $19,434 $15,645 $42,040 $40,779
Provision for income taxes 7,447 5,927 12,733 10,214 31,199 26,108
Interest 2,949 2,990 5,738 6,546 11,399 11,900
Depreciation and amortization 19,348 20,557 38,752 41,417 78,514 83,526
EBITDA 41,205 38,553 76,657 73,822 163,152 162,313
Share-based compensation 732 730 1,538 1,586 3,043 3,032
Adjusted EBITDA 1 $41,937 $39,283 $78,195 $75,408 $166,195 $165,345
Adjusted EBITDA margin 2 38% 38% 38% 38% 38% 40%


Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(dollar amounts in thousands) Three Months Ended
June 30,
Six Months Ended
June 30,
Twelve Months Ended
June 30,
2017
2016
2017 2016
2017 2016
Adjusted EBITDA 1 $41,937 $39,283 $78,195 $75,408 $166,195 $165,345
Interest paid (3,397) (3,660) (5,817) (6,646) (11,607) (11,791)
Net income taxes paid (12,576) (4,973) (18,141) (5,679) (28,017) (6,687)
Gain on sale of used rental equipment (4,971) (3,316) (7,914) (6,282) (15,371) (12,619)
Foreign currency exchange loss (gain) (11) 77 (237) (74) (42) 161
Amortization of debt financing cost 12 13 25 26 51 51
Change in certain assets and liabilities:
Accounts receivable, net (3,987) (3,977) 338 (597) (925) (2,140)
Income taxes receivable 11,000
Prepaid expenses and other assets (7,303) (4,812) (8,839) (2,863) (4,027) 2,066
Accounts payable and other liabilities 11,218 13,451 6,754 6,031 7,943 9,515
Deferred income 2,646 1,525 5,034 2,061 3,509 8,623
Net cash provided by operating activities $23,568 $33,611 $49,398 $72,385 $117,709 $152,524

  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.
FOR INFORMATION CONTACT: Keith E. Pratt EVP & Chief Financial Officer 925-606-9200

Source:McGrath RentCorp